Job Layoffs Must Be Last Resort

In this time of recession, companies who have suffered terrible losses react by first laying off several employees, thinking that doing so would save them money.  However, layoffs are usually short-term solutions and can be deemed detrimental to the company.

Looking deeper, companies layoff employees not just to save money, but also to look good once the numbers rack up.  In the United States, companies have to release their quarterly figures and compare whether their earnings have exceeded the forecast they have made earlier. 

Meanwhile, public companies would also have to face their investors who by nature do not like to be surprised with news that their investments for these companies decreased in value because they did not meet what was forecast.

To address this issue of financial loss, companies conduct a knee-jerk reaction by reducing the workforce.  However, some business experts say that doing so would ultimately work against their own best interest, adding that layoffs should be a last resort.

Layoffs do not save money

In the book "Organizational downsizing:  Constraining, cloning, learning," its authors claim that downsizing employees does not reduce expenses as much as they expect, and that sometimes it may actually increase costs. 

Just imagine, if you are laying off 30 people out of your 50 employees, this means you would have to give separation pay plus retirement benefits and other financial benefits then multiply it by 30, which in total may be more expensive than the total expense if you are keeping all 50 employees.

Job cuts affect performance

Money manager John Dorfman studied how a sample of companies performed after laying-off their employees.  His analysis reports an average performance gain by the companies that had job cuts at 0.4% while S&P 500 achieved a performance gain of 29.4% during the same time period.

Let us go back to that company that plans on laying off 30 from its 50 employees.  You do not expect the remaining 20 workers to perform as if 50 people are working.  This leaves your company with reduced product yield or, in the case of certain companies, a product with reduced value.

Layoffs create an air of uncertainty in the company

Companies tend to overlook their long-term capital investment in their employees.  Business experts recommend that these organizations look at wages and benefits not just as part of expenses, but also as payments on the capital of employees’ skill and dedication. 

Job cuts reduce the employees’ faith in the company’s vision.  Restoring employees’ trust in their management is not easy to restore.  An announcement of a layoff creates a climate of personnel uncertainty, which causes even the remaining employees to leave.  They could even be your best people and you would lose them in favor of other companies.  Job cuts not only reduce the quantity of employees, but also the quality.

Companies that contemplate on employee layoffs need to consider whether they would really save money by reducing their workforce.  It is best that they consider, and plan for, less obvious effects.  They should also consider the consequences of reduced morale, decrease in performance, and the overall reduced quality of the company’s staff.

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