One-company towns, characterized by the presence of a large employer in a local labor market, are a frequent legacy of state-led development strategies. How will downsizing or closing unprofitable state-owned enterprises affect these towns? This article develops a simple model combining monopsony power in the labor market witha Keynesian closure of the product market and uses it to interpret the findings ofprevious studies. The article evaluates the impact of the company’s employment level on the town’s labor earnings in Kazakhstan, where one-company towns are still prevalent. The evaluation is based on data from the 1996 Living Standards Measurement Survey. The results show that labor earnings in the town decrease roughly 1.5 percent when the share of its population working for the company decreases 1 percent. Theresults are robust to changes in the definition of labor earnings and to the inclusion ofa variety of other community characteristics in the analysis. These results and the theo-retical model are combined to evaluate the welfare impact of company downsizingand, consequently, to derive the optimal extent of labor retrenchment.