Text extract from Singapore National Library Blog site –
We managed to locate an answer on the Internet at one of our favourite sites, The MadSci Network. This site allows people to ask science related questions, which will then be answered by qualified scientists. From the MadSci site’s post, an expert on wool, Ms Helen Daily was consulted and according to Ms Daily (University of Adelaide) sheep’s wool does not shrink, it felts, which is to mat or press together such that it becomes compact. As a result of being pressed together, it gives the appearance of shrinking. Basically, the wool felts when it is removed from the sheep and not whilst it is still on the sheep.
Sheep’s wool felts because of the raised scales on the cuticle layer of the wool catching on to one another. To put it simply, if you look under a microscope, you would see little scales like hooks on a strand of wool. It is these “hooks” that help keeps the wool together when it is spun into yarn. However, under heat, water and agitation, the contact between the fibers and yarn actually tightens and hence shrinking occurs.
Wool on the sheep does not “shrink” because when wool is on the sheep because the “hooks” are all growing in the same direction and does not get entangled. When wool is removed from the sheep, it no longer has a “top” and bottom” and hence the scales are all in different directions which results in it catching on to one another. Therefore, the wool coat on sheep does not shrink but your own wool coat does.”