Working Paper: NBER ID: w7742
Authors: Peter Cappelli
Abstract: The interest in examining job security and job stability has been driven in part by the phenomenon of downsizing. The distinctiveness of downsizing, as opposed to more traditional layoffs, is that the job cuts do not necessarily appear to be driven by shortfalls in demand but instead appear to be driven by the search for operating efficiencies. Despite the interest in downsizing, there has been essentially no serious investigation into its causes. I distinguish downsizing from job cuts associated with shortfalls in demand and find that employment and management practices over which employers have control, such as severance pay and profit sharing, are important predictors of subsequent downsizing and more general job losses. Surprisingly, excess operating capacity is not necessarily related to more general job losses at the establishment level. I also examine the relationship between both job losses associated with shortfalls in demand and downsizing and subsequent financial performance. The results suggest, among other things, that downsizing reduces labor costs per employee but also sales per employee. Job cuts associated with excess capacity appear to be somewhat more successful at improving sales per employee than is downsizing.
Keywords: No keywords provided
JEL Codes: J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| severance pay (J65) | downsizing (L25) |
| profit sharing (D33) | downsizing (L25) |
| downsizing (L25) | reduced labor costs per employee (J39) |
| downsizing (L25) | decrease in sales per employee (M51) |
| excess capacity job cuts (D25) | better outcomes in terms of sales per employee (L25) |