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Downsizing and Productivity Growth: Myth or Reality?

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  • John Haltiwanger
  • Martin N Baily
  • Eric J Bartelsman

Abstract

The conventional wisdom is that the rising productivity in the U.S. manufacturing sector in the 1980s has been driven by the apparently pervasive downsizing over this period. Aggregate evidence clearly shows falling employment accompanying the rise in productivity. In this paper, we examine the microeconomic evidence using the plant level data from the Longitudinal Research Database (LRD). In contrast to the conventional wisdom, we find that plants that increased employment as well as productivity contribute almost as much to overall productivity growth in the 1980s as the plants that increased productivity at the expense of employment. Further, there are striking differences by sector (defined by industry, size, region, wages, and ownership type) in the allocation of plants in terms of whether they upsize or downsize and whether they increase or decrease productivity. Nevertheless, in spite of the striking differences across sectors defined in a variety of ways, most of the variance of productivity and employment growth is accounted for by idiosyncratic factors.

Suggested Citation

  • John Haltiwanger & Martin N Baily & Eric J Bartelsman, 1994. "Downsizing and Productivity Growth: Myth or Reality?," Working Papers 94-4, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:94-4
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    File URL: https://www2.census.gov/ces/wp/1994/CES-WP-94-04.pdf
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    References listed on IDEAS

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    1. Hellerstein, Judith K & Neumark, David, 1999. "Sex, Wages, and Productivity: An Empirical Analysis of Israeli Firm-Level Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 95-123, February.
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    Keywords

    CES; economic; research; micro; data; microdata; chief; economist;

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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