According to a recent report in Newsweek: “In the last decade layoffs have become America’s export to the world.” It’s a quick and dirty way for businesses to cut back on expenses, but like many quick fixes it conceals a host of unintended costs.
The author of the report, Dr. Jeffrey Pfeffer, Professor at the Stamford Business School, goes on to write: “At a conference in Stockholm a few years ago, business executives told me that to become as competitive as America, Sweden needed to make it easier to lay people off. In Japan, lifetime employment, which never applied to most of the labor market, is under attack. There are daily calls for European countries to follow the U.S. and make labor markets more ‘flexible.’ But the more you examine this universally accepted tactic of modern management, the more wrongheaded it seems to be.”
“University of Colorado professor Wayne Cascio lists the direct and indirect costs of layoffs: severance pay; paying out accrued vacation and sick pay; outplacement costs; higher unemployment-insurance taxes; the cost of rehiring employees when business improves; low morale and risk-averse survivors; potential lawsuits, sabotage, or even workplace violence from aggrieved employees or former employees; loss of institutional memory and knowledge; diminished trust in management; and reduced productivity.”
And the benefits are often illusory: “contrary to popular belief, companies that announce layoffs do not enjoy higher stock prices than peers – either immediately or over time…. Layoffs don’t increase individual company productivity, either. A study of productivity changes between 1977 and 1987 in more than 140,000 U.S. companies using Census of Manufacturers data found that companies that enjoyed the greatest increases in productivity were just as likely to have added workers as they were to have downsized. The study concluded that the growth in productivity during the 1980s could not be attributed to firms becoming “lean and mean.”
“Another myth: layoffs increase profits…. An American Management Association survey that assessed companies’ own perceptions of layoff effects found that only about half reported that downsizing increased operating profits, while just a third reported a positive effect on worker productivity.
The facts seem clear. Layoffs are mostly bad for companies, harmful for the economy, and devastating for employees.