BIS国际清算银行-Bankruptcies-unemployment-and-reallocation-from-Covid-19_9页_650kb

BIS Bulletin Summary: Bankruptcies, Unemployment and Reallocation from Covid-19

Core Content

This BIS Bulletin, authored by Ryan Banerjee, Enisse Kharroubi, and Ulf Lewrick, examines the relationship between bankruptcies, unemployment, and resource reallocation in the context of the Covid-19 pandemic. It highlights how the economic shock caused by the pandemic has led to sectoral reallocations, corporate failures, and job losses, even though the immediate impact of bankruptcies has been mitigated by massive policy support.

Main Points

• Policy Support Has Stabilized the Economy:
  Governments and central banks have implemented extensive fiscal and monetary measures, including loan guarantees, direct equity injections, and central bank asset purchases, which have helped subdue bankruptcies and preserve employment.

• Unemployment and Bankruptcies Are Lagging Behind GDP Declines:
  Bankruptcies and unemployment typically peak one year after the initial GDP shock and remain elevated for at least two more years. This lag is due to the time it takes for firms to fail and for the labor market to adjust.

• Covid-19 Recession is Highly Unbalanced:
  The pandemic has disproportionately affected certain sectors, leading to a highly concentrated wave of bankruptcies. This has a significant negative impact on the labor market, as skill mismatches and sector-specific human capital make reallocation more difficult.

• Bankruptcies Can Drive Renewal:
  Bankruptcies and restructuring mechanisms help displace inefficient firms and allow dynamic young firms to take over. This process is crucial for economic recovery and growth.

• Efficient Bankruptcy Regimes and Flexible Markets Are Key:
  Efficient bankruptcy processes and flexible labor and product markets are essential for accelerating reallocation. Countries with more flexible labor markets tend to have fewer restrictions on collective dismissals, which supports the restructuring process.

• Policy Shift Needed:
  As the structural changes from the pandemic become clearer, policy needs to shift from crisis management to facilitating reallocation. This involves targeted support for viable firms and reducing legal uncertainty for creditors to enable smoother debt restructuring.

Key Information

• Unemployment typically increases three times more if a GDP decline is accompanied by an increase in bankruptcies.
• Bankruptcies in advanced economies (AEs) are expected to rise by about 20% in 2021 compared to 2019 levels.
• Loan impairment charges at major banks have surged to over 8% of equity, reflecting the high credit risk in the current environment.
• Young firms (those under five years old) are more likely to survive and grow in the post-pandemic period, contributing to higher employment growth.
• Zombie firms have become more prevalent since the GFC, reinforcing the need for reallocation.
• Flexible markets help speed up restructuring, while structural rigidities can hinder the exit process and delay recovery.

Resource Reallocation and Its Implications

• Unbalanced recessions (those with concentrated bankruptcies) tend to be deeper and longer, with larger labor market impacts.
• The natural renewal process takes two to three years, during which lacklustre activity persists.
• Efficient reallocation is crucial for post-pandemic growth, but inefficient bankruptcy regimes and rigid labor markets can impede this process.
• Small and medium-sized enterprises (SMEs) are particularly vulnerable to inefficient bankruptcy processes, which can lead to the destruction of firm-specific knowledge.

Policy Implications

• Monetary policy accommodation is likely to remain appropriate for some time to support demand during the protracted period of weak economic activity.
• Debt restructuring and resource reallocation are key challenges for both markets and policymakers.
• Targeted support for viable firms and reforms to bankruptcy regimes are necessary to facilitate efficient reallocation.
• Legal certainty for creditors and regulatory flexibility are important enablers of smooth economic recovery.

Conclusion

The Covid-19 pandemic has created a structural shift in the economy, leading to sectoral reallocation and corporate failures. While policy support has prevented immediate economic collapse, long-term adjustment will depend on efficient bankruptcy processes and flexible labor and product markets. Policymakers must now focus on facilitating reallocation and supporting growth in the post-pandemic world.

References

• Banerjee, R, G Cornelli and E Zakrajšek (2020): "The outlook for business bankruptcies", BIS Bulletin, no 30, October.
• Banerjee, R and B Hofmann (2018): "The rise of zombie firms: causes and consequences", BIS Quarterly Review, September, pp 67-78.
• Borio, C, B Vale and G von Peter (2010): "Resolving the financial crisis: are we heeding the lessons from the Nordics", BIS Working Papers, no 311, June.
• Guerrieri, V, G Lorenzoni, L Straub and I Werning (2020): "Macroeconomic implications of COVID-19: can negative supply shocks cause demand shortages?", NBER Working Papers, no 26918, April.
• Skeel, D (2020): "Bankruptcy and the coronavirus", Brookings Report, Brooking Center on Regulation and Markets.
• BIS (2013): "Removing the roadblocks to growth", 83rd Annual Report, June.
• Lewrick, U, C Schmieder, J Sobrun and E Takáts (2020): "Releasing bank buffer to cushion the crisis – a quantitative assessment", BIS Bulletin, no 11, May.