began as the strategy of sickly corporations shedding workers in the face of
weak demand, but soon strong firms looking to boost shareholder value even further
adopted the policy. Downsizing will be examined as a strategic option that management
can exercise in order to boost equity value. Downsizing will be present day a
macro-economics phenomenon, having an impact on inflation, and therefore the retreat
which stock prices are discounted and valued. Since the early 1980s, job
displacement has continued at many companies even in periods when there was
sizable employment growth in the economy as a whole. For example, although from
1985 to 1989 total employment expanded by 11.7 million, during this period 4.3
million workers who had been with their employers for at least three years lost
their jobs because their plants or businesses closed down or moved, their
position or shifts were abolished, or not enough work was available for them to
do (Herz, 1991).
one in five workers saw his or her job disappear permanently during the
1980’s.The rate of job loss among older and more educated workers was actually
higher in 1990-1991 than it was in the depths of the recession of 1982-1983.The
data from the American Management Association (AMA) survey reported in Table
2.1 reveal no letup in the pace or scale of downsizing, even in the midst of
the strong national economic growth that occurred in 1993 and 1994 (the
recession that started in 1989 ended in most industries by early 1993). The
percentage of companies Planning to downsize actually rose slightly in 1994.
corporations downsize so abruptly and discharge so many employees all at
once? That might
at first seem like a silly question, but it is justified by the fact that
the opposite of downsizing, tends to occur in a very gradual manner.
New employees are
typically hired after deliberate screening in an incremental fashion.
then, do companies let go of thousands of employees with so little notice? One
reason for the abrupt character of downsizing is the fact that corporate turn
to downsizing in an effort to respond to severe financial pressures and as a
result of the need to show quick results. A slow reduction in force would not
do the job. In addition, since there is often resistance to change, companies
often wait until financial conditions deteriorate substantially before making
large-scale layoffs. Furthermore, the fear that disgruntled employees will turn
to equal employment opportunity or age discrimination suits to challenge
layoffs, appears to lead organizations to carry out reduction in mass, which
offer some defense for their actions, since it is more difficult to make a
charge of discrimination stand when so many other people (and many others with
similar demographic or personal attributes) are simultaneously being laid off.