New Insights on the Effects of Downsizing

Recently, firms increasingly chose to downsize their firm by reducing the workforce in an attempt to save costs. If a substantial fraction of employees is laid off then this practice is called a mass layoff. In the worst case, all workforce is dismissed leading to a plant closure. Scientists heavily concentrated their work on the aggregate and individual consequences for the direct victims of mass layoffs, which are those that lost their work place. Less attention was paid so far to the behavior of firms and the impact on the remaining workforce after mass layoffs. This project aims to shed light into these issues. The first phase of the project consists of a descriptive analysis of the direct impact of downsizing events on the employer and the employees. Subsequently, the question whether unions can protect employees from being dismissed in a mass layoff is examined. A substantial part of this project will be dedicated to the survivors of a mass layoff event. It is plausible and even probable that circumstances at a work place will change for the remaining workforce after downsizing. Therefore, this project aims to examine mental and psychical health, as well as labor market outcomes among survivors. Using registry data for Austria from the social security system, the ministry of finance and the sickness fund we are able to gain detailed insights into medication intake, diagnoses, sick leaves and hospitalization of the employees. The obtained results should help evaluate the consequences of downsizing of firms, which are not merely related to financial costs. This is providing additional information for the decision making of firms. Another part of the project is dedicated to the intergenerational transmission of unemployment. Using mass layoffs as instrument for parental unemployment days we examine the causal transmission to the unemployment days of the children when they are grown up. If this transmission is present, policies designed to affect one generation should be evaluated also for long lasting effects. Finally, we want to embed downsizing episodes into a model of relational contracts. Combining high quality administrative data with high standard econometric methods we aim to achieve reliable results, which go beyond simple correlations and allow f or a causal interpretation. In this way we want to contribute to the current research on the causes and effects of mass layoffs.

The project includes several papers on downsizing, workplace relations, and stress. Health Effects of Downsizing Survival This study shows significant health consequences for workers who remain after mass layoffs. Using Austrian data, it finds lasting negative effects on mental and physical health due to job insecurity, resulting in considerable costs for firms. Downsizing, Trust, and Worker Morale This study examines the impact of mass layoffs on remaining employees' motivation using Austrian data. Layoffs reduce morale and effort, especially in uncertain employment relationships, low-wage firms, non-manufacturing sectors, and among older and younger employees. Layoffs undermine gift-exchange incentives, leading to increased sick leave and reduced productivity. Intergenerational Transmission of Unemployment - Causal Evidence from Austria This study reveals how parents' unemployment affects their children's future unemployment risks using Austrian data. Children who experienced parental unemployment have 1-2% more unemployment days as adults, with stronger effects for children of unmarried parents, young children, and less educated parents. Presenteeism Under Pressure: Evidence from Professional Football This study explores how workload pressures influence football players' decisions to work despite health issues. Players return to play earlier under high workloads, especially key players, leading to shorter times until the next health issue. Forward-Looking Competitors in Strategic Interactions: Evidence from Basketball Tournaments This study examines whether decision-makers consider future outcomes during basketball tournaments. Teams exert more effort if they anticipate weaker opponents in future rounds, showing that individuals are forward-looking and strategic. Banking on Snow: Bank Capital, Risk, and Employment This paper examines the impact of bank capitalization on small firms in Austrian ski resorts. Weather-induced labor productivity risk affects employment decisions, amplified by financial constraints. Firms with less well-capitalized banks exhibit stronger negative employment effects due to weather risk. Automation, Unemployment, and Labor Market Training This study looks at how automation impacts unemployed workers and the role of job training using Austrian data. Higher automation risk makes finding jobs harder but can lead to better wages and job stability when re-employed. Training helps reduce automation's negative effects, though its effectiveness has decreased over time. Robotization and Job Quality: Evidence from European Labor Markets This study examines how increased robot usage affects job quality in Europe. Robot adoption increases work intensity but doesn't significantly impact the physical work environment or job skills. Using data from 1995-2005, the research shows robots make work more demanding without changing other job quality aspects much.