Downsizing and Corporate Restructuring: A Case Study

Both media coverage and economic research suggest that there has been an increase in corporate restructuring and layoffs at healthy companies. This paper studies the restructuring and downsizing process at a financial services firm and its effects on the firm’s workers, both before and after these layoffs. I show that there were no major changes in pay or turnover leading up to the layoffs. The criteria by which employees were chosen for displacement varied between layoffs and there is no evidence that the firm systematically used these layoffs to get rid of poor performers. The financial effects of job loss vary widely. Some of this variation is evident in differences in the average effect of the four layoffs. However, there is also large variation in the fortunes of individuals laid off at the same time in the same place. Overall, the analysis suggests that, even at this single firm, workers affected by corporate restructuring are a highly heterogeneous group and the effects of displacement vary substantially. I thank Daniel Hamermesh and seminar participants at Berkeley, Claremont, and UCLA/RAND for suggestions. Generous financial support was provided by the Citigroup Behavioral Research Council and the Institute for Policy Research at Northwestern University.