Since a “new capitalism” dominates economic life in America, we need to explain the development of the new economy's features. Although such work has begun, a core feature of the economy, downsizing, has been understudied, even though this phenomenon has eliminated some ten million U.S. jobs and generally has had negative human and organizational effects. In particular, little effort has been made to explore why firms downsize in the first place. Therefore, in this article I examine the causes of the adoption of downsizing programs among Fortune 100 firms from 1979 to 1994. I show that downsizings are affected by variables measuring crises and decisive events (associated with the new capitalism) — shareholder values, foreign consolidations, market share, productivity, employee compensation, deregulation, and business peaks; by institutional forces — the adoption effect and industry culture; and by firm traits — ownership status and firm size. I also distinguish between economically oriented and socially oriented organizational action in addressing the rationality of downsizers.
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Art Budros (1997) studied this question.