Skip to comments.Lay Off the Layoffs. Our overreliance on downsizing is killing workers, the economy and profits.
Posted on 02/06/2010 10:36:25 AM PST by SeekAndFind
On Sept. 12, 2001, there were no commercial flights in the United States. It was uncertain when airlines would be permitted to start flying againor how many customers would be on them. Airlines faced not only the tragedy of 9/11 but the fact that economy was entering a recession. So almost immediately, all the U.S. airlines, save one, did what so many U.S. corporations are particularly skilled at doing: they began announcing tens of thousands of layoffs. Today the one airline that didn't cut staff, Southwest, still has never had an involuntary layoff in its almost 40-year history. It's now the largest domestic U.S. airline and has a market capitalization bigger than all its domestic competitors combined. As its former head of human resources once told me: "If people are your most important assets, why would you get rid of them?"
It's an attitude that's all too rare in executive suites these days. As the U.S. economy emerges from recession, Americans continue to suffer through the worst labor market in a generation. The unemployment rate dipped in January, from 10 percent to 9.7 percent, but the economy continued to lose jobs. There are currently 14.8 million unemployed, and when you count "discouraged workers" (who've given up on job seeking) and part-time workers who'd prefer a full-time gig, that's another 9.4 million Americans who are "underemployed." While the pink slips are slowing as the economy rebounds, the lack of jobs remains the most visibleand politically troublesomereminder that despite what the economic indicators may tell us, for much of the population, the Great Recession hasn't really gone away.
Companies have always cut back on workers during economic downturns, but over the last two decades layoffs have become an increasingly common part of corporate lifein good times as well as bad.
(Excerpt) Read more at newsweek.com ...
* There is a growing body of academic research suggesting that firms incur big costs when they cut workers. Some of these costs are obvious, such as the direct costs of severance and outplacement, and some are intuitive, such as the toll on morale and productivity as anxiety ("Will I be next?") infects remaining workers.
* A recent study of 20 Organization for Economic Cooperation and Development economies over a 20-year period by two Dutch economists found that labor-productivity growth was higher in economies having more highly regulated industrial-relations systemsmeaning they had more formal prohibitions against the letting go of workers.
* 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.
* Companies that announce layoffs do not enjoy higher stock prices than peerseither immediately or over time. A study of 141 layoff announcements between 1979 and 1997 found negative stock returns to companies announcing layoffs, with larger and permanent layoffs leading to greater negative effects. An examination of 1,445 downsizing announcements between 1990 and 1998 also reported that downsizing had a negative effect on stock-market returns, and the negative effects were larger the greater the extent of the downsizing.
* 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." Wharton professor Peter Cappelli found that labor costs per employee decreased under downsizing, but sales per employee fell, too.
* Even after statistically controlling for prior profitability, a study of 122 companies found that downsizing reduced subsequent profitability and that the negative consequences of downsizing were particularly evident in R&D-intensive industries and in companies that experienced growth in sales. Cascio's study of firms in the S&P 500 found that companies that downsized remained less profitable than those that did not.
* Layoffs don't even reliably cut costs. That's because when a layoff is announced, several things happen. First, people head for the doorand it is often the best people (who haven't been laid off) who are the most capable of finding alternative work. Second, companies often lose people they didn't want to lose.
* The AMA survey found that 88 percent of the companies that had downsized said that morale had declined. That carries costs, now and in the future. When the current recession ends, the first thing lots of employees are going to do is to look for another job. In the face of management actions that signal that companies don't value employees, virtually every human-resource consulting firm reports high levels of employee disengagement and distrust of management.
* Widespread downsizing can have a big impact on the economy. The people who lose jobs also lose incomes, so they spend less. Even workers who don't lose their jobs but are simply fearful of layoffs are likely to cut back on spending too. With less aggregate demand in the economy, sales fall. With smaller sales, companies lay off more people, and the cycle continues.
* Layoffs literally kill people. In the United States, when you lose your job, you lose your health insurance, unless you can afford to temporarily maintain it under the pricey COBRA provisions. Studies consistently show a connection between not having health insurance and individual mortality rates. Other data demonstrate that even fairly brief interruptions in health-care coverage lead people to skip diagnostic screening tests such as mammograms and colonoscopies.
He forgot the fact that a lot of outsourced work turns out to be garbage and cost/time overruns are not unheard of.
Are you saying that people should have a “right” to a job and that companies should keep them on the payroll no matter how much it affects the firm negatively?
NewsWeek pimps for the Kenyan and now their stooges are blaming businesses for laying people off? Evil scum have NO clue. Businesses job number one besides providing the customer with some value is survival. Business people with an IQ of 10 who are not govt contractors opr trail lawyers know Obama is HORRIBLE for business and the economy. Until he is gone it is cut, retrench, cut, retrench, try to survive.
They should pass a law that everyone has a job for life, and bread is always $1 a loaf and milk is always $1.50 a gallon. I’m sure everything else in the national economy would fall into place nicely after that.
What solutions did this liberal Stanford professor offer in this article when a company’s sales are down 10%-50%?
Did he offer any solutions or only whine about corporate fatcats and evil corporations?
It’s the economic equivalent of Steroids. Short-term it may pay off, and while people know the long-term effects are disastrous, they feel they have no choice but to do it, in order to stay competitive.
Professor Jeffrey Pfeffer
Professor of Organizational Behavior
Graduate School of Business, Stanford University
Professor Jeffrey Pfeffer applies the principles of organizational behavior to business, teaching companies to turn knowledge into action and bring out the best in people as a means to maximize results.
Before joining the faculty of Stanford Pfeffer was a professor at the University of Illinois and the University of California, Berkeley.
You wrote: They should pass a law that everyone has a job for life, and bread is always $1 a loaf and milk is always $1.50 a gallon. Im sure everything else in the national economy would fall into place nicely after that.
As I’m sure you know, the only thing that follows that philosophy is that there is no bread or milk.
Let me guess, all this is coming from people who have never run a company... When a normal, not “too big to fail”, company can’t pay its expenses/payroll the party is over for all its employees. Those Dutch “economists” follow the same playbook as the global warming “scientist”. They see what they want to see to support their larger agenda.
No, he's saying that there are other management methods than layoffs that appear to have superior results. Better to become "lean and mean" BEFORE layoffs might be needed, and not have layoffs. Well-managed companies don't need layoffs.
You left off the sarcasm tag ...
I do believe that was the point...
Well, in this case, new companies with more intelligent personnel policies will appear and start competing. If the companies that laid off too many people are that dumb, they will be forced out of business.
There is a article today in Barron’s about the smaller brokerage houses who are hiring all the people let go by the big banks and trying to compete with the likes of Goldman and Morgan Stanley.
Our company has also outsourced to Mexico and laid off workers this year. The result I feel will be devastating.
When our work returns we will have to train new workers, when training new workers you have quality issues, have an extra load on the experienced workers, and I am sure we will also lose some of our greatest assets to other companies who are not putting those demands on their employees.
I like to assume that freepers have IQs above room temperature.
The article was written by a typical academic liberal Stanford professor who has never worked in the private sector and never had to manage a P&L.
The author is a typical liberal scolding by an ivory tower academic Obama-loving stooge with no real-world experience.
Someone who has never run a business is going to tell those of us who have (and put our money where our mouth is) how to do it...
Jeffrey Pfeffer: “the idea that individual pay for performance will enhance organizational operations rests on a set of assumptions. Once those assumptions are spelled out and confronted with the evidence, it is clear that many — maybe all — do not hold in most organizations”
Jeffrey Pfeffer Testifies to Congress About Evidence-Based Practices
United States House of Representatives
Committee on Oversight and Government Reform
Subcommittee on Federal Workforce, Postal Service, and the
District of Columbia
Hearing on the Status of Federal Personnel Reform
March 8, 2007
My name is Jeffrey Pfeffer, Ph.D. I am a professor of organizational behavior and human resource management in the Graduate School of Business at Stanford University, and have served on the faculties of the University of Illinois and the University of California, Berkeley, as well as being a visiting professor at Harvard Business School, Singapore Management University, London Business School, and IESE in Spain. I have written 12 books and more than 100 articles and book chapters, and write a monthly management column for Business 2.0.
I am pleased to be able to offer my thoughts and evidence as the Federal Government thinks about how to manage its substantial civilian workforce to ensure even higher levels of performance and service. There is no doubt that people and how they are managed matter tremendously for organizational success — as literally scores of studies show.1 However, much of the conventional wisdom about and current practices in managing people are inconsistent with both theory and evidence about how to attain the best from a workforce.2
There is, as reviewed by Wayne Cascio, no evidence that corporate downsizings increase productivity or stock price, reduce costs, stimulate innovation, or make organizations more successful. Nonetheless, such activities persist, providing yet another example of a widespread management practice that is apparently growing in prominence in spite of, not because of, the evidence for its effectiveness.
The layoffs? Don’t talk about the layoffs! The layoffs?
I don't think so. But it is true that layoffs cause a climate of fear in the work place and that fear tends to result in lower productivity.
Now a few well places firings can have the opposite result.