NCPA - National Center for Policy Analysis

Labor Experts See Risks and Rewards in Corporate Downsizing

December 26, 2002

Corporate officials who see layoffs in slack economic times as a route to better performance may be doing their companies a disservice in the long run. According to some human resource specialists, companies that avoid job cuts can profit later from increased worker loyalty and greater productivity.

For example, business consultant Jason W. Jennings recently studied 10 companies which had never laid off a single worker. While he could not prove the no-layoff policy led to profits and growth for any of the companies, he did note that layoff-prone companies wound up with work forces more concerned about themselves rather than increasing productivity.

  • Similarly, Peter Cappelli of the Wharton School of Business finds no evidence that companies which lay off workers do better in the long run -- and adds that companies which lay off the most personnel "are already the ones that are in the most trouble."
  • Continuing to absorb the expenses of wages and benefits allowed non-layoff companies to remain ready to take advantage of new business orders.

They were also able to avoid the costs associated with new training, and locating and rehiring former employees.

Source: Daniel Altman, "Downsizing Could Have a Downside," New York Times, December 26, 2002.


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