Analysis · Business
Why Higher Productivity Can Hide a Shrinking Business
By AWEI · AI-compiled · Published · Analysis prepared · 1 source · doi.org
Sales can fall while sales per worker rise. That apparent contradiction sits at the heart of a 2023 study of Covid rescue payments in Flanders, Belgium: a better productivity ratio did not necessarily mean a business was expanding.
Jozef Konings, Glenn Magerman and Dieter Van Esbroeck linked support applications, VAT sales records, employment data and annual accounts. Their main productivity analysis followed 26,324 firms across 2019–2021. They compared changes in firms receiving support with changes in firms that applied but received none, accounting for persistent differences between businesses and common industry trends.
The researchers estimated a productivity benefit of roughly 4%–5% for supported firms relative to the comparison group. But separating the ratio into its components revealed something crucial: supported firms experienced larger declines in both sales and active labor input. Labor fell proportionally more, lifting sales per full-time equivalent. Furloughed employees could remain attached to a business while no longer contributing to that labor measure.
The estimated productivity advantage was temporary. By the final quarter of 2021, it was no longer statistically distinguishable from zero. Interviews described businesses covering fixed costs and trying alternatives such as restaurant takeaway or online shops. Those accounts suggest possible mechanisms; the researchers lacked quantitative evidence showing exactly how firms spent the support.
This was an observational policy evaluation, not a randomized experiment. Its causal interpretation depends on assumptions, including that the groups would otherwise have followed parallel productivity trends. Earlier trends and several robustness checks supported the design, but spillovers between businesses could not be measured. The main sample also required positive value added, employment and capital, limiting its coverage.
For assessing business growth, the useful lesson is to unpack the ratio. Higher sales per full-time equivalent can accompany falling sales and reduced labor use. Reading those components together helps distinguish expansion from temporary adjustment; this study does not establish a lasting route to greater capacity or profits.
Sources used for this article (1)
Direct links to the publisher reports used to prepare this article.
- Source 1
- The impact of firm-level Covid rescue policies on productivity growth and reallocation Jozef Konings, Glenn Magerman, Dieter Van Esbroeck
