The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain

37 Pages Posted: 15 Feb 2016

See all articles by Guido Friebel

Guido Friebel

Goethe University Frankfurt; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Matthias Heinz

University of Cologne - Department of Personnel Economics; Centre for Economic Policy Research (CEPR)

Nikolay Zubanov

Goethe University Frankfurt

Abstract

We estimate the effect of downsizing announcement on workplace performance using data from a German bakery chain of 193 shops. Faced with intensified competition, the firm decided to sell or close down 57 of its worst performing shops. We identify the effect of downsizing from a plausibly exogenous variation in the timing of the sale or closure announcement in the individual shops. We find that the announcements of the shop being sold to a new owner and being closed down reduce sales by six and 21 percent, respectively. The negative effect of downsizing increases with the share of workers with a permanent contract, even though permanent workers faced a much lower unemployment risk. We relate our findings to the literatures on downsizing and psychological contract.

Keywords: downsizing, psychological contract, retail, teams, statistical analysis

JEL Classification: M12, M54

Suggested Citation

Friebel, Guido and Heinz, Matthias and Zubanov, Nikolay, The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain. IZA Discussion Paper No. 9739, Available at SSRN: https://ssrn.com/abstract=2732002

Guido Friebel (Contact Author)

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Matthias Heinz

University of Cologne - Department of Personnel Economics ( email )

Cologne, 50923
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nikolay Zubanov

Goethe University Frankfurt ( email )

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