Predictors of Downsizing in the U.S. Local Telephone Industry

Abstract

Present U.S. local exchange employment is less than half of what it was in 1981. This study tests several alternative explanations from labor economics, industrial organization, and political economy for employment reductions by U.S. local telephone companies. It evaluates the relative strength of the relationship between each explanatory factor and employment change. The contributions of six potential explanatory factors (wages, sales, technological change, competition, productivity, and profit rate) were investigated. Regression equation models were formulated and tested using crosssectional time-series data on 50 local carriers who provided 90% of the service between 1988 and 1995. We found that digitalization and productivity increases were the most important factors in explaining employment reductions by firms. Wage increases and computerization were significant sources for employment reduction only in the short term.