Employee Downsizing and Human Capital Accumulation

Hiroko Okudaira, Miho Takizawa and Kenta Yamanouchi

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Employee downsizing plays a crucial role in firms' resource reallocation and worker relocation to new opportunities. Nonetheless, a notable concern for firms implementing employee downsizing is the potential loss of accumulated human capital. This study used administrative data from the manufacturing sector in Japan to explore how downsizing announcements impacted employees' age and tenure distribution. By accounting for the staggered timing of downsizing announcements, we obtained moderate evidence that plants sought to maximize the returns on their vested investments in firm-specific skills by reducing the proportion of long-tenured employees. However, our analyses also implied that the downsizing initiated the voluntary separation of young employees, leading to an older plant workforce. These findings were accompanied by no significant decline in plant productivity and innovation levels.

Pages: 39 pages
Date: 2022-03
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:22015

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