How Layoffs Affect Employees Left in the Workplace

Abstract

This research will be conducted to provide an in-depth analysis into the effects of employee layoffs in the work place. Various firms have been adversely affected in the way employees have been laid off, putting them in a dilemma as to the best option to apply in addressing the redundancy problem. Layoffs have political, economic, environmental and social implications. Information gathered through interviews, questionnaires, and direct observation will be statistically analyzed to determine the implications and suggest a viable solution.

Introduction

Problem statement

Unannounced employee layoff creates fear, anxiety, and reduced productivity in the workplace. However, reduced hours through work sharing alternatives provide a satisfactory alternative to layoffs maintaining a firm’s reputation, and creating a strong sense of loyalty to a firm by its employees. These makes them feel safe and secure. Translating to increased productivity, a better reputation and increased market share.

Literature Review

According data obtained from the 1990 wave of the Statistics Canada Labour Market Activity Survey (LMAS) layoffs of employees have an adverse effect on employee performance at the work place. Proponents of this theory agree that a degree of reduced productivity in the part of employees is observed. Though a certain amount of fear tends to be useful for positive change, yet this impacts adversely on decision making in organizations, risk taking, increased anxiety at all levels of organizational existence. This adverse effect on customer service and employee enthusiasm results in reduced productivity in the longer term. The data for this study was taken from the 1990 wave of the Statistics Canada Labour Market Activity Survey (LMAS). It contains information on a number of characteristics which are relevant to the layoff decision such as demographic characteristics, labour market participation, employment, work patterns, and job characteristics. Since the sample for the LMAS (75,000) is taken from the Labour Force Survey, the population is considered to be representative of the civilian, non-institutionalized population, 16 to 69 years of age inclusive, who were residents of the ten provinces in January 1991.

According to these information, four groups were removed from the sample since they were considered to be irrelevant to the study: (1) those who did not work at all in 1990 and therefore could have been experiencing permanent displacement; (2) those who had more than one job and therefore could have been laid off from one job and working in another; (3) those who had a part-time job, which may have been in the secondary labor market; and (4) those who were self-employed and therefore could not be laid off. Inclusive were an additional 3,323 individuals who were excluded since they reported a period of unemployment not due to work related interruptions (e.g., a new entrant to the labor market) while others indicated a “non-layoff” reason for the work interruption (e.g., illness, accident, or pregnancy). The final sample consisted of 22,922 cases, comprised of 9,554 union and 13,368 nonunion full-time workers.

Work sharing as an Alternative to Layoffs

According to Nixon, Hitt and Jeong (2004) the work sharing approach was observed to be popular with the Canadian government, an approach administered by the federal government. An insurance benefit due to unemployement during an individual’s time off due to work sharing was a popular idea with employers, employees and local trade unions (Chatrath, Ramchander and Song, 1995). According to a report by Chatrath, et al., (1995), 88 percent of participants interviewed expressed satisfaction with the policy. Although work sharing may slightly increase the cost of fringe benefits, this is likely to be more than offset by savings from the cost inherent in hiring and training new employees at the end of the demand lapse. In addition, work sharing avoids the rise in average hourly labor costs when lower paid junior employees are laid off and higher paid senior employees are retained.

Work sharing comes with other benefits. Employees are likely to benefit from 90 percent retention of their weekly earnings with an additional time for leisure. In addition, this attracts even those employees not subject to layoffs. According to research findings, there is solid support from a cross section of employees for the work sharing program (Chatrath, Ramchander and Song, 1995). This however is viewed as a temporary solution in the face of impeding layoffs, but not a permanent solution for work arrangements (Nixon, et al., 2004).

While work sharing programs are popular with employees susceptible to layoffs, a varied view from trade unions in Canada abound. When it was introduced in 1982, the Canadian Labour Congress (CLC) viewed the work sharing policy as a hindrance to policy makers in making the right decisions about unemployment levels seniority levels by providing all employees with the same job security (Nixon, et al., 2004). A difference in opinion was probably due to the fact that national organizations have a more long-term vision, whereas local organizations responded to the immediate concerns of their members such as the devastating consequences of layoffs.

Nixon, et al., (2004), proponents of work sharing affirms that this mode of averting the effects of layoffs leads to a more equitable and balanced sharing of work. This leads to improved productivity and innovation in the part of the employee. This approach, according to Reid is popularly supported by the public. However, according to a research on the impact of layoffs on firms including employees, shareholders, communities, organization’s management, and, interaction with other firms, it has been established that reputation and goodwill would be similar to announced as to unannounced layoffs for competing and collaborating firms, asserts (Nixon, et al., (2004). This affirms the conclusion based on Institutional theory that organizations show the same structure and activity in the events which harm an individual firm and firm level organization (DiMaggio and Powell, 1983). However, Montgomery (1995) argues that layoff decisions made by a firm showed positive relationship. This affirms the fact that employees need to be unionized as a measure against company layoffs. The report says that ethnic biasness played a major role with ethnic groups having higher chances of being laid off than non ethnic groups. Nevertheless, family responsibility, seniority, and occupational qualifications have become the major basis for layoffs.

Hypotheses, Research Question and Variables

In view of the problem statement and the literature review from above, various hypotheses are abound. Key hypotheses include;

Hypotheses

Null hypothesis: There is a significant improvement in employee productivity with the work sharing arrangement.

Alternative hypothesis: Employee layoffs results in reduced productivity.

Variables

The researcher looked at both dependent and independent variables. Independent variables included, the age of employees, gender, breach of contracts, demographic characteristics, employment level, and work pattern and productivity

While dependent variables included, productivity, number of employees. According to the alternative hypothesis, employee layoffs may result in reduced productivity. This occurs in an environment of a reduced number of employees, increased time for work and reduced interaction time with other employees in the work place. These include employee utilization, a higher income, more working hours and other benefits, decreased productivity, employee motivation and improved quality of work due to specialization.

However if the null hypothesis is correct according to the research findings, company structure could be solidly maintained in view of the the work sharing arrangement where employees feel valued by the organization they have worked for, feel secure in the work place and a reduced joblessness and frustrations which come due to the loss of one’s job.

Research Questions

1. What could be the effect on productivity levels for employees who remain in the work place?
2. How are layoffs likely to affect an organization’s reputation?
3. How should a company communicate with its employees on impeding layoffs?
4. what cost benefit analysis should be done on employee layoffs
5. What are the organizational implications of a reduced workforce?
6. What could be the economic ramifications of increased workload and working hours?

Proposed Methodology

The methodology of doing the research included collecting data from various institutions, conducting a survey on the productivity levels of various companies against layoffs and those with the option of work sharing arrangements, collecting demographic information and subjecting the data to analysis.

The research will be based on a General motors that has experienced several uncertainties in the market from various competitors and has gone through adverse economic challenges and an uncertain global economic position. In addition many employees have been laid off from the motor giant company and have remained with a leaner workforce.

Other data will be collected from a chain of companies which have introduced a work sharing arrangement with its employees. Basically the researcher will collect information from the two sets of groups to understand their view about layoffs and work sharing arrangements. In addition, the researcher would look at the productivity levels of the two companies to determine the effects of employee layoffs and those who remain in the workplace.

The methodology used to conduct the research into the effects of employee layoffs in the work place include, collecting data from companies that have lain off employees, those which have introduced work sharing as a viable alternative, data from government agencies, reputable research organizations. The survey will be conducted by administering a questionnaire to those laid off, those in the work place, the management of the affected company, interviewing those at the managerial hierarchy, reviewing researched articles on effects of layoffs on firms, and making observations. Geographical dispersion of the firms concerned, whether local or global, demographics of the laid off and those who remain in the work place, social and political implications, and environmental consequences in laying off employees in comparison to work sharing alternatives.

The research will focus on all levels of management and the employees of the firms concerned. It would cite the communication processes of impeding layoffs, impact on interactions of similar firms, their policies and other policies related to the research questions. An in-depth view of stake holders who are interested in value outcome, collecting information from shareholders of various companies, analyzing the reputation standing of the companies of choice, given an institution’s, macro-cognitive foundations of reputation, though reputation may not be an absolute measure (Rindova and Fombrun, 1999).This however has an impact when compared with other firms (Shrum and Wuthnow, 1988). A statistical correlation between the variables will be analyzed; which may be perfectly correlated, partly correlated or uncorrelated. Thus by interpreting the correlation coefficient, r the strength of the relationship between the variables, the hypotheses will be verified or annulled. The degree of correlation in the parent population will help us determine the significance of r. In addition, the data will be subject to a confidence test of the population.

The characteristic of the population, mean, mode, median, and the standard deviation, the dispersion of the population and the skewness, the symmetry of the distribution and its kurtosis (peakedness of the distribution) will help us in subject the data obtained to a statistical analysis. The standard deviation, an important measure of dispersion will be a central value in showing us how the effects of layoffs affect employees at the work place, as a statistical analysis. Then the data collected will be subject to a simulation from the distribution using cumulative proportional frequencies and cumulative probabilities, thus calculated from a cumulative probability distribution.

Ethical considerations would be accounted for in the research, while sampling methods will include stratified sampling, which would include the ages of those remaining at the work place, occupation, topographical region; hence samples taken from each stratum. Thus a proportionate and accurate representation of the population involved.

Statistically, since the sample size would be small, the distribution would be subject to a T distribution, which is symmetrical about zero. The degree of freedom will determine the curve and by using tables, the confidence interval of the data will be established. Thus the critical value of t for a percentage greater than 95% will result from a higher probability illustrated as P (/T/<t) =0.95 of the research variable in question.

Tables will be used in collecting data and statistical tools such as graphs, charts, frequency charts, and histograms will be used to illustrate the findings and present the interpreted data to actionable information.

A conclusion will be drawn from the statistical findings on the effects of layoffs on employees in the work place. Thus the hypotheses will be verified or annulled.

Proposed Analysis Plan

Data collected on employee layoffs and the effects on those who remain in the work place will be subjected to varied analysis to afford a solution as to what to prioritize in the form of work sharing or layoffs and how to efficiently execute the plan in view of company vested interests. Thus the decision made on the analyzed data, the impact it will afford on the business interests of the affected firms, their reputation productivity, and interaction with other firms with similar interests will positively impact on the decision made. This decision could be attractive to both parties if the outcome is favorable. Gradually, the data collected, the analysis and the conclusion will influence the proposed options.

One of the research questions about employee layoff could there be; will increased productivity result on the part of those employees who remain at the work place? Valid answers to this question can be obtained by examining statistical data obtained from firms that have lain off workers. The statistical analysis of this question will be based on the comparison with other firms and data from government sources. Then a goodness of fit test on the data performed and a significance test carried out on the data obtained to arrive at a reliable conclusion.

Another question, what is the reputation of firms which layoff employees in the face of financial or foreseen financial difficulties? This question, based on the data collected through tables and bar charts will be statistically subjected to the mean and standard deviation and a correlation calculated on the data.

The degree of productivity will be statistically analyzed using the simplex method which is popularly used by companies to determine the best and viable alternatives to take, by expressing the problem in a standard mathematical format. A questionnaire administered on stakeholders will be subjected to a quantitative statistical analysis using bar charts and line graphs. To ensure good and reliable data, the data will be tested before its fully sanctioned for use, and a re-interview, and re-administration of questionnaires done if the data lacks consistence.

Data obtained will be coded numerically, graphically and will be entered in tables thus simplifying method of analyzing it. Descriptive statistics envisaging frequency tables, polygons, use of the central limit theorem, analysis of the normal curve, standard deviations and significance tests will be performed on the data obtained.

Gradually data about stakeholders will be a question that will be answered on a statistical basis by subjecting the data to the relevant statistical test.

What could be the relation between firms with similar activities on the layoffs by other firms? Information on this will be statistically tested and a correlation determined.

The validity of the research and validity of assessments of data can be relied on and obtainable from the journals in the university library. The measurements are valid and the researcher will undertake to put measures in place to avert a situation of face validity by making clear and precise short questions in the questionnaire. Construct validity, the likelihood that a question might have been understood wrongly, face validity, the theoretical foundation underlying the questions, effects of layoffs on employees left in the workplace, content validity, if instruments used provided coverage of the research in question, and reliability which are the sound factors taken into account in conducting the research. Nevertheless, limitations encountered while conducting the research, as discussed below, would also be factored.

Discussion of the Results

The research will address the outcome and effects of employees who remain in the work place when other employees have been laid off. Layoffs of employees would have varied approaches. Basically the problem would stem from a firm communicating with employees in preparing them for impeding layoffs. Layoffs have adverse effects on those who remain in the work place. While layoffs are inevitable when firms are faced with inevitable financial implications, performance and market conditions for its goods and services are adverse effects likely to be evident for those who remain in the work place. Job security a key factor to employee confidence and loyalty to a firm would be undermined with a chain of devastating financial consequences in the performance of a firm. In addition, layoffs would result in reduced morale for those who remain, leading to fear and anxiety. These bring about a negative impact on the performance of a firm in its service delivery, performance, relationship with other firms, stakeholders and its reputation.

The choice to communicate or not to, prior to layoffs and the options to adopt are central in affecting a firm’s operation, service delivery, and financial performance. According to the research, the option of not communicating to employees prior to layoffs seems to partially reflect positively on employee performance. There is marked improvement in service delivery, and company performance. This however does not bring to the surface other underlying factors such as fear, job security and the structure of the firms.

The research will further detail the effects on management, hierarchy, company structure and the mode to adopt in the layoffs of employees that will in the long end result in increased productivity and help maintain company good will and shield the concerned firm from undesirable reputation. The option to use when effecting layoff of employees would also bring to bear on the remaining employees in terms of productivity, service delivery, job security, and employee loyalty. In view of the research question, a sample was taken consisting of four groups,

“(1) those who did not work at all in 1990 and therefore could have been experiencing permanent displacement; (2) those who had more than one job and therefore could have been laid off from one job and working in another; (3) those who had a part-time job, which may have been in the secondary labor market; and (4) those who were self-employed and therefore could not be laid off. An additional 3,323 individuals were excluded because they reported an unemployment spell which was not due to a work interruption (e.g., a new entrant to the labor market) or they indicated a “non-layoff” reason for the work interruption (e.g., illness, accident, or pregnancy). The final sample consisted of 22,922 cases, comprised of 9,554 union and 13,368 nonunion full-time workers.” (LMAS, 1990)

Further still unionized members and non unionized member are subject to layoffs. According to the foregoing discussion, unions tend to favor layoffs of employees without the option of work sharing programs. This puts in jeopardy unionized employees. Thus this does not arguer well with employees in the work place in terms of job security, fear, anxiety and even organizational structure.

According to the statistical evidence adduced in the research, the data obtained from various sources, company data, information in the public domain, and information from stakeholders, employees left in the work place after layoffs tend to show reduced productivity, thus reduced company performance. The research alludes to a work sharing arrangement with a host of accruing benefits. This follows the fact that, employees are likely to feel more secure in the work place, thus reflecting a company’s corporate social responsibility. This is likely to result in increased productivity, improved performance and a good reputation. However, when layoffs are inevitable, communication beforehand to the affected employees helps to prepare them for the inevitable with the likely result of maintaining a company’s reputation with its employees and those companies in a similar chain of activities.

Conclusion

According to the proposed study and reviewed data, the proposed research will be viable and will affirm or annul the hypothesis that communication to employees before layoffs would result in increased productivity, or the alternative hypothesis that, firms ought to layoff employees without prior communication for improved productivity. The research will address the issue of effects of layoffs on employees who remain in the work place, the method of communicating with employees on impeding layoffs, effects on all the employees, the management of the firms and its hierarchy, and whether it leads to productivity. Effects on firms with a similar chain of activities and viable alternatives are also evaluated.

According to statistical data obtained through a stratified sampling method, a statistical analysis of the results would evidence otherwise. The research was conducted while taking into account ethical considerations, corporate social responsibilities, company reputation among other considerations. The sampled elements, context of the study, the population, and all other variables were taken into consideration.

The objectives of the study, to establishing the effects of company layoffs on productivity, interaction with similar firms, and stakeholders, stand with vested interest on the firms. Short term and long term impact on company survival on all fronts is a likely cause for concern. To establish the most viable alternatives to company layoffs, either to apply works sharing as an alternatives, communicating to employees about impeding layoffs or to lay off employees without prior information are viable alternatives. This will help define company strategy and in adopting the most viable methods of either to lay off employees or work sharing as the best alternative.

However, this research is not without limitations. Key among the limitations is the geographic dispersion of the companies researched, the demographic diversity of employees, and political and environmental considerations. In addition, company management may not divulge sensitive information regarding employee layoffs. In addition, the likely impact on employees who remain in the work place, the communication model to use in divulging information on layoffs and the impact on productivity and company good will on a global scale.

Questionnaire

For employee in the work place

This questionnaire will be used solely for the purpose of researching into the effects of employee layoffs for those who remain in the work place. All information will be kept confidential and shall not be used for any other purpose whatsoever. Please fill in the information you know and you may ask for assistance wherever you encounter difficulties.

1. Name of respondent____________________________________
   1. Age_________________________________________________
   2. What is your gender (select one) Male_________Female_________
   3. What is your marital status (select one) Married __Single________ Divorced______
   4. How many dependants do you have? ______________________
2. What is your employment status?________________________________________________________________________________
3. If employed, how many hours do you work in a day? _______________
4. How long have you worked for your current company______________
5. Please explain briefly why you prefer to work for your current employer___________________________________________________
6. Have you ever been laid off? ___________________________________
7. Please briefly state why you were laid off_________________________
8. Has there been a layoff exercise in the company you work for?_________
9. If so, please explain why you were left in the work place_________________

For the management

This questionnaire will be used solely for the purpose of researching into the effects of employee layoffs for those who remain in the work place. All information will be kept confidential and shall not be used for any other purpose whatsoever. Please fill in the information you know and you may ask for assistance wherever you encounter difficulties.

1. Name of respondent____________________________________
   1. Age_________________________________________________
   2. What is your gender (select one) Male_________Female_______
   3. What is your marital status (select one) Married __Single______ Divorced______
   4. How many dependants do you have______________________?
2. What is your employment status?________________________________________________________________________________
3. How many hours does each employee work for the company______
4. Has the company ever laid off workers?______________________
5. If so, why________________________________________________________________________________________________
6. How many employees have you retained in your company?
7. Which arrangement does your organization view as the best? _______________________________________________________
8. Which best alternative should the organization adopt and why____________________________________________________

References

Chatrath, A., Ramchander, S. & Song, F. (1995) ‘Are market perceptions of corporate layoffs changing?’ Economics Letters , 47 , 335-342.

DiMaggio, P.J. & Powell, W.W. (1983) ‘The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields’, American Sociological Review , 48 , 147-160.

Labour market activity survey (LMAS) (1990). Web.

Montgomery, C.A. (1995) Resource-based and Evolutionary Theories of the Firm: Towards a Synthesis , Kluwer Academic Publishers, Boston, MA.

Nixon, R.D., Hitt, M.A., Lee, H.U. & Jeong, E. (2004) ‘Market reactions to announcements of corporate downsizing actions and implementation strategies’, Strategic Management Journal , 25 (11), 1121-1129.

Rindova, V.P., Williamson, I.O., Patkova, A.P. & Sever, J.M. (2005) ‘Being good or being known: An empirical examination of the dimensions, antecedents, and consequences of organizational reputation’, Academy of Management Journal , 48 , 1033-1049.