The implications of downsizing to the employees, communities and families of the employees

Introduction Downsizing is a corporate practice that many employees are concerned about. This process can be described as a practice whereby firms reduce the number of employees and the scope of their business in order to achieve improved service and financial performance (Baumol, Blinder, Wolff, 2003).Advertising We will write a custom term paper sample on The implications of downsizing to the employees, communities and families of the employees specifically for you for only $16.05 $11/page Learn More Many companies lay off their employees due to a variety of reasons that may include the following: when the service of an employee is no longer required owing to technology upgrade; an internal shift in the requirements of the organization; restructuring; a change in financial fortunes, etc. Downsizing is a common practice in the corporate world, especially in times of financial hardships. For instance, in 2007, during the global financial crisis, close t o one million employees were laid off in the United States (Bain Company, 2010). The impact of downsizing is felt hardest by the departing employees as well as their families and the community in general. This paper seeks to establish the effects of downsizing to the employees, communities and the families of the employees. The paper will also discuss the current or future applications and relevance of downsizing. Effects of Downsizing on Dismissed Employees Losing a job impacts significantly on any employee. Though the effects are mostly negative, there can be one or two positive consequences that come with losing a job. Positive effects It’s rare for anyone to benefit if he/she has been a victim of organizational job cuts. Normally, success or failure following a job dismissal will depend on an individual’s preparedness and the availability of other opportunities. All employees who lose their jobs through downsizing are often compensated, especially if the employmen t contract provides a severance pay policy (Baumol, Blinder, Wolff, 2003). There are rules and guidelines which organizations are required to abide by when downsizing.Advertising Looking for term paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More These include the provision of an early notice and the severance pay. Receiving a severance pay can be positive for some employees as it can enable them to boost their savings or fund their own business ventures (Mroczkowski Hanaoka, 1998). It’s depressing for a worker to hear that he/she will be laid off. However, this fact presents other opportunities which the employee might not have considered. Several organizations assist departing employees to secure alternative employment. Therefore, a dismissed employee may land a job that offers better pay and working conditions (Baumol, Blinder, Wolff, 2003). Negative effects As stated earlier, the negative effects of lo sing a job far outweigh the positive effects. The negative impacts can be broadly categorized into the psychological and financial effects. Most employees get shocked when learn about their sacking. Initial emotional reactions may include bitterness and anger towards the company. There are several other psychological effects that may come along the way. These effects commonly include depression, increased anxiety and subjective perceptions of incompetence (Mellahi Wilkinson, 2004). Job loss is also associated with increased incidences of suicide, risk of alcohol abuse and violent behavior (Tyler Wilkinson, 2007). Individuals who are downsized often develop negative views towards the administration and politics in general. They blame governments and the capitalistic systems of economy, and generally give pessimistic views on the economy (Cascio, 2002). Job loss almost always results into negative financial impacts on the dismissed employee. People construct their lifestyles based o n the regular income they receive (Mellahi Wilkinson, 2004). Some commit themselves to pay mortgages and other debts that are deducted on monthly basis. Losing a regular means of income can be financially devastating for an individual, especially if he/she cannot secure another job in the short term. The severance pay provided by the company might not last more than two months and therefore cannot effectively cushion a downsized employee.Advertising We will write a custom term paper sample on The implications of downsizing to the employees, communities and families of the employees specifically for you for only $16.05 $11/page Learn More In some cases, one can find himself/herself in a job that offers a lower pay and he/she is forced to change his/her lifestyle to accommodate the lower earnings. According to the data provided previously, more than 65% of people who lost their jobs through downsizing report being paid lower than what they were being pai d in their previous employment (Tyler Wilkinson, 2007). And many of them find new work in temporary or part time arrangements. Effects of Downsizing on Employee’s Families and the Community in General The impacts of downsizing are often felt beyond the dismissed person. His/her family and the larger community are subject the ripple effects of downsizing. An individual’s family may go through similar physical and psychological experiences as the downsized individual. These effects can be broadly classified as financial, social, and psychological effects. Effects of downsizing on the employee’s family The family of an individual who has lost his/her job may not be able to continue with the same lifestyle they had before. They are forced to cut their spending to accommodate themselves to the new reality. The family might be forced to forego some privileges they previously enjoyed. If the situation is not solved in the short term, the family may find it hard to mee t their basic needs. Job loss through downsizing can be socially devastating for the victim’s family. The family might be required to vacate their current home and look for a cheaper house elsewhere. Sometimes it reaches a point where one cannot pay rent or mortgage a house. For some people it may imply losing home through eviction or foreclosure. A family that finds itself in this situation may find it hard to survive. Finding a new house offers many social challenges which may include finding new friends and getting children to new unfamiliar schools. Changing schools negatively impacts children’s academic performance due to the fact that they are forced to abandon the educational setting that they are familiar with.Advertising Looking for term paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Families that have no emergency savings usually suffer the most. Basic things like food usually turn into luxuries that they can barely afford. As a result, many families address welfares associations to get money for food and other basic requirements (Tyler Wilkinson, 2007). The psychological effects are far much overwhelming as compared to the financial and social effects. Normally, the family members may go through anger, anxiety and bitterness that might accompany loss of employment. The tension that is built up due to anxiety causes a lot of friction in the family setup. Several studies have shown that loss of employment has contributed to the rise in divorce incidences (Mellahi Wilkinson, 2004). The reason for that is such families tend to quarrel and argue more. Other psychological impacts of downsizing that affect the entire family include low self-esteem, stigma, the feeling of being isolated, and depression (Cascio, 2002). The psychological effects may give rise to real health issues in the affected families. However, there are families that work through the difficulties and come out as a stronger unit. This normally depends on how the family members communicate during that period. Effects of downsizing on the community in general The economic effects of downsizing are not limited to the dismissed individuals and their families alone. Jobs usually provide â€Å"stability for individuals, their families and the communities they belong to. Salaries of the employed usually flow back to the community when they buy goods and services† (Hossfeld, Legerton, Dumas, Keuster, 2005). When mass layoffs are carried out, particularly in times of economic hardships, the effects tend to be felt throughout the community. A study carried out in Robeson County, NC, to identify the effects of loss of employment on the community, established that the loss of employment due to loss of manufacturing activity caused far reaching economic implications to the Robeso n community (Appendix 1). In times of widespread economic problems like the global financial crisis, many companies downsize to better manage their resources. When a significant number of employees lose their jobs as a result of widespread downsizings, the ripple effects are felt in the community. Other sectors, particularly the service sector, will register decreased profits as a result of reduced spending by their clients. Layoffs also increase the existing level of unemployment in the community. The unemployed members of the community usually find it hard to meet their basic needs. Studies have shown a high incidence of poor health in the unemployed. This includes disease such as diabetes, pneumonia, bronchitis, influenza, and other specific chronic illnesses (Sahdev, 2003). Children who are born in families with parents who have lost their employment are likely to have long-term educational and social problems (Mroczkowski Hanaoka, 1998). The family stress that is associated wi th the loss of employment has been identified as a major cause of behavioral problems in their children (Hossfeld, Legerton, Dumas, Keuster, 2005). Loss of work through downsizing and other causes also results into social divisions. In most cases, the less fortunate in the society are contempt to live less affluent older industrial areas. Effects of downsizing on the remaining employee’s morale Downsizing has been known to impact negatively on the morale of the remaining employees. Most employees acquire friends and mentors among people at their place of work. Such close people might be affected during a downsizing activity. The remaining employees may be affected in a number of ways that will impact his/her confidence levels, interpersonal relationships, and perception of job security (Sahdev, 2003). In today’s society, many people are spending more time with their coworkers as compared with their families. Many employees are usually heartbroken to see their coworker s sacked (Sahdev, 2003). Downsizing impacts heavily on the sense of familiarity and the support networks developed by employees (Sahdev, 2003). The trust that had existed between different sections of the company will need redevelopment. Apart from loosing key friends and colleagues, downsizing will cause fear among employees. The remaining employees may feel that they will be targeted in the next round of downsizing. Studies indicate that downsizings usually happen in waves, as the management experiments and gauges the effect. The fear that one might be targeted in the next round of downsizing affects his/her productivity. Such employees may begin to consider other options that are available to them even before they are laid off. Downsizing also affects the employee’s confidence in the employer. Most companies fire people when things are not working as expected. While the company may cease further downsizing, workers will be aware that other measures will be instituted to cu t spending. They might be subjected to pay cuts, lower allowances, and reduction of business trips among other cost cutting measures (Sahdev, 2003). This may result in a less motivated work force. Relevance of Downsizing as Measured by the Objectives Many companies usually find it necessary to reduce their work force in order to survive through hard times and achieve improved efficiency. However, studies indicate that the stated objectives of retention are rarely achieved by the organizations that indulge in the practice (Mroczkowski Hanaoka, 1998). A study conducted by Wyatt found that only a third of the 1,005 corporations included in the study, had gained from layoffs (Tyler Wilkinson, 2007). Less than a third part gained higher than what they had anticipated, while four out of five had to hire again to refill the vacant positions left after downsizing. Indeed downsizing only serves as a short term reprieve for the company. In the long term most companies are not able to show a ny gains from previous downsizing strategies. Some of the issues that affect companies after downsizing have been described above under the effects on the morale of the employees. The adverse effects associated with corporate downsizing can be partly related to the focus on the outgoing employees rather than those who remain back. Managers tend to concentrate on offering counseling, training and other support services to the laid off staff. While there is no doubt that the laid off staff need such services, it should not be done at the expense of the remaining employees, who are equally affected (Baumol, Blinder, Wolff, 2003). The effects of downsizing on the morale of the remaining employees have been discussed earlier in this paper. Companies that carry out downsizing should rethink the strategy because it is least likely to improve efficiency (Tyler Wilkinson, 2007). The practice only results into great psychological and physical suffering of the affected employees and their fa milies. Thus, firms should develop other strategies of dealing with short term financial problems rather than indulge downsizing activities. Many studies have shown that sacking is a practice that is negatively viewed both from inside and outside the organizations (Cascio, 2002). Conclusion This paper sought to establish the effects of downsizing on the employees, communities, and the families of the employees. The paper also aimed to discuss the current or future applications and relevance of downsizing. It has been established that downsizing impacts negatively on dismissed employees, their families, and the community in general. The effects are mainly economic, social, and psychological. The practice also negatively impacts on the remaining workforce and the reputation of the organization that indulges it. According to the findings of many research studies, downsizing is not that relevant as it does not serve the intended purpose in most cases and only creates a lot of suffering for the dismissed employees and their families. The practice has contributed to a significant level of rebellion against capitalism in several areas of the world (Mellahi Wilkinson, 2004). Downsizing should only be carried out in justifiable circumstances such as technology upgrade or major change in company’s operations. References Bain Company. (2010). Downsizing. Retrieved from Management Tools: https://www.bain.com/insights/management-tools-2011-downsizing Baumol, W., Blinder, A., Wolff, E. N. (2003). Downsizin in America:Reality, Causes  and Consequences. New York: Russell Sage Foundation. Cascio, F. W. (2002). Strategies for responsible restructuring. Academy of Management  Executive , 16(1): 80-91. Hossfeld, L., Legerton, M., Dumas, C., Keuster, G. (2005). The Economic and Social  Impact of Job Loss In Robeson County North Carolina 1993-2003. Lumberton:Center for Community Action. Mellahi, K., Wilkinson, A. (2004). Downsizing and Innovation Output: A Review of  literature and Research Propositions. London: British Academy of Management. Mroczkowski, T., Hanaoka, M. (1998). Effective downsizing strategies in Japan and America: Is there a convergence of employment practices? Academy of  Management Review , 22(1): 226-56. Sahdev, K. (2003). ‘Survivors’ reactions to downsizing. Human Resource Management  Journal , 13(4): 56–74. Tyler, M., Wilkinson, A. (2007). The Tyranny of Corporate Slenderness.  Understanding Organizations Anorexically, Work, Employment and Society , 21: 537-549. Appendix Appendix 1: Impact of loss of employment in Robeson County This term paper on The implications of downsizing to the employees, communities and families of the employees was written and submitted by user Adam D. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.