Downsizing occurs when a firm lays off workers to economize on costs. So what do economists know about this phenomenon?

1. About half of all downsizing firms end up with at least as many laborers within a few years’ time. Downsizing is often a matter of restructuring a labor force, not just getting rid of dead wood. In other cases downsizing may be purely temporary, and is reversed once the firm has some extra cash.

2. Downsizing in manufacturing is nothing new and has been going on since 1967. That being said, the smaller manufacturing firms generally have been increasing employment. The notion of “regression toward a mean” describes the manufacturing sector better than the universal downsizing hypothesis.

3. Downsizing is positively correlated with the degree of foreign competition in a sector. So trade does encourage firms to cut their costs.

4. Manufacturing is fifteen percent of the U.S. labor force and thus only a small part of the downsizing story. Retailing and services have been upsizing considerably for many years.

5. Downsizing firms tend to increase their profits but not their productivity. Downsizing commonly leads to lower wages within the downsizing firm. There is evidence for the “wage squeeze” story.

From the recent Downsizing in America: Reality, Causes and Consequences, by William J. Baumol, Alan S. Blinder, and Edward N. Wolff.

The authors conclude the following:

…no special programs appear to be called for, aside from measures to ease the transition of downsized workers to other jobs…the evidence provides no support for the conjecture that the economy is undergoing widespread and protracted reductions in the size of the typical firm’s labor force.

…when I came to the 24/7 Customer call center in Bangalore to observe hundreds of Indian young people doing service jobs via long distance – answering the phones for U.S. firms, providing technical support for U.S. computer giants or selling credit cards for global banks – I was prepared to denounce the whole thing. “How can it be good for America to have all these Indians doing our white-collar jobs?” I asked 24/7’s founder, S. Nagarajan.

Well, he answered patiently, “look around this office.” All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke, because when it comes to drinking water in India, people want a trusted brand. On top of all this, says Mr. Nagarajan, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the U.S. has lost some service jobs to India, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. What goes around comes around, and also benefits Americans.

Read the whole column.

Addendum: Here is Virginia Postrel’s latest piece on trade.

Second addendum: How about this press release, India awarding a big contract to Hewlett-Packard, thanks to Kevin Bone for the pointer.

Since last spring, the company has been selling fine art, including limited-edition lithographs by Pablo Picasso, Marc Chagall and Joan Miró.

Greg Moors, an art dealer in San Francisco, began selling art at some of the company’s stores in brief experiments last spring, and for the last two months has been selling on the company’s Web site, Costco.com. The artwork is museum quality, matted and framed.

“There were so many double takes at the stores,” Mr. Moors said. “People stopped in front of these lithographs and said: ‘Wow! What is this?’ “

Mr. Moors sold 43 pieces of art during appearances at Costco stores – in the La Jolla area of San Diego, as well as Concord and Mountain View, Calif., and Issaquah, Wash. “I consistently did fairly well,” he said, “considering that people are coming in to buy hamburger and walking out with a $1,200 work of art.”

Get this:

Ms. Elsner said Costco applied the same pricing system to the art that it did to other goods, marking them up no more than 14 percent above what it pays Mr. Moors. He said his markup was “way below what retail galleries charge” but declined to be specific.

Tony Pernicone, an art appraiser who owns Avanti Fine Arts, a gallery in Larkspur, Calif., north of San Francisco, and previously directed the San Francisco Art Exchange and other art galleries, said: “At a legitimate gallery, generally the markup is 100 to 150 percent, depending on their overhead and the cost of the art. Obviously, you get galleries that try to go higher.” Costco’s price of $1,550 for a Chagall Bible Series lithograph was $500 to $1,000 less than a gallery would have charged, Mr. Pernicone said.

In other words, “non-dignified” intermediaries are entering the market and offering the goods at cheaper prices, thereby separating the artwork from the attached aura of the sale. Let’s root for the artwork, not the aura. Here is the story. Here is the web site, note they are temporarily out of stock. Here is the sort of work you can buy, albeit from another seller.

Lynne Kiesling says it all, with some side comments on outsourcing.

The Financial Times surveys the research of Steve Levitt on sports. Here is one succint passage:

In Europe, Levitt is feted as one of the authors of the “penalty-kick paper”. Probably only a trio of economists would have watched videos of 459 penalties taken in the French and Italian football leagues. The authors were testing a complex point of game theory. What they found was that the best place to put a penalty was the middle of the goal, largely because goalkeepers always dive. Yet few penalty-takers actually choose the middle. “I think one reason people don’t is that it’s just incredibly humiliating to a kicker if he kicks in the middle and doesn’t score,” guesses Levitt.

How about Levitt on Michael Lewis’s Moneyball?

There has been much hype recently about baseball clubs finding statistics to identify good players. Levitt read Michael Lewis’s book Moneyball about the supposed innovators, the Oakland As, and is unimpressed. “If you look at all the stats they say are so important, the As are totally average! There’s very little evidence Billy Beane [the club’s general manager] is doing something right.”

My recollection is that Lewis claims the small-market A’s put together a good team more cheaply, not that they win every pennant. In fairness to Levitt, a scrupulous researcher, perhaps this quotation is pulled out of context.

Thanks to J. Charles Bradbury for the pointer, check out his blog.