Stop the bloodletting

Last month the Bureau of Labor Statistics (BLS) announced that December mass layoffs and initial unemployment claims were at the lowest levels since July 2008. Even if they are happening at a slower pace, layoffs continue and are having a devastating effect on workers, the economy, and companies' bottom lines. I read about layoffs frequently and occasionally receive e-mails from business acquaintances and readers who have just lost their jobs. And guess what . . .  most layoffs are not announced in press releases. Few companies want to broadcast these events. 

Yes, sometimes layoffs are necessary, but at other times, they are done simply to beef up profits and stock prices with little regard to how they ultimately could contribute to a company's demise. 

If you're employed, is there a day that goes by that you don’t think about how blessed you are to still have a job, even if it's one you really don't like? And how often do you wonder if your job is secure? Pervasive insecurity among existing employees is among the many factors employers need to be concerned about as the country begins the long, bumpy road back to recovery. Turning a blind eye to these factors may cause your company irreparable harm.

The Newsweek article 'Lay off the Layoffs' presents a good look at layoffs and how they affect employees and companies.

"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 life - -  in good times as well as bad. Companies now routinely cut workers even when profits are rising. Some troubled industries seem to be in perpetual downsizing mode; the U.S. auto industry, to take just one example, has been shedding employees consistently for decades. (Newsweek is familiar with these pressures: its head count is down significantly in recent years.)" 

While acknowledging that layoffs can be necessary - -  for example, if your industry is disappearing or permanently shrinking, or competitive imports are making your labor costs prohibitive - - the article points out that "the majority of the layoffs that have taken place during this recession - - at financial-services firms, retailers, technology companies, and many others - - aren't the result of a broken business model. Like the airlines' response to 9/11, these staff reductions were a response to a temporary drop in demand; many of these firms expect to start growing (and hiring) again when the recession ends. They're cutting jobs to minimize hits to profits, not to ensure their survival." 

This article's main purpose is to show how "downsizing is killing workers, the economy - - and even the bottom line." 

"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. 

"But some of the drawbacks are surprising. Much of the conventional wisdom about downsizing - - like the fact that it automatically drives a company's stock price higher, or increases profitability - - turns out to be wrong. 

"There's substantial research into the physical and health effects of downsizing on employees - - research that reinforces the seemingly hyperbolic notion that layoffs are literally killing people." 

The article cites the book Responsible Restructuring in which 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." 

Want a good story to make your case against layoffs? Here you go: 

"Some managers compare layoffs to amputation: that sometimes you have to cut off a body part to save the whole. As metaphors go, this one is particularly misplaced. Layoffs are more like bloodletting, weakening the entire organism. That's because of the vicious cycle that typically unfolds. A company cuts people. Customer service, innovation, and productivity fall in the face of a smaller and demoralized workforce. The company loses more ground, does more layoffs, and the cycle continues. That's part of the story of now-defunct Circuit City, the electronics retailer that decided it needed to get rid of its 3,400 highest-paid (and almost certainly most effective) sales associates to cut its costs. Fewer people with fewer skills in the Circuit City stores permitted competitors such as Best Buy to gain ground, and once the death spiral started, it was hard to stop. Circuit City filed for bankruptcy in 2008 and closed its doors last March." 

Postscript: Circuit City's brand and Web site were purchased by Systemax, and the Web site is open for business. Wonder how many jobs were created by this Amazonian-reincarnation?

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