Layoffs frequently make businesses significantly poorer.
Employers nowadays appear to believe they have plenty of staff – perhaps even too many if the economy slows. That is what is causing tens of thousands of layoffs in the technology, finance, and other industries.
Exercise caution before layoffs!
However, CEOs should exercise caution when making layoffs. Because as the last three years have shown, having too few workers is nearly always worse than having too many. When an organization is understaffed, morale suffers, and earnings fall. And corporations frequently wind up investing significant time and effort to restore their workforces shortly after layoffs.
Good organizations, whether somewhat understaffed or slightly overstaffed, if they have that culture of creativity, will perform exceptionally well in a recession. It has less to do with specific workforce levels and more to do with things such as product mix and price strategy.
Instead of panicking and causing layoffs, they worked hard to hire. A company that is somewhat overstaffed should evaluate what to do with that capacity. The data has been remarkably consistent in showing that layoffs are harmful. There is a long list of problems ranging from bad PR to greater turnover among surviving staff.
Businesses considering mass layoffs should examine the retail industry’s experience, which has always attempted to keep worker counts as low as possible. Algorithms assisted them in predicting periods of high and low demand and ensuring that businesses had “just enough” employees at such times, sparing them from having to hire as many people.
However, concentrating so much on optimizing labor counts resulted in businesses being chronically understaffed during peak hours. A 2014 research published in the journal Production and Operations Management examined 41 shops of a big retail chain. The researchers, led by Vidya Mani of the University of Virginia’s Darden School of Business, discovered that at peak hours, all 41 sites were chronically understaffed. The researchers found that increasing employees at certain times would have increased sales and profitability.
According to Zeynep Ton and Amanda Silver of the Good Jobs Institute, a foundation that works with enterprises in low-wage service sectors to enhance financial performance and employment security, the difficulties of understaffing extend beyond lost sales.
The work is based on the studies of Massachusetts Institute of Technology professor Ton, who discovered, among other things, the dangers of being excessively thin. Understaffing causes waste. When there aren’t enough personnel to transport grocery pallets from trucks to warehouses, the food degrades. It irritates customers when they cannot obtain the assistance they want immediately. They become frustrated and move their business elsewhere. It leads to inefficiency because inventory gets jumbled, making it more difficult for employees to locate what they need fast.
Understaffing or layoffs may be life-threatening in health care, where staffing numbers have been a concern for decades. Studies have connected low hospital staff numbers to poor patient outcomes; particularly, patients are more likely to catch an infection in a hospital with insufficient personnel because of things like decreased handwashing by frazzled staff. They are also less likely to receive the correct amount of medicine and are more likely to die. Nurses at such hospitals are more likely to feel burned out and are less likely to suggest their hospital to ill friends and family.
Understaffing or entering into the race of layoffs is usually the product of something other than managerial folly. Restaurants already rushed businesses, in the best of circumstances, have had to decrease their hours — by around 6.4 hours per week in the US compared to 2019 levels — as workers resign due to the pandemic.
Acute understaffing or initiating layoffs has a demonstrable impact on income, regardless of the source. For example, if you go on a trip to England, you may discover that your favorite pub was shut for two weeks during peak season due to a staff shortage or layoffs. Never mind that they have already cut the number of diners in half. A full-page, single-spaced manifesto put near the restroom at another restaurant revealed that they had had to discontinue serving hot meals and table service owing to a challenging situation triggered by the area’s lack of housing.
The anguish of the unidentified writer was evident. It’s no surprise that pandemic-era research on restaurant workers discovered a correlation between being overworked and greater levels of excessive drinking.
Workers can only put up with such working conditions for so long. Consider the recent strikes by nurses, railroad employees, teachers, and baristas. One of their main demands is that additional employees be hired to reverse the concept of layoffs.
Some supervisors, no doubt, perceive things differently. They may believe that these employees are simply lazy, that “no one wants to work,” as management researcher Kim Kardashian put it. That’s a management gripe as ancient as labor itself.
Let’s get ready to admit that there is some amount of human laziness. This is why we developed the remote control and the Bluetooth-enabled electric kettle. There are other hazards to being overstaffed. Employees may be bored and challenged, collecting paychecks but not actively participating. This was dubbed “quiet quitting” in 2022, and there were some wise folks who named this “social loafing” a century ago.
Mild understaffing or layoffs help keep personnel engaged and motivated, allowing them to apply a broader range of abilities, something most people find satisfying. However, many industries have now gone beyond being a bit shorthanded.
Chronic understaffing and sudden layoffs harm motivation and, of course, performance. Overworked employees make blunders. They disconnect. Employees argue that if the corporation isn’t interested in hiring new employees, why should they? They’ve been set up to fail — and no one likes feeling inept.
At some point, the task just cannot be completed, putting a strain on the whole economy. There are still 90,000 fewer childcare employees in the United States than there were before the pandemic (when there weren’t enough), making it more difficult for parents to work. A dockworker shortage has contributed to congested ports and disrupted supply lines. A lack of transit personnel makes it difficult for cities to persuade distant workers to resume commuting.
The final words.
This shared suffering is worth noting as businesses strive to “right-size” their workforce. The desire for their activities may have dropped, but if they lose too many positions, it will affect more than just their existing employees. We are all responsible.
Edited by Prakriti Arora