Employment Downsizing: Causes, Costs, and Consequences

Abstract

Employment downsizing is a bald fact of organizational life that has become etched into the corporate culture. This chapter begins by exploring some of the most common explanations for why downsizing happens, including its economic rationale. It then considers when employment downsizing is appropriate, and some alternative downsizing strategies - attrition, voluntary termination (including buy-outs), early-retirement incentives, and compulsory termination - and what to do when downsizing outside the United States. We then consider the direct and indirect costs of employment downsizing, in the short term as well as in the long term, as well as its effects on the broader economy and on the organization itself, including subsequent firm performance and innovation.

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