The institutionalization of growth and decline in government employment: Economics, politics, and imitation

This dissertation examines factors that determine organizations downsizing in government, a practice that has spread across OECD countries since the 1980s, from the perspective of two competing theories: contingency theory and institutions theory. Contingency theory views government downsizing as a response to economic or political contingencies that countries confront in pursuit of efficiency or productivity. Institutional theory views it as a taken-for-granted, imitated strategy for innovation intended to reduce uncertainty and achieve legitimacy.; Analyzing panel data from 26 OECD countries across 18 years from 1980 to 1997, the results show the strong significance of institutional forces in determining annual changes in government employment. Any change in government employment in a given focal country during a given year was significantly influenced by changes in the previous year made in other countries with which it held strong trade connections, to which it was closer in geographical distance, and with which it shared a border.; More importantly, imitative effects of other countries that implemented downsizing during the previous year are strongly significant while those of other countries that implemented upsizing during the previous year are not significant. By thus spilling over from downsizing countries into upsizing countries but not in the opposite direction, downsizing in government employment has diffused rapidly since the 1980s.; Another important finding here is that imitation effects were more significant in the 1990s than in the 1980s. During the 1980s past changes in a focal government's own employment was the most significant factor, while during the 1990s changes in other countries became more significant in determining changes in that focal country. During the 1990s, then, focal countries paid more attention to other countries' previous behaviors than to their own. This suggests that, while ‘incrementalism’ as usually applied to budgetary decision-making prevailed in the 1980s, institutionalism sensitive to other countries' behaviors prevailed in the 1990s.; Thus, this dissertation provides significant evidence of the imitative diffusion of organizational downsizing, supporting the institutional perspective and responding to recent arguments underscoring the role of institutional forces in downsizing—as well as the lack of empirical studies supporting those arguments. It is especially important then to continue research on ‘global’ diffusion as an organizational strategy across nation-states.