Recognition of cost of downsizing and layoffs

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. 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.
 In addition to bumping costs, there are also severance, administrative, and intangible costs. Intangible costs sometimes involve declines in morale of the remaining workforce and disruption of work group synergy.
Costs of Layoffs
 Cost related to “Bumping” less senior employees
• Reduced productivity during Learning Period
• Cost of training employees assigned to other jobs
• Wage supplements for reassignments to jobs receiving Lower compensation
 Cost Related to the termination of employees
• Separation payments
• Higher rates for unemployment compensation
• Depletion in the firm’s investments in training employees
 Administrative Costs
• HR processing activities
• Clerical expenses
• Cost of conducting medical examination of laid-off employees
• Increased supervisory obligations for managers of reassigned employees
 Intangible Cost
• Decline in morale of remaining employees
• Disruption of efficiency in work process
• Higher incidence of Accidents
• Depletion of Goodwill
• Irregular age distribution
• Voluntary turnover prompted by laid off