March 29, 2006

Layoffs and Productivity

Thomas Geoghegan has a review of Louis Uchitelle's new book, The Disposable American, that has this point: "Mr. Uchitelle effectively wrecks the claim that all this downsizing makes the country more productive, more competitive, more flexible." And: "A growing number of economists argue that layoffs cause more problems than they solve." Huh. He doesn't offer any details in the review, but I was curious about the first point. And it seems quite right, at least from a bit of cursory searching.

In 1996, Martin Neil Baily and two of his colleagues wondered whether the downsizing strategy that was all the rage in the 1980s—wherein companies would boost their stock prices by cutting costs and laying off workers by the hundreds—actually increased productivity. The answer: probably not. Manufacturing firms that added workers during that time contributed just as much to productivity growth as the firms that were downsizing, and in any case, it's hard to find evidence that downsizing improves productivity. (The effect on the workers, on the other hand, is less ambiguous: a Finnish study in 2004 found that layoffs increased the chance of heart disease five times over.)
-- Brad Plumer 8:29 PM || ||