Downsizing refers to the reduction of employees in a business enterprise for economic or business reasons. In contrast to being fired, to be downsized is usually not strictly related to personal performance but rather to economic cycles or a company's need to restructure itself. Eliminating a downsized employee's job and not refilling it occurs because the company wishes to reduce its size or operations, not because the employee failed to perform. Downsizing is a permanent or large-scale workforce reduction and is distinguished from a layoff, which typically is a more individualized or temporary job loss. A "mass layoff" implies laying off a large number of workers and is similar to downsizing. A plant closing or relocation, in contrast to downsizing with the elimination of some positions and the retention of others, occurs when the entire workforce, at least at a particular location, is eliminated.

Industrial "restructuring," that is, job churning rather than net job reductions, or change in composition rather than change in size, is what occurs in many circumstances broadly termed downsizing. In fact, while the manufacturing industry has experienced significant downsizing, nonmanufacturing industries, even in the midst of large-scale downsizing, have experienced significant "upsizing" in terms of actual net company size. Nevertheless, both downsizing and restructuring entail individual job termination. Downsizing is one cause of worker displacement, a comprehensive term that refers to all forms of involuntary job loss that result from economic and business conditions largely beyond the control of the individual worker, including downsizing and restructuring, layoffs, and closing or relocating plants.

Rightsizing is downsizing accompanied by the firm belief that a given enterprise should operate with fewer people. Some contention exists that downsizing has become too closely associated with the process of organizational decline and that downsizing can be a purposive strategy, undertaken and designed to improve organizational efficiency, productivity, and competitiveness. Downsizing thus defined falls into the category of management tools for achieving desired change, like rightsizing or "reengineering."

The narrowest definitions of worker displacement include the points that (a) the workers have been displaced as the result of a structural cause, including but not limited to international trade, technology, and government regulations, rather than due to cyclical downtown or economically motivated firm-specific idiosyncrasies and (b) the workers are firmly attached to the sector in which they were employed and have a limited ability to return to a comparable job in a reasonable time span. Empirical research, however, rarely uses these narrow criteria.

The distinction between voluntary quits and involuntary displacement is not always clear-cut. Firms may wish to reduce costs without downsizing workers and may reduce or fail to increase wages. This may prompt some workers, presumably those with less job loss risk-aversion, to quit, whereas other workers, presumably those workers with more job loss risk-aversion, may choose to work for lower wages.

The Mass Layoff Statistics program of the U.S. Department of Labor's Bureau of Labor Statistics collects reports on mass layoff actions that result in worker-job separations. Monthly mass layoff numbers come from establishments that have at least 50 initial claims for unemployment insurance filed against them during a 5-week period.

Since 1984, the Employment and Training Administration of the U.S. Department of Labor has sponsored the Displaced Worker Surveys (DWSs) that collect information on workers who were displaced from their jobs. The DWSs are conducted biennially as supplements to the Current Population Survey, a monthly survey of households that is the primary source of information on the nation's labor force. The DWS defines displacement as an involuntary job separation based on operating decisions of the employer, such as a plant closing, an employer going out of business, or a downsizing or layoff from which the worker was not recalled. DWS data have the benefit of a large sample of displaced workers. But DWS data suffer from several limitations; most important, the data are cross-sectional, making it difficult to study causal relationships.

The most widely used longitudinal data in empirical studies of downsized workers come from the Panel Study of Income Dynamics and the National Longitudinal Surveys. The primary advantage of longitudinal data is that they allow the construction of comparison groups; the primary disadvantage is the small sample sizes relative to the DWS. Other data sources on downsized workers include regional data, data from administrative sources on workers and their firms, and case studies of plant closings. These data are rich in detail and narrative but tend not to generate a representative portrait of the broader experience of downsizing.

Bibliography:

1) Addison, John T., ed. 1991. Job Displacement: Consequences and Implications for Policy. Detroit, MI: Wayne State University Press.

2) Bernhardt, Annette, Martina Morris, Mark S. Handcock, and Marc A. Scott. 2001. Divergent Paths: Economic Mobility in the New American Labor Market. New York: Russell Sage.

3) Bluestone, Barry and Bennett Harrison. 1982. The Deindustrialization of America: Plant Closings, Community Abandonment, and the Dismantling of Basic Industry. New York: Basic Books.

4) Fallick, Bruce. 1996. "A Review of the Recent Empirical Literature on Displaced Workers." Industrial and Labor Relations Review 50:5-16.

5) Farber, Henry S. 2005. What Do We Know about Job Loss in the United States? Evidence from the Displaced Worker Survey, 1984-2004. Working Paper No. 498. Princeton, NJ: Princeton University, Industrial Relations Section.

6) Newman, Katherine S. 1999. Falling from Grace: The Experience of Downward Mobility in the American Middle Class. Berkeley, CA: University of California Press.

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