DOWNSIZING AND PRODUCTIVITY GROWTH - MYTH OR REALITY

The conventional wisdom is that the rising productivity in the U.S. ma nufacturing sector in the 1980s has been driven by the apparently perv asive downsizing over this period. Aggregate evidence clearly shows fa lling 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 conventi onal 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 (defi ned by industry, size, region, wages, and ownership type) in the alloc ation of plants in terms of whether they upsize or downsize and whethe r they increase or decrease productivity. Nevertheless, in spite of th e striking differences across sectors defined in a variety of ways, mo st of the variance of productivity and employment growth is accounted for by idiosyncratic factors.