In recent years, much attention has been given to downsizing, rightsizing, trimming the fat and other euphemisms for laying off workers. Generally, companies suggest that they are "forced" to lay off workers in order to cut costs and remain competitive. The financial community likes downsizing because it reduces the short term labor costs that companies must bear. Management likes downsizing for the same reason. This research considers the effects of downsizing and whether it is truly the panacea for a company's ills, or whether it brings with it more problems. A specific company, Boeing, and recent downsizing decisions it has made is also considered.
There are immediate local economic effects when a company downsizes; the larger the company and the greater its relative importance to an area, the greater these effects. Initially, the short-term effects are to reduce the amount of disposable income in the local area. This has a direct effect on retailers and those providing services. Home loans may be put in jeopardy, which affects the amount of capital available to the community. If a plant is the single largest employer in a small town, closing it in the name of downsizing can ruin the town's economy.
Long-term economic effects are a shift in the economic balance of the region. If a plant closes, skilled workers are likely to relocate in order to find employment. This reduces the property tax level and the funding available for community services. Retailers may have to close down due to an inability of the economy to support them, resulting in losses of other jobs. Skilled workers may be able to find work in other jobs, including the service sector, but these may well pay below what the workers were formerly making because they are no longer working in a job where they have a great deal of expertise.
It would seem initially that the regional closing of a plant or the downsizing of an operation would have little e...