CAUSES AND EFFECTS OF EMPLOYEE DOWNSIZING
Welcome to the STRUGZ platform where life principles, careers, and business tips are shared. We are aware of the aftermath of the pandemic which occurred in early 2020 and other financial crises have led most organizations to downsize employees to attain maximum productivity. In this week’s edition, we would discuss the causes and effects of employee downsizing and how these affected employees can manage the situation.
“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 to achieve improved service and financial performance”.
Many companies lay off their employees due to a variety of reasons that may include the following:
1. When the service of an employee is no longer required owing to a technology upgrade.
2. An internal shift in the requirements of the organization.
4. 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, the Nigerian economy was also in an upbeat mood then, the nation had just conducted expensive but controversial general elections, and the elected officials were just settling to tackle the developmental issues at hand. Confidence was gradually returning to the economy as oil prices were trending up, which was reflected in the positive macroeconomic indicators and market indexes recorded during the period. The impact of downsizing is felt hardest by the departing employees as well as their families and the community in general. This article seeks to establish the effects of downsizing on the employees, communities, and the families of the employees.
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 is 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 employment contract provides a severance pay policy. There are rules and guidelines that organizations are required to abide by when downsizing.
These include the provision of an early notice and severance pay. Receiving severance pay can be positive for some employees as it can enable them to boost their savings or fund their own business ventures.
It is depressing for a worker to hear that he/she will be laid off. However, this fact presents other opportunities that 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 work conditions.
Negative effects: As stated earlier, the negative effects of losing a job far outweigh the positive effects. The negative impacts can be broadly categorized into psychological and financial effects.
Most employees get shocked when they learn about they are sacked. Initial emotional reactions may include bitterness and anger toward the company. Several other psychological effects may come along the way. These effects commonly include depression, increased anxiety, and subjective perceptions of incompetence.
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.
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 enjoyed before. They are forced to cut their spending to accommodate themselves to their 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 meet their basic needs.
Families that have no emergency savings usually suffer the most. Basic things like food usually turn into luxuries that they can barely afford.
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 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.