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Consequences to organizations

While layoffs seem to be an effective method of cutting costs in the short run, it most certainly does come with several adverse consequences. The direct and indirect costs that are involved in this process can hinder the company’s long term revenue generating channels. Directs costs of layoffs such as; the compensations the employer needs to pay the employee who has been laid off and outplacement service costs may add up in the short term. However, lasting impairments to the organization will be repercussions of indirect costs caused by layoffs for instance; losing experienced sales and marketing personnel who have built solid relationships with their clients. Furthermore, the direct costs of layoffs invalidate any financial benefits if new employees are hired within a year. These layoffs are known to be “binge-and-purge” tactics, which most organizations adopt during recessionary phases. Nevertheless, these tactics tend to set the organization in an undesirable position when the recession ends. 

Another unfavorable outcome of layoffs would be that the employees who survive them will not feel obligated to retain in the organization, especially the top performers. Research shows that employees are more likely to quit their jobs in organizations of repeated layoffs. It is also found that the probability of employees quitting increases with the number of layoffs they endure. This could be a result of employees perceiving layoffs as a violation of the psychological contract between the organization and its employees, which therefore leads to distrust and increased levels of stress in the workplace. Layoffs could also cause hindrances to the efficiency of the survivors such as; decreased productivity and commitment. Hence, layoffs not only give a reason for top performing employees to quit, but also reduce employee involvement and productivity among all remaining employees. 

Consequences to employees

Layoffs could have detrimental consequences on the individual who gets laid off in terms of his/her career as well as personal life. These layoffs may result in overall lower lifetime earnings. A study done on a number of individuals who lost their jobs in 1982 revealed that they faced a 30% drop in their incomes. A follow up study was conducted 20 years later, and it was found that their earnings hadn’t bounced back. Another study found that people who were laid off between 2002 and 2006 who consequently found employment were 60% more likely to experience a decline in their hourly wages. Therefore the income that is lost in a layoff remains lost forever. Layoffs may also have a devastating impact on a person’s physical and mental health. Research shows that 50% to 100% of male workers holding high-seniority posts were more likely to die immediately after a layoff than those who survived it. Another study found that for women, layoffs lead to loneliness, depression and hostility, for men it lead to higher blood pressure. A parent being laid off work may also affect their children and they may tend to dropout of school or underperform in their studies. Hence, it is clear that layoffs most certainly have adverse impacts on the employees that suffer it.

What the organizations can do

Organizations need to explain to surviving employees how things will get better for them and what the new vision is. If the existing employees don’t see these, they will quit as soon as they see better opportunities. Another vital initiative that should be taken by an organization is to genuinely attempt to place all those who lost their jobs, this would therefore show that they do care about their people, and in turn would also lead to better productivity among those who remain in the organization. However over time the organizations that truly thrive in the industries are those that discover means to escalate revenues, you cannot simply prosper by shrinking the organization.