We have all seen the headlines: “The Worst Recession since the 1930s,” “More Foreclosures, More Bankruptcies, and More Layoffs.” Although the recent economic decline in the global economy has spawned many attention-grabbing news stories of job loss, organizational downsizing in reality has been implemented in large numbers for the past 25 years. It has been estimated that roughly 2,000 employees were downsized in American corporations each business day throughout the 1990s (De Meuse and Marks, 2003). According to the US Department of Labor (2011), this number rose to more than 4,000 employees each business day between 2000 and 2007. And certainly, layoffs have increased markedly during the past few of years of economic difficulty – not only in America but around the globe.
Nearly two decades ago, we delivered a presentation at Cornell University entitled, “Is lean and mean really better than fat and happy?” (De Meuse, Vanderheiden, and Bergmann, 1993). The research tracked the financial performance of corporations that downsized during a five-year period relative to those firms that did not. Although the findings were not a ringing endorsement of large-scale layoffs, they point out an interesting observation. Given the length of time organizations have been implementing downsizing and the frequency in which they occur, one would expect companies to be highly effective at it. And yet, this does not appear to be the case. Numerous studies have reported that downsizing can lead to several adverse organizational outcomes, such as decreased employee morale and commitment, increased employee stress and involuntary turnover, and reductions in employee creativity and innovation (see Datta, Guthrie, Basuil, and Pandey, 2010; De Meuse, Marks, and Dai, 2011). In addition, several studies have found that an organization’s financial performance frequently does not improve in the near term (Cascio, 1998; Cascio and Young, 2003; De Meuse, Bergmann, Vanderheiden, and Roraff, 2004; De Meuse, Vanderheiden, and Bergmann, 1994). Cascio and Young (2003) concluded that “managers must be very cautious in implementing a strategy that can impose such traumatic costs on employees, both on those who leave as well as on those who stay” (p. 153).