Layoffs & Downsizing
Well over a million American workers, both blue and white collar, lose their jobs each year in mass layoffs. Companies have traditionally resorted to layoffs during economic slowdowns to keep from losing money. Increasingly, though, they do so in good economic times for purely strategic reasons. The hope is that by shedding faltering product lines, moving costly operations overseas, and outsourcing burdensome administrative functions, they will transform themselves into "lean and mean" reincarnations of their former selves. The reality is often different.
Keywords Arational Organization Theory; Downsizing; Instrumental Network; Mass Layoff; Organizational Efficiency; Organizational Effectiveness; Organizational Slack; Outsourcing; Rational Organization Theory; Restructuring
Among the rumors that circulate in the workplace, none probably cause as much anxiety as word of impending layoffs. To quit a job is one thing: you choose to leave for personal reasons. To be laid off is quite another: your employer simply declares you redundant and hands you a pink slip. The reason may be a souring economy, a reversal of the company's fortunes in the marketplace, a merger, or a change in corporate strategy. Whatever it is, in the final analysis, a company's performance as a business matters much more than an individual worker's performance.
But no matter how well run a business is, its sales slump whenever the economy stalls. Bottom-line considerations dictate that production be scaled down at such times, and therein lies the cause of many layoffs. A mass layoff involves a large number of job separations over a concentrated period of time. Sometimes, as often happens in declining industries, the company has little choice: it must shrink, diversify, or go under. At other times, the distress is self-inflicted: a company lacks market focus, adequate cash flow, competent leadership, or other elements crucial to success.
More and more, prosperous companies hedge their future profitability by going offshore in search of the lowest possible unit costs, relocating entire operations to developing countries. Then there is downsizing, a form of organizational restructuring. Here, the staffs of whole departments that are considered to be cost, rather than profit, centers are let go, their work transferred or outsourced to third parties. Targets of these mass layoffs may also include employees in more mission-critical functions in which undue organizational slack is suspected to impede efficiency.
Mass layoffs occurred in the United States no less than 14,207 times in 2004 alone, putting 1,464,164 people out of work, a full 18% of all the 8,149,000 people who received unemployment insurance that year. This was the official count of the US Bureau of Labor Statistics (BLS), which identifies a mass layoff whenever 50 or more of a company's employees file an unemployment insurance claim over a period of five consecutive weeks. If these ex-employees remain out of work for a minimum of 30 consecutive days, the BLS further classifies said terminations as extended mass layoffs.
In 2004, 902,365 unemployment insurance claimants, over one-third of all mass layoffs, fell into the extended category. Still, these figures were an improvement over 2001, when the trend among US companies to move operations offshore peaked; during that year, 2,346,584 American workers lost their jobs in 19,449 mass layoffs, and 60% of them went on to endure more than 30 consecutive days of unemployment (Brown & Slegel, 2005).
Here, though, seasonal and vacation-replacement workers were the first to be culled. Of the 902,365 workers on extended layoffs in 2004, 36% fell in this category. Only 15% of extended mass layoffs were the result of permanent plant closures. Food processors and manufacturers of transportation equipment, computers, electronics, and furniture account for most of these layoffs. On a brighter note, 51% of all employers initiating layoffs that year expected to recall furloughed workers at a later date. In all, 20% of mass layoffs in 2004 were the result of internal restructurings brought on by bankruptcy, financial difficulty, a change in ownership, or reorganization (Brown & Slegel, 2005).
It is here, among the 2,841 mass layoffs affecting some 292,800 workers in a single year, that downsizing comes into play the most (Brown & Slegel, 2005). Not as severe sounding, perhaps, as company-wide job cuts or plant closings, the word first entered the business lexicon some thirty-odd years ago. It refers to the deliberate policy of permanently reducing personnel to improve a company's efficiency and effectiveness.
As an organizational strategy, downsizing is very different from the long-standing practice of temporarily laying workers off during economic hard times, and it is pursued for different reasons. If downsizing and the allied practice of outsourcing are the means, the end is not survival but, in the words of another, more jarring bit of corporate speak, a "lean and mean" company.
Though loosely used as a synonym for mass layoff, downsizing is really much more of a corporate makeover, with the subsequent culling of employees as its by-product. Technically speaking, one can lay off employees and not downsize, but one cannot downsize without permanently laying off employees. But is downsizing per se as simple and neat a strategy as its advocates suggest? For that matter, does it produce the desired outcomes? And if, as the evidence indicates, it often does not, why, sociologically speaking, is it still widely considered a corporate cure-all?
During the early 1990s, an extended mass layoff destined former employees to an average of 17.94 weeks of unemployment, the more run-of-the-mill variety to just 7.24 weeks on average. Incidences of extended layoffs reported among educated and white-collar workers were higher than in previous decades. But the hardest-hit demographic was still blue-collar workers with a high school education or less who worked in the manufacturing sector (Kletzer, 1998).
That, at least, is what researchers surveying the non-agricultural private sector found. Ninety-seven percent of the 78,115,000 employable Americans in their sample had jobs. Some 2%, or 1,192,000, of these workers were displaced, meaning they had lost their jobs due to a recent plant closing and had not found alternative employment for three or more months. Another 766,000 were laid off for a shorter period of time, and an additional 652,000 had left their jobs voluntarily (Kletzer, 1998).
Women on the whole made up 46.4% of the workforce but only 33.7% of extended and 18.8% of all temporary layoffs. African Americans and Hispanics did not fare as well. The proportion of African Americans in the workforce at the time, 9.9%, mirrored their representation in the pool of temporary layoffs (9.8%) but paled in comparison to their proportional representation in the extended layoff pool, which was 17.2%. Hispanics made up another 7.6% of the labor pool sampled but accounted for 8.9% of temporary and 13.1% of extended layoffs (Kletzer, 1998).
Surprisingly, a college degree was not necessarily the secure rung up the corporate ladder it once was. Fourteen and a half percent of displaced workers were university graduates, compared to 21.3% of total workers. By comparison, just 4.5% of those laid off for a shorter spell had a bachelor's degree. As might be expected, though, workers with only a high school diploma or less had much dimmer prospects, making up 50.1% of the workforce but accounting for 80.4% of short-term and 64.7% of long-term layoffs. Workers with even a few college credits had much less of a problem: at 28.2% of the labor force, they suffered 15.3% of all temporary and 20.7% of all extended layoffs (Kletzer, 1998).
Socioeconomic status, moreover, was no longer as strong a guarantee of steady employment as it once had been. White-collar workers were far more likely to be displaced than they were to be simply laid off: 15.6% of all displaced workers had held managerial or professional positions, compared to just 3.2% of laid-off employees. Other office workers were almost as vulnerable: 15.2% of displaced and 4.1% of laid-off workers had held administrative support positions. Still, composing 26.5% of displacements and 49.2% of layoffs, laborers bore most of the brunt, followed closely by semiskilled production workers at 22.5% and 32.1% respectively (Kletzer, 1998).
Slightly more displaced workers, 19%, had had jobs with retailers than with durable goods manufacturers (18.5%) or construction firms (15.4%). Meanwhile, 14.2% had worked for financial-services firms and 12.5% for nondurable-goods manufacturers. The mining industry had the fewest displaced workers: a bare 1.1%. A whopping 41.6% of temporary layoffs, on the other hand, came from the construction industry; durable-goods manufacturers ran a distant second with 22.6% (Kletzer, 1998).
Impact on Remaining Employees
Being laid off is certainly a traumatic experience for those forced to leave a...
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