Economics serving society

Workforce reduction and firm performance: evidence from french firm data (1994–2000)

Bénédicte Reynaud

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The urgency of the current economic environment, the endless sagas of industrial misfortune, and the numerous media and political debates on the issues do not offer a clear answer to the question: do firms that reduce their workforces succeed in bouncing back? Existing studies present conflicting results and hence economists are divided. Bénédicte Reynaud has assembled, standardised and selected (for the purposes of statistical investigation) data from 1994 to 2000 on more than 13,000 French firms, of which 300 are listed on the stock exchange (1). Her aim is to understand the financial and commercial trajectories of business that have implemented voluntary redundancies and retirements, though not to establish a causal link between them.
In the period studied, the results differ depending on whether the firms are public or not. First, the author studied the prerequisites for redundancy plans. For both public and private companies, the approach is defensive but the motives are different: unlisted firms tend to react to downward trends in profitability indicators (sales, price, markets) that might lead to bankruptcy; the cost of the least qualified labour, so often denounced, plays no role in the decision. Listed companies consider redundancy plans above all for financial reasons because of the pressure exerted by the share-holders (debt levels too high, return on equity too low). Second, Reynaud analysed the impact of the redundancy plans. For private firms, she observed a return to positive indicators only in the long term and in certain areas. In the four years following staff cuts, productivity increases slightly (up two points), as does investment capacity (up three points). The other indicators, notably financial, remain stable but low. For listed companies, on the other hand, the redundancies have no significant effect: low productivity gains, thanks to the relative decreased in the global cost of labour, result in no improvement in financial indicators. These findings contradict those of many studies claiming that redundancies are “pro-active”, result in increased competitiveness, etc., and they suggest future research directions (for example, detailing the non-effect of these plans on the balance sheets of public companies, and the role played by the institutions on the scope of redundancies)
(1) Based on several sources: Déclarations Annuelles de Données Sociales (DADS), figures from the Securities and Exchange Commission, data from Bénéfices Réels Normaux (BRN), Council of Stock Exchanges.
Original title of the article: Workforce reduction and firm performance: evidence from french firm data (1994–2000)
Published in : Review of Socio Economy, 2013, vol 11, n°4
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