When do Firms Downsize?
Patrick Conway
Department of Economics
UNC-Chapel Hill
Outline


The Historical Record on Downsizing
in Textiles in the US.
Risk Factors




National
County-level
Firm-level
Policy Implications
The Historical Record

Labor-saving technology

Creative destruction

The severed link between
consumption and production
US Textile Mill Employment
1600
1400
thousands of workers
1200
1000
800
600
400
200
0
1936
1940
1944
1948
1952
1956
1960
Textile employment
1964
1968
1972
1976
1980
1984
Manufacturing employment index
1988
1992
1996
2000
2004
Figure 1: The link between clothing demand and textile production
10
8
Percent annual growth
6
4
2
0
1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
-2
-4
Textile production
Clothing demand
Risk Factors at the National Level

Labor-saving technology

Price Scissors

Apparel Production Moving Offshore

Over-leveraging: the perfect sink

The giant stop sign
Price Scissors: Cotton yarn
160
140
index: 1990 = 100
120
100
80
60
Unit import value
40
Cotton price index
wage
20
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Changes in Price of Major Product for Firms Responding to Survey
Percentage of Sample in Category
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Risen by more
Risen, by less
Risen by less
Declined by
Declined by
It is a new
than 5 percent
more than 5
more than 30
product, so no
but more than 5
or fell by no
percent, but by
percent since
comparable
percent, since
more than 5
no more than 30
1997
good to price in
1997.
percent since
percent, since
1997.
1997.
than 30 percent than 30 percent
since 1997.
P rice Change Categories
1997
Capacity Utilization in Fabric and Textiles Production
100
95
90
Index
85
80
75
Manufacturing
70
Fabric
65
Textiles
60
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Figure 5: Debt-Equity Ratios of Pillowtex and Comparators
7
6
5
4
3
2
1
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
County-level Risk Factors



Low per capita income on average
in county
Low percent of county population
having completed high school
More rural county
Firm-level Risk Factors



Less flexibility in materials used
Fewer number of activities
performed
In sum: Greater specialization
hasn’t paid off historically in terms
of longevity
Policy Implications



Watch out for the highly specialized
plants.
Rural, less educated workforces are at
greater risk of closure – even when other
factors are controlled for.
Caveat: much depends on the firm’s
individual management. Work with the
owner; don’t try to tell her what to do.
Question: Will the Days of LargeEmployment Textile Plants Return?
Answer: Not likely,
but a successful industry should remain.