Effects of process and product-oriented innovations on employee downsizing

Resum

This study examines the role played by firm innovation on downsizing, an unexplored matter in the management literature. Drawing on economic and management views, we identify potential differences in firm downsizing behaviour depending on the specific innovation activities performed ?process versus product-oriented innovations. The empirical setting is a sample of Spanish manufacturing firms over the period 1994-2006. Results suggest that those process innovations associated with acquiring and deploying new production equipment are positively related to a diminishing probability of carrying out drastic cuts in workforce. However, a negative effect is found when process innovations are linked to the adoption of new methods of organizing the workforce. Regarding product-oriented innovations our findings also show a negative effect of such innovations on the probability of carrying out important reductions in workforce. Our study stresses the need to consider innovation as a key determinant when analyzing the causes of downsizing in future research.