Although my immediate family has been lucky enough not to fall victim to layoffs or downsizing, however, I have friends and relatives who have not been as lucky. My uncle is a good example. He had worked for a utility company for 25 years, rising through the ranks to become the head of the sales division. However, in 2007, the company was hit hard by the global financial crisis and one of the restructuring strategies adopted by the management was to outsource the sales department.
Consequently, the entire sales team was laid off. In the months that followed, my uncle sent letters to numerous companies but very few bothered to reply. The economy was in crisis and few firms were hiring. The family’s home was repossessed by the insurance companies for defaulting to pay mortgage fees. My uncle slumped into depression because his family had no roof over its head.
He was so desperate that he had to pump gas at a local gas station owned by a friend for a whole 4 months. His teenage son and daughter took part-time jobs to supplement the income of the family. The mother, hitherto a stay-at-home mom, registered with a number of online companies as a freelance online writer. Indeed the layoff has caused psychological and financial anguish to my uncle and his family.
Downsizing is the result of a change in the economy, such as the reduced demand for a company’s products. This may have been occasioned by an economic recession, or even when the main products of an industry are no longer fashionable.
Another reason why a firm may decide to downsize its workforce is when it fails to keep pace with the recent development in technology (Baumol, Blinder & Wolff, 2005). When a firm suffers from an inefficient workforce, this means that its products shall not be competitive enough to compete with the best in the industry, and hence the reduced demand (Shaw & Barry, 2001).
There have been claims that downsizing is inevitable for a firm. However, it is perhaps best to view this as an issue of perception, more than anything else. When top managers are about to make announcements about workforce reductions and layoffs, one of the common statements issued is that downsizing is inevitable, and that it is a natural law of globalization or capitalism.
In his article, ‘perceptions of organizational downsizing’, Robin Sronce identified several perceptions regarding this issue: downsizing comes about due to a natural law of capitalism; from a corporate point of view, downsizing is inevitable; organizations have to undertake a downsizing activity; downsizing is often expected as part of the business cycle and; downsizing has been occasioned by our economic system (Sronce 2007).
Downsizing is a necessary activity to help organizations improve their profit margins. Consequently, they have to reduce their workforce as part of their restructuring exercise. Under such circumstances, downsizing is necessary especially when certain departments of a company have too many employees, thereby increasing their inefficiency (Ayling 1997).
Companies with unresponsive communication systems, duplication of efforts, and unresponsive administrative functions are also likely to downsize. Under such circumstances, it makes sense for a company to downsize, at least to stay afloat. Job security is no longer guaranteed. In fact, it is a thing of the past. An increasingly higher number of employees have come to accept it but it is creating a new problem at the workplace altogether.
Owing to the looming danger of unemployment occasioned by layoffs, employees have become quite suspicious because no one knows where the axe shall fall next. Consequently, this has also dampened employee loyalty to the company because their future is not guaranteed.
Also, the innovative spirit of the employees, their tendency to take risks and level of creativity are all likely to reduce, further adding to the woes of the company (Baumol et al, 2005). With downsizing comes an increased load of work for the remaining employees. On the other hand, downsizing can be a good thing for the remaining employees because they are forced to work hard and target high profile positions so that in the event of another downsizing activity, they do not fall victim.
Competition is a key feature of capitalism. Capitalism breeds a state of oligopoly in which we have a few firms in the industry characterized by concentrated economic power. Consequently, competition is eliminated and we have a few dominant firms in the market that sets the price of products in the industry.
As such, the market environment is dictated by these few firms. Capitalism has also helped to usher in a free market and automation. Automation forces inefficient firms to close shop. On the other hand, intense competition in the market forces companies to either adopt novel technological advances and innovative ways of running their business activities to avoid elimination.
A company may have a sound justification for downsizing its human resources but in spite of this, laying off productive and loyal employees who have been with the company for a long time can be quite an upsetting experience. This is because such employees fall victim to both psychological and financial injury. Most people view the workplace as the place to maintain and develop relationships. It is our second home. Our work defines who we are, in addition to giving meaning to our lives.
However, once we have been laid off, all these things get compromised. Inasmuch as we have economic and legal ramifications for downsizing, nonetheless, downsizing can be considered more of an ethical issue. As such, a good manger should endeavor to protect not just the legal and financial interest of a company, but also the integrity and honor of its employees (Shaw & Barry, 2001).
Sometimes, layoffs may violate the rights of workers. Employees should be aware of an impending layoff but sometimes firms fail to inform them in advance. The Worker Adjustment and Retraining Notification Act holds that employers needs to make their employees aware that a layoff is on the way, or that the plant is about to shut down depending on the size of the firm.
There have been reported cases of companies that closed plants abruptly without notifying their employees of these recent developments and from this context, this is indeed a violation of the law. There is a need therefore to ensure that plant closures, layoffs and outsourcing activities are regulated to avoid a collision of unions, companies, and the local government.
CEOs who lay off thousands of workers are often rewarded with a handsome pay package. This revelation is an indication of great unfairness at a time when a company is faced with a recession. This is because CEOs reduce their workforce as a strategy to boost the short-term profits of the company and at the same time, ensure that they take home a fatter paycheck.
At face value, such revelations may appear somewhat shocking but looked at from another angle we need to consider that the primary obligation of a CEO is to ensure that the shareholders to the company get the maximum value for their investments in the company.
Accordingly, CEOs are out to please their shareholders first, before they can satisfy the employees (Ayling, 1997). However, such a perspective puts to question the ethical concern of a company on its employees. It would mean that employees are just tools for enabling a firm to attain its economic goals. Firms should endeavor to balance the social, economic and ethical concerns for all the stakeholders, including their employees.
For a long time, manufacturing has remained the backbone of our economy. Also capitalists have made a fortune through the manufacturing sector. In the last few decades however, manufacturing has been on the decline, thanks in large part to international competition. In the mid-1960s, manufacturing contributed more than a quarter of America’s GDP (27%). This has however reduced by nearly 50%.
Today, manufacturing sector employs not more than 10 % of Americans (Shaw, 2007). The future therefore looks bleak for the manufacturing sector in the U.S. Outsourcing holds the future for the manufacturing sector. We are likely to witness a lot more companies outsourcing their manufacturing departments to the emerging economies because labor is cheap and since they have to remain in competition.
The global recession that was triggered by a slump in the housing market in the US is thought to have begun due because Americans had a lot of faith in the free market and that it regulate the economy. This is a fundamental component of the “Anglo-Saxon” capitalism. One thing that Americans need to learn from this is that we should all aspire to live within our means. This way, we avoid going into massive debts.
Ayling, R. (1997). The downsizing of America. New York: Nova Pulishers.
Baumol, W. J., Blinder, A. S., & Wolff, E. N. (2005). Downsizing in America: reality, causes, and consequences. London: Sage.
Shaw, W. L. (2007). Business Ethics. Stamford, Mass: Cengage Learning.
Shaw, W. H., & Barry, V. E. (2001). Moral issues in business. Ohio: Wadsworth, 2001.
Sronce, R. (2007). Perceptions of organizational downsizing. Journal of Leadership & Organizational Studies. Web.