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ICC Advance Access published online on April 29, 2007
Industrial and Corporate Change, doi:10.1093/icc/dtm002
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© The Author 2007. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved.

Employee layoff under different modes of restructuring: exit, downsizing or relocation

Kristien Coucke, Enrico Pennings and Leo Sleuwaegen

Correspondence: Kristen Coucke, EHSAL, Stormstraat 2, 1000 Brussel, Belgium, and Catholic University of Leuven. e-mail: Kristien.Coucke{at}ehsal.be

Correspondence: Enrico Pennings, Erasmus University Rotterdam, Applied Economics H13-31, Burg. Oudlaan 50, 3062PA Rotterdam, Netherlands and Tinbergen Institute. e-mail: Pennings{at}few.eur.nl

Correspondence: Leo Sleuwaegen, Catholic University of Leuven, Naamsestraat 69, 3000 Leuven, Belgium, VLGMS and Erasmus University Rotterdam. e-mail: Leo.Sleuwaegen{at}econ.kuleuven.ac.be

Pressured by globalizing economies and growing international competition, an increasing number of firms are forced to rationalize productive operations. Especially poorly performing firms need to improve their profitability through downsizing or relocating their operations, which in many cases causes collective employee layoffs. This article adds to the emergent literature on the consequences of downsizing by looking into the determinants of collective employee layoffs. Based on a unique sample of Belgian firms reporting collective layoffs this article analyzes the firm's decision to dismiss all employees (exit), a significant proportion of its employees without creating new employment elsewhere (downsizing), or to move production abroad (international relocation). We theoretically derive the conditions under which a firm prefers one strategy to another. The empirical results confirm that relocating firms are most profitable among the restructuring firms, have invested more in the recent past, operate in sectors with significant economies of scale and belong more often to a multinational group than firms opting for downsizing or exit. Downsizing firms are more capital intensive than relocating firms, while exiting firms are less profitable, smaller, younger, and more labor intensive than downsizing or relocating firms.


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