Section OneRecognition of the Costs of Downsizing and Layoffs
Although there are many associated costs, downsizing is a fact
of life in the United States, and layoffs occur with downturns in
the business cycle. A strong labor market eliminated most cycli-
cal layoffs in the late 1980s and 1990s, but frequent downsizing
has continued into the twenty-first century. Downsizing is
commonly linked to competitively driven structural changes in
organizations, although it also is triggered solely by attempts to
cut costs. Nonetheless, the costs of downsizing and layoffs are
becoming better understood.^67 For example, a study of
approximately 100 surplus workforce situations revealed that it
would have been more cost effective not to have laid off
workers in 30 percent of the situations and to have laid off
fewer workers in 20 percent.^68 Layoffs have been criticized on
the grounds that they are sometimes inefficient, relative to
other cost-reduction strategies. A major inefficiency or cost
associated with downsizing or layoffs is that a firm’s layoff
practices may make it less attractive as a potential employer. A
typical result of downsizing is that another 10 to 15 percent of
an organization’s workforce will often quit after layoffs. The
uncertainty of future employment often causes some of the
better, more mobile employees to leave. These, of course, are
the employees that the acquiring organization would like
to keep.^69