The evils of layoffs.

March 7th, 2010

Layoffs hurt people and come back to bite businesses, too.

A recent article in Newsweek (February 15th, 2010) written by Jeffrey Pfeffer, a professor of organizational behavior at Stanford University’s Graduate School of Business, discusses the bad effects of lay-offs at corporations and on their employees.

In the early 60′s I was being recruited by IBM for a position in Human Resources.  I was told about IBM’s dedication to its employees and their families, and given a copy of the employee’s handbook, which even included company songs.  I was invited to a large company meeting at an auditorium in the Washington, D.C. area.  I went.  At the end of the 2 hour meeting, all the employees stood up and sang one of the company’s songs.  Morale and spirit were high, and in those days IBM ruled the roost of US corporations.  But, by the time the 80′s came around, IBM started a series of lay-offs, and the company started their great decline from the top.

After 9/11, all the US airlines, uncertain of their future and faced with a pending recession started laying off tens of thousands of employees.  One airline didn’t follow the crowd:  Southwest. Southwest Airlines, in its 40 year history has never had a involuntary lay-off, and today it’s the largest U.S. domestic airline and has a market capitalization bigger than all its domestic competitors combined.  In the 1930′s,when the Great Depression hit this country, most firms had huge lay-offs, and drastically cut back their advertising.  A few companies kept their employees, increased their marketing efforts and they became the number one company in their industries, and reigned in that position for 70+ years.

For some corporations, circumstances are such that lay-offs are necessary for the firm to survive.  If your industry is disappearing or permanently shrinking, layoffs may be needed to adjust to the new market size.  An example of that is the newspaper industry.  But, in most cases, layoffs are done to minimize hits to profits, not to ensure the company’s survival.  We continuously see companies announcing layoffs, and the stock market responds by increasing their share price. No thought, or not enough thought, is given to the effects on the morale and productivity of the remaining employees.  Thoughts like, “Will I be next?” infect the remaining employees.  Some companies will offer outplacement assistance to the laid-off employees ( in which the contracts are awarded to the lowest bidding company) in the hopes of showing the remaining employees that they care about what happens to their laid off people.  Some of these services are no more than a couple of seminars and some hand outs on how to do a resume, etc.

When most companies do layoffs, they reduce their R&D staff, marketing people, and their sales force…the same people they will need to take the company forward.  In some cases after a layoff, non-laid off key people will leave the company based upon what they feel is a low value placed on employees.  Layoffs weaken the entire organization, and affect its future growth.

People who lose jobs also lose income, and they spend less.  Even workers that aren’t directly affected, due to worries that they may be next, reduce their spending, creating less demand for products. If, for example, you worked for a computer maker, when purchasing your next computer would you buy one from a company that only months before laid you off?  I don’t think so.  So reduced sales continue the layoff spiral.

An example of that was Circuit City, the now defunct electronics retailer. They decided to lay off 3,400 of their highest-paid , most effective sale associates to cut costs. Companies such as Best Buy gained market share and Circuit City filed for bankruptcy in 2008 and closed its doors in March 2009.

Not to be left out is the effect on people and their loved ones.  When layoffs hit, studies have shown an increase in alcoholism, smoking, drug abuse and depression and these can become long term evil effects of layoffs.  Companies need to re-examine their employment philosophy and management decisions.

Categories: Hiring Trends, Job Hunting Tags: layoffs