Downsizing, which refers to reducing the size of the workforce, was used by many firms in corporate America during the late 1980s and early 1990s to respond to new financial exigencies. More recently, however, survey results obtained by the American Management Association from its member companies show that workforce reductions are increasingly strategic or structural in nature rather than a response to short-term economic conditions associated with declines in business (American Management Association, 1996:2). The 100 largest companies in the United States reported that 22 percent of their workforce had been laid off since 1978, and 77 percent of those cuts involved white-collar jobs. Approximately 23 percent of companies surveyed in 1997 reported outsourcing as a cause for downsizing.
In recent years, firms are hiring at the same time that they are laying off: 31 percent of the large, traditional employers surveyed by the American Management Association in 1996 were adding and cutting workers at the same time, and the average firm that had a downsizing in fact was growing by 6 percent. Smaller firms were creating more jobs than they were cutting, whereas large firms with over 10,000 workers were more likely to see actual declines in overall employment. The telecommunications industry provides a good illustration. At its peak, AT&T employed 950,000 people and around 450,000 after divestiture. Now it employs around 250,000 with plans to cut further. Yet the telecommunications industry still has about the same number of employees as a decade ago. As AT&T has shrunk, through both divestitures and downsizing, smaller competitors have grown up around it (Nocerra, 1996).
Looking at data from the labor market on workers who are displaced from their jobs, Farber (1997) finds that the overall rate at which workers have been permanently displaced backed down a bit in the 1980s from the peak of the recession period, 1981–1983, but then rose again—despite the economic recovery—and jumped sharply through 1995. The rate at which workers lost their jobs was actually greater in 1993–1995, a period of significant economic expansion and prosperity in the economy as a whole. It is diffi-