Moving From Lower-Productivity to Higher-Productivity Companies Might Not Be the Norm

The theory that people usually move from lower-productivity to higher-productivity companies might not be true at all. There’s significant data to prove it. According to traditional literature, economists have considered that when people make big changes in their jobs such as changing jobs, reentering the workforce, switching fields, starting their own businesses, etc, they follow a pattern and move from lower-productivity companies to higher-productivity businesses.

These lower-productivity companies are those that eventually shrink and go out of business, while the higher-productivity businesses are those that grow exponentially over time. But recent research according to the Central Bank of Chile’s Elías Albagli, Mario Canales, Matías Tapia, and Juan Wlasiuk and Chicago Booth’s Chad Syverson says otherwise.

The research team conducted an analysis of the labor market in Chile to find that the number of people who moved from lower-productivity to higher-productivity companies only marginally outnumbered the opposite flow of the job market.