Layoff Studies Support the Importance of Dealing with Layoff Survivor Sickness

Here is a summary of some of the recent research and studies that support the seriousness of the need to heal the wounds and re-recruit layoff survivors.   A future blog will summarize some of the research about actions individuals and organizations can take.

Organizations are experiencing a global pandemic of downsizing.  In order to successful lead organizations through the trauma of layoffs; leaders need new and innovative approaches to organizational revitalization.  Downsizing has become an increasingly popular strategic intervention to reduce costs and increase productivity.  Rugaber (2009) reports that, in the US alone, mass layoffs of 50 or more people totaled 21,137 in 2008, a year that also included the most job losses since World War II.  Layoffs in the technology sector increased 72 percent over 2007 and the trend is continuing, according to a report by Challenger, Gray & Christmas (Bartash, 2009).   

Downsizing has a negative effect on productivity. A study of 4,172 employees representing 318 companies who had kept their jobs after layoffs (Business Wire, 2008) yielded some attention-grabbing results. Key findings were that 74 percent of these survivors reported a decrease in their productivity; 81 percent stated that customer service had declined; and 77 percent saw more mistakes and errors being made.  The three most common words used to describe survivors’ feelings (62 percent of respondents) were guilt, anxiety, and anger. This study by Leadership IQ, is consistent with an ever-increasing stream of downsizing research that provides compelling evidence that leaders of downsized organizations need to pay very careful attention to those who remain.  Here are some highlights of that research.

There is a Tenuous Connection to Financial Performance. A longitudinal study (Dorfman, 1991) followed sixteen large restructurings for five years and found that stock performance in these firms trailed competitors by an average of 26 percent. Another (Casico, 2002) used ROI as an index and found no evidence that downsizing actually worked and that, in many cases, productivity actually decreased. In a pioneering study, DeMuse, Bergman & Vanderheiden (2004) tracked five financial indices of fortune 100 companies that went through downsizing– profit margin, return on assets, return on equity, asset efficiency, and market to book ratios – and compared the results, over a 12 year period, to companies that did not downsize.  The downsized companies generally reported lowered results during the first few years with improvement eventually returning to the level of the non-downsized firms. 

There is No Significant Increase in Productivity and Risk Taking Declines. A survey of 1,468 downsized firms by the Society for Human Resource Management (Ferris, Rosen & Barnum, 1996) reported that employee productivity did not increase and often worsened.  In a recent study (Prime, 2009)  indicated that a survey by CareerBuilders reported that 47 percent of layoff survivors had taken on additional work and 30 percent felt burned out. Cascio (2009) indicated that 58 percent of human resource professionals reported a deterioration of morale and a decrease in loyalty after layoffs.  My own research (Noer, 2009) found that, at the very time organizations needed employees to take risks and increase innovation, survivors tended to do the opposite: keep their heads down and hunker down in the trenches.   Another danger of downsizing is that turnover of those employees organizations want to retain will increase. Stjern (2009) reports that a two year study by of firms wishing to be included in Fortune Magazine’s list of the 100 best companies to work for, found that those with layoffs experienced 2.6 percent more voluntary turnover than those with no layoffs