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Downsizing and Productivity Growth: Myth or Reality?

  • Martin Neil Baily
  • Eric J. Bartelsman
  • John Haltiwanger

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4741.

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Date of creation: May 1994
Date of revision:
Publication status: published as Small Business Economics, Vol. 8, no. 4 (August 1996): pp. 259-278.
Handle: RePEc:nbr:nberwo:4741
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  1. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
  2. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
  3. Aghion, Philippe & Howitt, Peter, 1991. "Unemployment : A symptom of stagnation or a side-effect of growth?," European Economic Review, Elsevier, vol. 35(2-3), pages 535-541, April.
  4. Fallick, Bruce Chelimsky, 1996. "The hiring of new labor by expanding industries," Labour Economics, Elsevier, vol. 3(1), pages 25-42, August.
  5. Giuseppe Nicoletti & Lucrezia Reichlin, 1993. "Trends and Cycles in Labour Productivity in the Major OECD Countries," OECD Economics Department Working Papers 129, OECD Publishing.
  6. Steven J. Davis & John Haltiwanger & Scott Schuh, 1993. "Small Business and Job Creation: Dissecting the Myth and Reassessing theFacts," NBER Working Papers 4492, National Bureau of Economic Research, Inc.
  7. Donald Siegel & Zvi Griliches, 1992. "Purchased Services, Outsourcing, Computers, and Productivity in Manufacturing," NBER Chapters, in: Output Measurement in the Service Sectors, pages 429-460 National Bureau of Economic Research, Inc.
  8. 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.
  9. Venables, Anthony J, 1985. "The Economic Implications of a Discrete Technical Change," Oxford Economic Papers, Oxford University Press, vol. 37(2), pages 230-48, June.
  10. Bernanke, Ben S & Parkinson, Martin L, 1991. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 439-59, June.
  11. Alan Manning, 1992. "Productivity Growth, Wage Setting and the Equilibrium Rate of Unemployment," CEP Discussion Papers dp0063, Centre for Economic Performance, LSE.
  12. Nickell, S. & Komg, P., 1989. "Technical Progress And Jobs," Papers 366, London School of Economics - Centre for Labour Economics.
  13. Robert J. Gordon, 1993. "The Jobless Recovery: Does It Signal a New Era of Productivity-led Growth?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 271-316.
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