See also Amazon.com; Business and the economy
in Canada; Business and the economy in the United
States; Computers; Greenspan, Alan; Income and
wages in the United States; Internet; World Wide
Web; Y2K problem.
Downsizing and restructuring
Definition Dramatic reductions by companies of
existing business models in order to increase
efficiency and profitability
Downsizing describes a business decision in which a com-
pany undergoes reorganization either by permanently re-
ducing the workforce or by dismissing employees in a short
period of time because of a slump in demand. Restructuring
refers to reorganization by a company in an attempt to
achieve high levels of operating efficiency, which can result
in nonessential business functions being consolidated,
sold, or closed down.
The last two decades of the twentieth century repre-
sented years of economic transformation for Ameri-
can industry. The rapid development of technology
brought about new means for product develop-
ment, design, and distribution techniques. These
strategies reflected the growth of a decentralized
workplace, characterized by a relaxation of a strict
hierarchy that became flattened over a period of
time. When the administration of President Ronald
Reagan began the movement to deregulate various
telecommunication industries, there was an in-
crease in competition from foreign markets. In the
1980’s, employees were usually laid off as a way to cut
initial costs, and the companies would rehire them
once the economy improved.
By the early 1990’s, however, workers who were
laid off began to suffer earnings losses. Job security
worsened, benefits were lowered, and skill levels de-
creased. Companies became increasingly competi-
tive, but many of them lost the ability to compete in
the new economy, resulting in losses in market
shares and profits. In order to restore their competi-
tive edge in the global marketplace, businesses re-
sorted to lowering costs by reinventing their produc-
tion processes with the introduction of technology
to streamline efficiency and meet consumer needs.
In order to provide better levels of service, core func-
tions were changed to involve more automation,
thus leading to the elimination of jobs or reduction
of the employee pool. Often, the changes included
the elimination of obsolete jobs, replacing them
with those more compatible with the new operations
of the business. In addition, the workplace often
shed excess bureaucracy by cutting managerial or
professional staff.
Impact Critics stated that there were several conse-
quences when a company decided to downsize, or as
some described, to get “lean and mean.” There was
the problem of downward mobility for white-collar
professionals after losing their managerial positions.
Another impact was that employee morale, loyalty,
and cooperation diminished, causing more conflict
in the workplace. Also, employees perceived the
company’s downsizing strategy as uncoordinated or
done in piecemeal fashion. The wage squeeze en-
sued, and production workers began to suffer from
declining hourly earnings. Falling wages meant that
many households had to work longer hours.
Politicians and unions pointed to the greed of
corporate America and businesses’ insensitivity to
workers. Employees often felt a sense of betrayal,
that companies failed to provide for their needs.
The psychological impact meant that productivity
suffered. Other economic analyses contend that
downsizing or restructuring is healthy in a work envi-
ronment, helping the company to take more risks.
The benefits include lower costs and increased
global competitiveness. When companies made the
initial announcement that they were downsizing,
stock prices would soar for a short period of time,
and it was not unusual for executive management to
be compensated with stock options.
Further Reading
Baumol, William J., Alan S. Binder, and Edward N.
Wolff.Downsizing in America: Reality, Causes, and
Consequences. New York: Russell Sage Foundation,- Three economists study the implications of
downsizing on the workplace in the United
States. They address issues such as the extent of
downsizing and factors triggering changes in firm
size.
Caropreso, Frank, ed.Restructuring and Managing
Change.New York: Conference Board, 1990. Es-
says written by various chief executive officers ex-
plain the causes and consequences of restruc-
turing.
Carter, Tony.The Aftermath of Reengineering: Down-
sizing and Corporate Performance. New York: Ha-
270 Downsizing and restructuring The Nineties in America