Downsizing in America: Reality, Causes and Consequences
By William J. Baumol, Alan S. Blinder and Edward N. Wolff
What triggered
the wave of corporate downsizing of the 1980s and 1990s, and what were
its results? Much of what we think we know is wrong.
This comprehensive analysis finds that of the large firms that announced
major layoffs, half had increased their workforce by more than 10 percent
three years later, so they didn't downsize at all. Of those that did
downsize (mostly in the manufacturing sector), most were responding
to technological changes that reduced the most efficient operating size
for their products. They laid off their least-skilled workers and hired
ones versed in the new technologies. That meant they held output steady
and raised profits by cutting wage costs. In other areas, employers
in unionized industries downsized in order to eliminate unionized workers.
That's the "dirty little secret" of downsizing - it is profitable
in part because it holds down wages. It transfers income from workers
to owners.
- "Whereas previously at least the larger corporations entered into a kind of paternalistic 'social contract' with their workers-one that involved considerable job security and the sharing of any excess profits-capital has unilaterally broken that contract and demanded more of the spoils for itself." (p.20
- "Labor is thus faced with a Hobbesian choice between lower wages and fewer jobs, the latter being used as a threat to achieve the former." (p. 20)
- More white-collar workers are now experiencing the job instability and lower wages and benefits that have long been the lot of blue-collar workers.
Contrary to widespread assumptions, downsizings generally caused companies'
share prices to fall, not rise, according to the authors' studies. And
manufacturing jobs saw the most downsizing, and it may be permanent,
but meanwhile service sector employment is climbing. The result has
been a labor market of great turbulence and "churning" as
workers move from one kind of job to another.
-----
Edward Wolff (edward.wolff@nyu.edu) is professor of economics at New York University, where he has taught since 1974 and studies productivity growth and income and wealth distribution. He is managing editor of the Review of Income and Wealth, a Senior Scholar at the Levy Economics Institute of Bard College, and a Research Associate at the National Bureau of Economic Research. He is a past president of the Eastern Economics Association and has authored or co-authored seven previous books. He is currently a Visiting Scholar at the Russell Sage Foundation.
