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When do Firms Downsize?

This study examines the historical record and risk factors associated with downsizing in the textile industry in the US, including labor-saving technology, price scissors, offshore production, and firm-level factors. The findings have important policy implications for managing highly specialized plants and mitigating closure risks for rural, less educated workforces.

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When do Firms Downsize?

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  1. When do Firms Downsize? Patrick Conway Department of Economics UNC-Chapel Hill

  2. Outline • The Historical Record on Downsizing in Textiles in the US. • Risk Factors • National • County-level • Firm-level • Policy Implications

  3. The Historical Record • Labor-saving technology • Creative destruction • The severed link between consumption and production

  4. Risk Factors at the National Level • Labor-saving technology • Price Scissors • Apparel Production Moving Offshore • Over-leveraging: the perfect sink • The giant stop sign

  5. County-level Risk Factors • Low per capita income on average in county • Low percent of county population having completed high school • More rural county

  6. Firm-level Risk Factors • Less flexibility in materials used • Fewer number of activities performed • In sum: Greater specialization hasn’t paid off historically in terms of longevity

  7. Policy Implications • Watch out for the highly specialized plants. • Rural, less educated workforces are at greater risk of closure – even when other factors are controlled for. • Caveat: much depends on the firm’s individual management. Work with the owner; don’t try to tell her what to do.

  8. Question: Will the Days of Large-Employment Textile Plants Return? Answer: Not likely, but a successful industry should remain.

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