Damaging the ability of the government to get things done will do little to spur economic development. There are additional ways in which downsizing may be mishandled. Severance pay packages are usually set in an arbitrary way. For instance, separated workers may receive two years of salary, or one month of salary per year of service, or some other combination of these two variables. Yet the resulting amount may bear little relation to the true loss these workers experience as a result of their separation.
Some workers clearly suffer, whereas others become net winners.
In addition to the cost of severance pay packages, considerable resources may be spent on re-training and redeployment programs that are ineffective, and therefore may not be valued by workers. Assessing the returns to downsizing operations is also difficult. The typical evaluation compares the cost in terms of severance pay packages, re-training and redeployment programs to the savings in terms of public sector wages. But this comparison is misleading. Over-staffing is only one among several distortions common to the public sector.