Layoffs are a common strategy used by companies to reduce costs or cope with changing market conditions. However, they can have negative consequences for both employees who lose their jobs and those who remain. This article reviews scientific evidence on the effects of layoffs and discusses best practices for managing them in a humane and effective way.
Related: 5 Stages of Layoff
- Downsizing is associated with decreases in subsequent firm profitability. Industry conditions moderate these negative effects. Furthermore, these negative effects are more pronounced in industries with high competition and low technological innovation levels.
- Firms with poor prior performance are likely to downsize, while firms with good prior performance are likely to engage in upsizing.
- The conventional wisdom that cutting the size of an organization is an effective response to lagging sales and rising costs may not be entirely accurate, according to a study that tracked the financial performance of Fortune 100 companies over a five-year period. The study tracked the financial performance of these companies two years before the layoff, the year of the layoff announcement, and two years following it. The study found that financial performance worsened after announced layoffs rather than improved as expected. The results suggest that cutting jobs may not be an effective solution for struggling companies.
- A study shows that new technology justified layoffs. The same applies to lower product demand.
- Layoff announcements trigger negative returns for both U.S. and Japanese firms. Specifically, layoff announcements of U.S. firms are associated with a negative 1.78 percent abnormal return, while layoff announcements for Japanese firms are associated with a negative 0.56 percent abnormal return.
- Layoffs announcements can significantly impact stock market prices, and the overall effect is usually negative. In general, larger layoffs negatively impact stock prices more than smaller ones. This trend holds across different countries, periods, and types of firms.
- Individuals who have experienced involuntary job loss or who have low socio-economic status or a mental disorder are at risk of committing suicide.
- Layoffs leads to a 15-20% increase in death rates during the following 20 years. This suggests that losing a job can have long-term negative effects on one's health. The researchers analyzed over 15 years of earnings data to analyze the correlation of long-run career outcomes with mortality at both the individual and group level.
- This study looked at what happened to 410 managers who either did or did not lay off workers (giving them a warning that they might lose their job) between 2000 and 2003. The researchers found that managers who gave these warnings had more health problems, had trouble sleeping, felt like they weren't themselves, and wanted to quit their jobs more often. This was because they felt very tired and stressed out from having to give these warnings.
- Employees who survived layoffs were not satisfied with their jobs and felt less attached to their organization. They also had a higher intention to leave their job.
- The findings of this study suggest that layoff survivors experience higher levels of workload which negatively affect their work-life balance. This, in turn, contributes to reduced job and life satisfaction. The study also suggests that high workloads experienced by layoff survivors contribute to reduced job and life satisfaction through reduced work-life balance as a mediating mechanism.
- Layoffs impact mental health, with men and women both at risk for experiencing major depression. The study suggests that men may be affected more significantly than women. The research shows that women who survive a layoff are more likely to experience major depression than men in the same situation.
Related: Employee Layoffs And its Impact on Employees
This research looked at how the COVID-19 pandemic has affected workers in the hospitality industry. The researchers found that when people lost their jobs because of COVID-19, the stress they felt made them do worse at work. But if they felt like their family supported them, it helped them do better, while feeling like their boss supported them made things worse.
