>The mass firings so beloved by the corporations have nothing to do
>with recessions, falling demand or market downturns. They are all
>about boosting profit margins and thereby increasing shareholder
>value. Wall Street interprets mass layoffs as a sign that corporate
>managers are serious about "trimming the fat." They therefore buy
>into company stock and raise its value. An announcement of a huge
>layoff invariably leads to a surge in the company's share prices.
>Moreover, since company executives are now paid in stock options
>instead of cash, they have every incentive to do whatever is
>necessary to boost the value of their own holdings. Cutting the
>workforce is the easiest way there is to boost profits.
>
>The threat of layoffs has the additional happy consequence of
>securing a docile labor force. General Motors demonstrated last year
>how little mass firings had to do with company performance. After
>recording one of its most profitable years ever, company managers
>showed their gratitude to their employees by laying off 15,000
>workers. General Electric also enjoyed record earnings in 2000. But
>according to Business Week, that is not good enough for Welch. GE
>wants superprofits–an earnings growth of 20 percent next year.
<http://papers.nber.org/papers/W7742>
Examining the Incidence of Downsizing and Its Effect on Establishment Performance Peter Cappelli
NBER Working Paper No. W7742 Issued in June 2000
---- 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.