DP6836 Patterns of Restructuring: The U.S. Class 1 Railroads from 1984 to 2004

Author(s): Guido Friebel , Gerard McCullough , Laura Padilla Angulo

Publication Date: May 2008

Keyword(s): downsizing , defensive and strategic restructuring , labour effects of deregulation , panel data

JEL(s): J23 , L25 , L92

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP6836.asp.asp

After deregulation in 1980, competitive pressures forced the large U.S. freight railroads to restructure. Much attention has focused on defensive (cost-cutting) restructuring: until 2004 employment was reduced by 60%, and railroads abandoned many of their lines. Less attention has been given to strategic restructuring: many firms changed the skill structure of employment and their output mix. We investigate the effects of defensive and strategic restructuring on financial performance between 1984 and 2004. In a simple regression, line abandonments (reduction of network size) have positive effects on performance but employment reductions do not. Controlling for the interaction between defensive and strategic restructuring, however, changes the picture significantly. Employment reductions then do have positive performance effects. There are also significant complementarities between defensive restructuring and strategic changes in skill and output mix. We provide the first in-depth analysis of the anatomy of restructuring in this important industry. Our analysis re-enforces the view that downsizing works best when accompanied by strategic restructuring.