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Introduction

The U.S. economy was at the height of economic expansion, stocks were near all time highs, corporate profits were strong, and the unemployment rate was at its lowest in two decades. At the same time, the major corporations in the United States were firing workers by the hundreds of thousands, and job insecurity had risen to an extremely high level. What was also ironic was the fact that the corporations who were initiating the downsizings were considered to be some of the strongest and most profitable in the country. Although these events seem to be inconsistent, this is what has happened throughout the decade of the 1990's.

Traditionally, downsizing was a direct result of a decline in the demand for a firm's product. This would mean that fewer items needed to be produced, therefore less employees were needed. Downsizing was also used as a way to cut costs during times of recession. But, the downsizings observed in the 1990's did not fit this mold. Instead of downsizing for survival, companies were using this as a strategic plan for creating an increase in stock prices.

The intent of downsizings by these top corporations who were already very profitable was to become "lean and mean". However, results of a survey published in the Wall Street Journal suggested that many of the firms did not meet their goals.

While corporate downsizing gets the publicity, the American economy has steadily grown richer. Many times the public confuses downsizing with recession, but in reality affects a single industry that is trying to accommodate itself to new realities of the market. While some industries have downsized, the economy has continued to grow.

History of Downsizing

Downsizing is defined as a reduction in the number of employees, and sometimes in the number of operating units within a company. It began as a strategy of weak...