Downsizing and the impact on employees

Empty Boardroom table with chairs

By Brie DeLisi and Kelly Cave

The term “downsizing” is enough to make anyone’s brain enter into a tailspin – Am I going to be fired? Will this affect me? How will this affect my job? My family? When is it going to happen? What am I going to do?
There are a number of reasons a company may need to downsize. Whether it’s due to economic turmoil, change in regulations, structural overhaul, change in deliverables… whatever it may be, the bottom line is that revenue no longer aligns with the costs of doing business. In this blog, we explore the impact a significant organizational shift has on employees and how that can affect their performance and safety.

Researchers report consistent negative effects of downsizing on employee attitudes and wellbeing of surviving employees (1,2,3,4). Surviving employees of a down-size experience negative emotions and affective states such as increased anger, depression, fear, risk aversion, vulnerability, and powerlessness (5,6). Additionally, downsizing is linked to decreased trust3 and lower employee commitment (6,7). Thus, maintaining organizational commitment during downsizing is key for companies that rely on their human capital (8). Demonstrating an employee’s value to the organization is critical for maintaining high performance.

Downsizing can also negatively impact employee safety. 85% of studies examining the relationship between job insecurity and occupational health and safety found negative effects (9). In other words, as perceptions of job insecurity increase, employees’ health and safety decline. Similar to a reduction in motivation and performance, employees might not be as cognizant of potential hazards, and as a result, they are less able to control those risks. Another factor to take into consideration is that surviving employees may inherit safety management responsibilities they are not trained for, organizations may elect to hire contract personnel who are under-qualified, and employees may be overburdened with their original duties in addition to taking on the responsibilities they inherited in the down-size (10), which can all result in increased risk of injury.

In order to avoid these potential risks, it is important to first and foremost foster a culture of open communication. Organizations can support employees and demonstrate their value to the company by providing clear explanations and resources such as Q&A forums, accessibility to leadership, helping employees develop marketable skills and abilities, and Employee Assistance Programs (8,11). Additionally, it is vital to continually stress the importance of safety and genuinely communicate that it is important for employees to stay safe to provide for themselves and their families. Staying safe and healthy will allow employees to continue to be able to work, whether it is for your company or another future employer.

1. Appelbaum, S. H., Delage, C., Labib, N., & Gault G. (1997). The survivor syndrome: Aftermath of downsizing. Career Development International, 2, 278 – 286
2. Cascio, W. F. (1993). Downsizing: What do we know? What have we learned? Academy of Management Executive, 7, 95 - 104.
3. De Meuse, K. P., Bergmann, T. J., Vanderheiden, P. A., & Roraff, C. E. (2004). New evidence regarding organizational downsizing and a firm’s financial performance: A long-term analysis. Journal of Managerial Issues, 16, 155 – 177
4. Mishra, K. E., Spreitzer, G. M., & Mishra, A. K. (1998). Preserving employee morale during downsizing. Sloan Management Review, 39, 83 - 95.
5. Brockner, J. (1988). The effects of work layoffs on survivors: Research theory and practice. Research in Organizational Behavior, 10, 213 - 255.
6. Brockner, J. (1992). Managing the effects of layoffs on survivors. California Management Review, 34, 9 - 28.
7. Appelbaum, S. H., Everard, A., & Hung, L. (1999). Strategic downsizing: Critical success factors. Management Decision, 37, 535 - 552.
8. Iverson, R. D., & Zatzick, C. D. (2007). High-commitment work practices and downsizing harshness in Australian workplaces. Industrial Relations, 46, 456 - 480.
9. Quinlan, M., & Bohle, P. (2009). Overstretched and unreciprocated commitment: reviewing research on the occupational health and safety effects of downsizing and job insecurity. International Journal of Health Services, 39, 1-44.
10. Perron, M. J., & Friedlander, R. H. (1996). The effects of downsizing on safety in the CPI/HPI. Process Safety Progress, 15, 18-25.
11. Chadwick, C., Hunter, L. W., & Walston, S. L. (2004). Effects of downsizing practices on the performance of hospitals. Strategic Management Journal, 25, 405 - 427.