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The Great Depression, Volatility and Employee Morale Thesis

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Updated: Jul 10th, 2022

During the year 2008 alone, about 2.6 million jobs had disappeared in U.S.A as unemployment rate was hovering around 7.2 % in the fag end of 2008. (US Labor Department). It is painful to observe that more than 1 million jobs had vanished in the last three months of 2008 alone. The job loss reported in 2008 was the highest since 1945. There is strong evidence that the present economic chaos in the U.S was creating “grave employee related moral issues and linked performance and behavior issues. The current economic impact in the U.S has affected the employee’s fear and morale. Thus, my Research will conclude how current economic crisis have triggered the lay off decision by corporations in U.S.A and how the morale of the employees is deteriorating with the statistical evidence and corroborative evidence on the subject.

Definition of Project variables

I used a mixed methodology while conducting this research; qualitative to understand the behavior of employees and quantitative to look into data that pertained to the qualitative study. In this research study, economic recession is identified as independent variable and layoff has been identified as dependent variable.

Scope of the project Research Objectives

My research question is “Does employee morale in corporate America ultimately affects the way the economy functions in the U.S.A?” The purpose of the present investigation study is to understand the morale of employees in corporate America on how it affects the way the economy functions in the United States.

Business case and need for research

In this research study, the recent layoff initiatives perused by Google, Ford, Chrysler, General Motors, Boeing, Microsoft etc had been analyzed in detail to corroborate the same with the research objectives.

Rationale and Research Benefits

My hypothesis is that employee and even management treatment at their job can ultimately trickle down to how the economy itself functions. I believe it is important to succumb to high employee morale, because ultimately this will affect the way a company functions as a whole and carry on over to Wall Street and the economy. I am hoping that my findings will generate awareness starting at the bottom working towards the top with employees, management and executives, with that creating an awareness of self-worth in corporate America, because I believe this is how good business is conducted and is to be conducted.

Problem Statement

Majority of past research studies on the subject focused on consequences and antecedents of layoffs. (Brockner, 1988). Only recently, researchers started to look into the effect of layoffs for the surviving employees. (Brockner, 1988). Some of the survivor’s psychological experience includes:

  • Insecurity feeling in job. In case of layoffs, the existing employees will have fear that further down sizing may be introduced at any time.
  • Feeling of positive-inequity. If employees feel that they did not “justify” remaining inconsequential to their dismissed collogues.
  • Feeling of antagonism- if the surviving employees feel that strategies of layoffs or the layoff itself were illegitimate and inappropriate.
  • A feeling of relief – if survivors were in anxiety before the layoffs that they might me laid-off.
  • The psychological conditions that layoffs create the potential to distress surviving employees work attitudes and behavior. (Brockner, 1988).

Problem and hypotheses

Research methodology

Previous empirical studies and researches on varied causes, dynamics and effects of downsizing were limited. (Cameron, 1994). Further, majority of downsizing ended in failures in the past. Many collections of published works, which dealt with the recent ideas and debates of the employee morale and its impact on the U.S economy were examined, analyzed and deliberated. Some case study examples and evidence from various corporations had been widely discussed in this research. To support the theme and idea, this research study had utilized the data’s published by Bureau of Economic Analyses (BEA), Bureau of Labor Statistics of U.S; research studies carried out on the subject by various private research institutions, previous empirical studies and from peer viewed journals to corroborate its findings.


According to the Bureau of Labor Statistics of the U.S, in November 2008 alone, about 2328 mass layoff sanctions were announced and about 224,080 were unemployed. Further, the unemployment rate was hovering around 6.7% during November 2008.

Table 1. Key Figures of U.S Economy as of November 2008.

Consumer Price Index -1.7%
Unemployment Rate 6.7%
Payroll Employment -533,000(p)
Average Hourly Earnings + $0.07 (p)
Product Price Index -2.2%(p)
Employment Cost Index +0.7%
Productivity +1.3%
U.S Import Price Index -6.7%
Unemployment Initial Insurance Claims 554,000 as of December 13,2008
Unemployment Insurance Claims 4-Weeks Average 543,750 as of December 13, 2008
Federal Minimum Wages $6.55

Table 2. Total Mass lay offs events in 2008 in U.S.A.

Period Events Initial Claimants of
Unemployment Insurance
First Quarter of 2008 4005 388,552
Second Quarter of 2008 4446 457,023
Third Quarter of 2008 4610 469,967
October and November 2008 4699 463,373

According to the public press note made by the Bureau of Economic Analyses (BEA) released on December 23, 2008, the real gross domestic product (GDP) of U.S.A fell 0.5% in the third division of year 2008 as contrasted to an increase of 2.8 in the second division of year 2008. The declining trend in real GDP growth was due to a wider decline in consumer spending and a slump in export’s rate. In other words, due to lay offs, consumer spending was down and due to lesser exports, there were increased lay offs. Further, corporate profits fell 1.2 % in third quarter of 2008 which was the fifth consecutive quarter of decline.

There is strong evidence that

  • The present economic chaos in the U.S was creating “grave employee related moral issues and linked performance and behavior issues.
  • The current economic impact in the U.S has affected the employee’s fear and morale.

From the above statistics, it was evident that there was a direct correlation between employee morale in corporate America as layoff decisions had influence on the morality of the employees and the way the economy functioned in the U.S.A. No doubt, recession in the American economy had pushed the corporate sales down and resulted in lower exports which triggered the layoff in the 3rd quarter of 2008 which ultimately affected the morale of the corporate employees in U.S.A.

Giant companies like Nortel, Xerox, Motorola, Lucent, Cisco, Compaq, General Motors, Ford, Chrysler, Microsoft, Google and Dell had announced workforce reduction in draconian numbers due to economic recession. Other non-high tech industries like Air Canada and Bombardier had also announced workforce reduction. Boeing, being the second largest plane manufacturer announced about 4,500 job cuts on January 10 2008 thereby joining Alcoa Inc, 3M and Caterpillar Inc. Further, in December 2008 alone, about 500,000 non-farm jobs had disappeared from U.S economy, which according to American government, was 16-year high.

Table 3. Details of layoff announced company wise in U.S.A currently.

Company Name No of laid-off employess
City group 59,000
Bank of America 35,000
HP Electronic
Data Systems
Linen n Things 21,250
General Motors 19,000
Lehman Brothers 16,000
Alcoa 15,200
Starbucks 12,000
AT&T 12,000
Wachovia 11,250
DHL ( USA Division) 9,500
Bennigan’s Restaurants 9,300
JP Morgan 18,630
Dell 8,900
Sony USA 8,000
Countrywide (BOA) 7,500
Circuit City 7,305
American Express 7,000
NASA 7,000
American Airlines 7,000
Google 4,300
Sun Microsystems 6,000
Credit Suisse 5,300
Merrill Lynch 5,650
Reliance Group 5,000
GMAC 5,000
Dow Chemicals 5,000
Morgan Stanley 4,100
Fidelity Investments 4,000
Sprint Nextel 4,000
University of Texas 3,800
Siemens Enterprise 3,800
PepsiCo 3,300
Goldman Sachs 3,260
Lehman Brothers 2,900
Nokia 2,300
Daimler Trucks 2,100
Nortel Networks 2,100
Chrysler 1,825
International Paper 1,000
Yahoo 1,000
HSBC (USA) 1,350
Lenovo 1,250
Nissan(UK) 1,200
Macys 960
Lockheed 850
Boeing 800
Woolworths 700
Nokia 650
Texas Instruments 650
Adobe Systems 600
AMD 500
Level 3 Communication 450
Barclays 400
E-Trade Financial Corp 278
Palm 200
Akamai 110
Walgreens 1000

Table 4. Possible Layoffs in the Year 2009.

Company Name No of laid-off employess
KBC Toys 15,000
Whirlpool 5,000
Data Systems
Unspecified number
Biglots Unspecified number
AK Steels Unspecified number
Waterford / Wedgewood Unspecified number

Table 5. Closure of Retails stores resulting in loss of employment.

Stores Name No of retail stores closed
Ann Taylor 117
Movie Gallery 378
Spirint / Nextel
Data Systems
Ethan Allen 12
Dell 140
Friedman’s 120
Pier 25
Sigrid Oslen 54
Talbot’s Kids/Men’s 78
Home Depot 15
Eddie Bauer 29
GAP 85
Footlocker 140
Bombay 384
Disney 98
Macy’s 11
JC Penny Scaling back
Loews Scaling back
Sharper Image 184
Wilson Leather 160
Pep Boys 31
Pacific Sunwear 154
Zales 105
Cache 20
Lane Bryant 40
KB Toys 356
Dillard’s 26
Fashion Bug 100
CompUSA All stores
Linens N Things All 371 stores
Mervyn’s All 149 stores
Club Libby Lu All 78 stores
Steve & Barry’s All 173 stores
Sergio Rossi All stores
Office Depot 126 stores
Rite Aid 181 stores

Research Objectives

  • To decide whether the downsizing deteriorates the morale of the employees.
  • After downsizing, whether the chances of performance of survivors will improve or deteriorate?
  • To know whether trust can be reconstructed after layoffs.

Research Questions

  • What effect does downsizing have on surviving employees?
  • How does perception of management of the effect of down-sizing on productivity differ from employees’ view?
  • Whether employee morale enhance, if management offers favorable incentive?


Economic downturn is not a new phenomenon in the U.S.A. In the past, the U.S.A had survived many downturns like Great Depression that lasted from 1930 through 1939. (Waggoner, 2008).

However, according to ACI Specialty Benefits, an employee assistance program service is of the opinion that the current economic turmoil would be harsher for working class than earlier economic recessions.

What is more of a concern is that the growing rate of unemployment in the second half of 2008 as evidenced by the above table. In an unprecedented trend, the unemployment rate has risen by 1.7% points in one year period starting from October 2007 and October 2008 and currently hovering around 6.5% in U.S.A.

Many observers are of the view that the current economic downturn holds distressing resemblance to the beginning of the Great Depression. Both in the great depression and in the current economic downturn, stock market crashes brought down investors’ net worth and minimized spending. The Dow fell about 47% in 1929 whereas in October 2007, the Dow fell by 42%.

During the Great Depression, the banking industry was worst affected due to speculation and bad loans. In the recent subprime mortgage crisis, discreet home loans were issued right and left to homeowners and loans were sanctioned for investment in mortgage-supported securities.

In 1929, more than 5000 banks collapsed and ceased to lend to shun further losses. During current subprime mortgage crisis, banks are lethargic in lending to shun further losses and credit markets have come to a virtually halt status.

In October 2008, a research carried out by Equa Terra for Workforce Management, an advisory firm with 300 HR professionals in U.S revealed the following:

  • About 25% of respondents were of the opinion that the present economic chaos in the U.S was creating “grave employee related moral issues and linked performance and behavior issues.
  • The current economic impact in U.S has affected the employee’s fear and morale.

One other research study conducted by Workplace Options, a benefits provider with about 710 adults exposed that all of the respondents replied that they were going through severe stress due to financial distresses. About 49% of the interviewed replied that stress due to present economical condition in U.S.A made them hard to achieve sound results on their employment.

What is downsizing?

Downsizing can be defined as planned reduction of jobs and positions. It does not include normal retirement or resignation from the job. (Cascio 1993). Layoffs can be defined as involuntary, permanent ousting of individuals from a company mainly to reduce costs. It relates to permanent dismissals and does not include temporary dismissals. Layoff is not associated with inadequate or inappropriate work behavior. (Brockner, 1988).

Downsizing, often called layoffs, illustrate the procedure in which companies minimize either indefinitely or for the time being a sizeable number of employees from their payroll. It is like running the ship with reduced crews. There are varied motives why company’s layoff is creating dramatic changes to the background of its organization. Economic recession, the breakdown of trade barriers and globalization among nations and the materialization of automation and technology have also obliged companies to downsize.

Downsizing is essentially needed when there is mismatch between rising or stable costs and declining revenues that make the companies to adjust the rising cost as increase in sales could not be achieved during economic recession times. One another reason why companies are eager to downsize is that they want to demonstrate to Wall Street that they could keep their profitability intact even at the odd times. In actual parlance, there is no direct correlation between stock price and layoff decisions. It is evident that Nortel’s shares continued to tumble several months even after its layoff decisions. Thus, layoff decisions, in the present economic scenario, are construed as an indicator of grave concerns, rather than a sign of productivity gains.

The recent approach to managing recession is known as “demassing programs”. Fundamentally, a demassing program includes the following:

  • About 5 to 15 % relatively large reductions are introduced and more concentration on middle-level work force reduction.
  • Mass scale reduction that affect main functions, if not all, departments and divisions.
  • Deep downsizing that normally cover all the level of the organisation.
  • Priority on lowering head count by downsizing costs.
  • Priority on finishing the downsizing exercise as early as possible. (Tornasko, 1987, p.29).

While some companies considered the demassing as a mean for the companies to survive, other saw it as an expedient notion for putting off decreased earnings due to poor management. (Borucki & Barnett, 1990).

However, if layoffs are to be of short-run in nature, the outcomes may be drastically disgusting. Approximate short-run savings in employee benefits and salaries so saved may be counterbalanced by the costs of early retirement benefits, severance pay and probable lawsuits. Further, companies in their revamping exercise, there is a possibility of loosing experienced employees and their expertise and may incur additional costs in recruiting and training new employees. For instance , one –year time horizon is contemplated by the management , then the cost of severance payments for an employee will normally exceeds his six months salary and in such cases , the reduction in workforce will not likely to offer the anticipated savings.

For companies, there are no fixed norms or guidelines for downsizing measures. The only guideline employed by the majority of corporate is their past data on their own downsizing, anecdotal data from their counterparts who have already downsized or a raze feel for what is correct. (Cameron, 1994).

In layoff decisions, another question arises as to which areas or divisions of the company or whom to layoff and to what quantum is another difficult task for the management. Usually, management will focus on business support and infrastructure functions rather than on customer-relation categories. However, in recession economy, due to waning demand, normally, the customer base used to minimize or creates lesser revenue for vendors.

Hence, there will be a mismatch between the quantum of orders secured to the company by the sales division to the size of the sales force. The only rationalization for keeping a high numbers of sales personnel to orders or customer is to foster groundwork for the future by constantly creating product awareness and assuring presence in the major markets or geographies to ensure better market share during boom periods. Thus, this needs foresight and requires some sacrifice in other insignificant areas. However, during recession times, the sales employee’s turnover will also be high as they feel that their commission and benefits have shrunken due to slump in sales. Thus, this affects their morale and may not be good for the integrity of the company.

For companies to carry out efficient downsizing, it must pursue the following steps:

  • Reinforcement of company goals and values,
  • Education, dignity and honesty at all time
  • Scheduling and communication.

Further while downsizing, the important objectives to be pursued are fixing a clear goals and vision, managing the changeover efficiently, scheduling, perceptiveness, teamwork, empathy and skills.

Confronting the danger of job loss and witnessing others who lose their employments can be a harrowing and irritating experience for the surviving employees. This is one reason why many top most companies exercise all possible means to circumvent layoffs. However, in case of economic recession or downturn even the most employee-gracious companies may encounter with intricate economic scenarios by downsizing their workforce. Thus, the paramount motivation for downsizing by the company seems to be the need for endurance and the capacity to vie in the new global economy (Beylerian and Kleiner, 2003).

Downsizing and Employees Morale

Due to financial reasons, if downsizing is perused, then employees may have a negative opinion and treat the management as untrustworthy and as the result, there will be diminishing personal commitment to their job. (Ewing, 1994). Insecurity in job may lead to lower confidence on the organizational direction and leadership. Guilt, anger, anxiety, resentment, apathy and withdrawal may be the outcome when there is uncertainty over how they will fit in to the demand of the management. (Lehrer, 1997).

Due to successive work force reductions, surviving employees are not able to bear the trauma of these job cuts. Though layoffs resulted in savings in cost, it had often resulted in stress, chaos, conflict and resistance for professional employees. Employees are in the belief that they will have their job for their life and losses confidence on job cut announcement. Their lack of confidence minimized their trust in their corporation’s leadership and management. (Lehrer, 1997). Due to layoff decision, some of the employees retained may subsequently feel helpless and low morale.

Methodology for Downsizing and Layoffs

For the company to perform successful and effective downsizing, the following procedures should be followed:


The company requires to inform its employees on the necessity of the downsizing through regular meetings with employees in feedback sessions or focus groups. This will send a clear message to employees that the management is sympathetic to their requirements and at the same time, employees will assist the management to devise an efficient downsizing agenda. Education can also be initiated in structuring the training to the employees as they have to visualize beyond their present duties and roles, to make up their mind for undertaking additional roles and tasks in the occasion of a downsizing.

Strengthening of the company values and goals

The management must make sure that the mission, objectives, vision and values of the organization are obviously pronounced and strengthened at every occasion so that the employees espouse them. Thus, in the event of a downsizing, employees will be in better position to comprehend the underlying principle of the downsizing. This has to commence with the guidance from the CEO and be strengthened by HR practices and policies that sustain these values.

Support by management

Management should also deal with the employees with sympathy during a downsizing. HR, in particular, should take care of each displaced employee in whatever manner the company can assist or support in their outplacement needs (Greenspan, 2002).


A successful workforce planning is crucial for effective implementation of layoffs and downsizing for to be effective. For a management to implement a thriving workforce management strategy, it must first appreciate the cost-reduction stage of characterization of its present business status. This demonstrates how much time the company requires to minimize expenditures and takes into recognition the present economic scenario and the probable length of the economic downturn. It is better to carryout downsizing in stages which will allow for an improved categorization of suitable downsizing practices.

First Stage of Downsizing Strategy: Short Range Adjustments

This stage originates from a provisional slowdown in business and is recognized by a reduction in short-term revenue forecasts. A company in this stage requires introducing minor cost-reduction strategies to cope with the short-term change. Certain best practices connected with this stage include:

  • Encouraging cost reduction strategies from employees
  • Implementing a freeze on hiring
  • Granting compulsory vacation
  • Compacted workweek
  • Shutting down of temporary facilities. For instance, Ford has shout down its Tennessee plant due to economic downturn
  • Restructuring of employee’s wages.

Stage Two: Adjustments in Mid Range – Secondary Cost Reduction

The necessity to put into action this stage is when the company identifies that the expenditure adjustments will take over six to ten months. In this second stage as in stage one, the HR department and upper management must clearly put across the fundamental goal of the expenditure adjustments to the employees and express that they are trying to shun introducing a more rigorous cost reduction strategy. Some of the best practices connected with this stage include:

  • Reduction of salary for extended time period
  • Voluntary vacations
  • Lending of employees –A company employee is being lent to another company for a specific period of time

Phase Three: Long-Range Adjustments

These adjustments are required when a company needs to implement reduction in expenditure for about 12 to 24 months. This phase contains of actions introduced by the HR department. The cost reduction strategies should spotlight on minimizing the impact on employees and downsizing in a way that laid-off employees have a craving to return to the company when the economy resurrects. Some of the best practices connected with this phase are:

  • Laid-off employees should be communicated on continual basis
  • Offering rehiring bonuses
  • Offering severance and stock option packages
  • Convening Job fairs for displaced employees


To foster a sense of opportunity rather than relief, “effective communication is needed before, during and after the downsizing. “ The need for the downsizing is to be communicated which should include credible notice and of the reality that it results from prospicience rather than managerial incompetence or greed”. (Bradform,1997). An open and effective communication will thus complacent the “survivor low morality” of the employees who were escaped from layoff as they aware that the laid-off workers were given adequate time to search new jobs. In the case of the dislodged worker, his/her productivity will not go down as rapidly as he/she had more advance notice. This will assist in securing the assurance of the employees as they will observe that downsizing is necessary for the company’s endurance and that the action of the management can be taken into confidence and appears to be reasonable.

Companies have also started to worry about the deterioration of employee’s productivity due to stress on the current economic condition of the country. Many companies like HCT Technologies, Western National Group and BlueCross Blue Shield of Tennessee are initiating multiple steps to boost the morale and spirit of the employee by communicating to them through e-mails thereby educating them that company’s financial fitness and offering assurances that there will not be any laying off employees due to current economic crisis in U.S.A.

According to the Associated Press / AOL recent survey, due to subprime mortgage issue and general recession in banking, insurance and automobile industry, employees working in these industries are experiencing higher stress levels and this stress ultimately land them in heart diseases and ulcer.

The extent of economic distress among the U.S working force has attained such new heights due to factors like huge downturns in the stock market, issues related to mortgage concerns, escalating food and gas prices, depletion of health care advantages and well-grounded concerns of layoffs.

Further, according to the survey conducted by Watson Wfyatt Worldwide, a consulting firm exposed that about 25% of U.S employers anticipate to lay off some of their employees in the year 2009.

Already some are on the job, for instances, Goldman Sachs, a leading financial services firm, had already trimmed down its employee’s pay structure and are having a program to reduce the workforce by 10 % of its total employee’s strength of 32,570.

Western National Group, an Irvine based property management firm announced that it is going to freeze the salaries of its employees for the next year. The management feels that by carrying out salary freezing, it could keep its employee’s moral and spirit in good terms and also it will help them to retain the talented employees by assuring employment during the downtrend period.

On the other hand, HCL, a technology service firm, has sent communiqué to its 50,000 employees in India that no employee would be stripped out of his job due to the American economic downturn. Instead, it sought cooperation from employees in minimizing expenses and being amenable to work sites. Since the motto of HCL is “Employees First”, it does not want to loose talented employees just because of economic downturn. Though, the major chunk of HCL revenues is emanating from U.S clients, HCL Technologies well aware that the economic downturn in U.S will have direct bearing on its performance. However, to HCL, investments in human resource have permitted the company to recoup from hard times with more competitive advantages as regards to employees and clients.

During first week of October 2008, BlueCross Blue Shield sent a communiqué to all its employees explaining that its financials are vibrant and is able to fund its daily operations with the internal accruals and is not influenced by Wall Street’s swings. No doubt, this is mainly to keep the employee’s morale in high spirits.

The main intention of such communiqué to employees in downtrend period is considered to be an action of assuaging the feeling of employees. Such communiqué would not only make employees to involve in appreciating the business aims but also bolster confidence in attaining the business success in the long run.

On the other hand, Macy has announced that it is having positive edge over its competitor’s and its financials appear to be brawly as compared to its competitors despite of the fact that there was some decline in its turnover. Further, Macy assured to its employees that they can have access to a variety of assistance schemes it is having for employees like assistance to come over depression, stress and financial matters.

Recession effect in automobile industry


According to Bob Nardelli, CEO of Chrysler, if Chrysler decides to close its shop, then it would mean a loss of 53,000 jobs immediately and loss of about 1, 40.000 jobs by closing its 3,300 units of Chrysler dealership. Unlike General Motors and Ford which are public companies which would have normal, open disclosure policies, Chrysler is owned by a private equity firm and hence it is not subject to disclosure policies as applicable to public companies. If bail-out funds are made available to Chrysler, then due to its business policy, one cannot judge how it is actually using the funds to revamp the company.

As a revamping plan, Bob Nardelli, CEO of Chrysler agreed to work for Chrysler at just $1 per year from 2007 onwards. It is to be noted that there is virtually no other benefits like health insurance, life insurance, restricted stock or stock options scheme, bonus and salary until Chrysler return to profitability. (Finance Wire, 2008)

General Motors

General Motors is a U.S based multinational company engaged in the manufacturing and selling of trucks, cars and spare-parts. GM had delivered 9.4 million truck and car world wide in the year 2007 alone. Some of its famous brands are Cadillac, Chevrolet, and GMC. Further, GM also holds equity ownership holdings through multi regional subsidiaries like GM Daewoo, Shanghai GM, CAMI Automotive Inc and SGMW. These subsidiaries holding companies engaged in designing and marketing the brand vehicles like Cadillac, Daewoo, Suzuki and Chevrolet. Other than manufacturing activities, GM is also engaged in after sales services through its dealer outlets like small repairs, maintenance, vehicle parts, collision repairs and offering extended service warranties.

It is to be observed that automotive business is a seasonal one and manufacturing pattern differs from month to month basis. Due to constant vehicle model changeovers and new market entrants, changeover happens throughout the year. Usually, in auto industry, annual plant shutdown and product changeover will be taken over in the third quarter of a financial year and hence in the third quarter, operations results will be much lower as compared to other three quarters of the year. Further, market for car is associated to consumer spending pattern and general economic scenarios which will have great bearing on the sales. Moreover, consumer spending and preferences will also be influenced by the fluctuations in the price of fuel.

GM has a strong brand image and markets its famous brands through its well knitted dealer network around the globe. For instance, there were about 6777 GM vehicle dealers in the U.S.A, about 730 in Canada and 331 in Mexico. Further, it is having more than 14,053 distribution centers around the globe for marketing its products.

One of the major overheads in an auto industry is the research and development costs as it has to constantly research on improving production, design enhancement, to improve vehicle emissions checks, enhanced fuel economy and improved safety of inmates in their vehicles. For instance, in 2007 alone, GM has spent about $ 8 billion on research and development expenses alone.

GM is constantly engaged in developing advanced alternative propulsion technology, to enhance their internal combustion engines, advanced diesel engines and hydrogen fuel cell technology.

Is bail-out for GM is essential?

Bailing out of General Motors has become necessary as it will have larger impact on society and jobs in U.S.A. If GM is allowed to fall, then it will have greater impact on their employees, suppliers, middle-class society that depends upon GM. If GM files a chapter 11 petition or if it declares a lock-out, it will gave greater significance on communities whose housing and infrastructure may become nearly insignificant.

Further, if GM crumple ,it will have telling impact on employment mainly high-paying factory employment which would once for all will vanish from American service-related economy and no body knows whether it will revert back to American society at all. It is estimated that job losses would be more 3 millions which includes both direct and indirect job losses with subcontractors and spare parts suppliers. These lost jobs will be restored to life in developing economies like India or China where labor and technology is relatively cheaper.

Further, there is a stiff competition in automobile industry globally and thus, competition from emerging Asian markets like India and China are considered to be very serious since they offer competitive price and new models. Further, in an automobile industry, vehicle preference by consumers is influenced by factors like quality, price, safety, style, fuel economy, reliability and functionality. GM is having a global market share of 13.3 percent as of 2007. Further, GM is having highest market share in U.S alone for the last 77 years.

As a restructuring process, GM closed its Janesville, Wisconsin plant which was established in 1919 and laid down 2,500 workers. However, the state of Wisconsin paid General Motors $0.10 billion in financial grants during the year 2004 to facilitate the General Motors to invest in a $175-million to modernize the production capacity. In return, General Motors had undertaken to employ 3,331 employees at the production facility through 2009. Now, Wisconsin state is aspiring into by what means it can recollect some of the grant it granted to General Motors. (Manufacturing & Technology News, 2008).


Ford Motor Co has decided to reduce about 25000 to 30000 jobs in North America alone which is equivalent to one-fifth of its total employee strength in North America. It has also plans to close down its 14 manufacturing units in the United States, Canada and Mexico which represents about 30 percent of its capacity by 2012. Further, in May 2008, Ford announced that it would be slashing its workforce’s salary by 12 percent. It is to be noted in the last three years, Ford has cut more than 40,000 jobs of its hourly workers both in U.S and in Canada manufacturing facilities.


Silently, Google had laid down almost 10,000 jobs during the last quarter of 2008. According to SEC rules, Google is mandated to report publicly its layoffs decision and however it managed to circumvent legal requirement. By trimming down its employees cost, Google was able to maintain its operational profit to the expectation of Wall Street. Google is also said to be laid off about 300 employees in Double Click, an advertising technology company which it acquired recently. It also offered transitional roles to some of the employees of Double Click and these positions are anticipated to end after two companies virtually merged together. During January 2009, Google announced to cut about 100 of its permanent employees also.


There are strong predictions that Microsoft is going to layoff around 17% of their employees in the year 2009. Microsoft proposed job cuts will be in its MSN group and in Microsoft EMEA divisions.


In an effort to trim the cost, Boeing announced job cut as well as layoff decisions during first fortnight of January 2009. Earlier, Boeing lost some valuable orders to EADS unit of Airbus during 2008. These job cuts are related to overhead functions and not directly related to its plane manufacturing activity. Now, Washington is going to be affected due to Boeing job cut decision as it plans to cut considerable jobs in its Seattle plant and job cut exercise is likely to be made during April to June 2009.

After an unparalleled three-year boom, Boeing is now trying to minimize its overheads as it foresees a decline in plane orders. Now , airlines around the world is holding back on purchasing new airplanes as they encountered a sharp decline in demand for air travel due to global economic recession. Industry analysts also concur that many orders will be rescheduled as the airline industries are witnessing a radical slump in new orders. Boeing had booked only 662 jetliners last year which is a 54% decline from its industry record of 1414 orders booked the year ahead.

It is to be noted that Boeing has a record 3715 planes in its backlog order and it has to work around the clock for six years to deliver these ordered planes, but it foresees that there will be decline in new orders or cancellation of existing orders due to economic downturn.

Boeing is forced to announce this job cut after it had encountered a bitter employees strike by its 27,000 manufacturing employees which compelled the Boeing to close the shutters of its manufacturing units almost for two months. The main issue of Boeing workers strike is the concern revolving between its machinists’ employees union and Boeing management on the company’s right to outsource work and its existing employee’s job security.

Is downsizing is a new phenomenon to U.S.A?

Downsizing in U.S companies escalated in 1992. (Gottlieb & Conking,1995). During this period, many corporations witnessed a more momentous change in organisation. Employees can no longer expect that in return for loyal service, they will be given guarantee for a lifetime of employment with monetary benefits. In the name of cutting the cost, millions of jobs are downsized with no end in near sight. The downsizing was never thought some time before in the corporate world.

However, nowadays, it has become order of the day. Downsizing seemed to be endemic in corporate world not only now but also in 1990’s. Many well known American companies like American Telephone & Telegraph , Citicorp , Eastman Kodak , Goodyear, Amoco, Digital Equipment , Exxon , Chevron ,Black Decker and many more companies indulged in downsizing in 1990’s. (Manson, 2000, p.13). Downsizing not only restricted to corporate world in America but it extended to U.S government sector also in 1993 as U.S government had introduced the National Performance Review in 1993. (Leher,1997).

During March, 1992, GM due to reported loss of $4.5 billion for the year , declared the shutting down of its 12 manufacturing units and as result , there was about 16,000 job loss was reported. In July 1992, GM due to a major setback in its subsidiary namely Hughes Aircraft company, laid-off nearly 9000 employees, due to write-off of $ 750 million.

In the same period, Amoco, Mobil and Unocal carried out noteworthy business restructuring process. It was claimed by Amoco that it had laid-off about 85,000 jobs. Unocal minimized about 1100 jobs through layoff.

In September 1992, International Business Machines Corporation (IBM) informed that it had reduced 40,000 jobs through buyout processes. (Gottlieb & Conking,1995).

By the end of 1994, about 600,000 jobs were cut down in U.S.A mainly due to economic recession and global competition. (Manson, 2000, p.2).

It is to be observed that during current recession, there are no job cuts reported either in government or in defense sector. However, during 1992, both government and defense sector witnessed drastic job cuts. Thus, during this period, about 30% job loss was reported in defense sector due to passage of a public law. (Manson, 2000, p.2).

Has Downsizing has produced a positive effect?

Downsizings are perused in an effort to yield both organizational and economic benefit. A 1991 survey conducted by the Wyatt Company on 1005 firms suggested that most reorganization efforts fall short of their established goals.

  • Just 46% of the companies informed that their downsizing had minimized expense over time. Further, they reported that there was a boost in profit from operations within a year immediately after the downsizing. At the same time, in majority cases, the downsized people again have been reemployed by the very same companies after sometime.
  • Only 30% companies have reported an increase in profit after downsizing.
  • Only just 21% communicated satisfactory enhancement in shareholder’s ROI.

Though, there is a general conception that downsizing would enhance the productivity, but in reality, it often fails to attain what corporate’s tried to fulfill even though laying off saves its overheads. (Stamps,1966).

Further, about three-fourth’s of senior management staff reported that downsize have actually lowered the trust, productivity and morale. Further, about 1500 companies surveyed reported that downsizing actually made no transformation in employee productivity and even it deteriorated after downsizing. (Rubach, 1995).

Aftermath of Downsizing

Those employees who have survived a layoff are worried about losing their employment, have diminished loyalty to their employers and feel guilty about having survived in a job when their colleagues had lost their jobs. (Rubach, 1995). Further, a business cannot anticipate that their employees would play active role in improving the productivity when there is lack of job security or when the company is managed by rude management and with contingent employees. (Kutner, 993). Thus, these employees are less likely to be loyal to an organization that does not have a bond with them. Due to downsizing, the existing employees are dumped with the extra workload, with long working hours, more strain and hence, they are normally burn out very soon.

Freezing on hiring may have a chilling effect on company’s commitment to increase diversity. The freezing on hiring impede organizational progress in building a diverse work force. Freezing on hiring may benefit a firm that is declining or stagnant. However, applying freeze on whole organizational level would be counter-productive. For a company which is undergoing downsizing or restructuring process, it is necessary to provide sufficient counseling, guidance and mentoring for new hires. (Feldman, 1996).

Further, there are eight ways how organisations might reorient their career management efforts in a downsizing environment.

  • Corporation need to transfer their focal point from administering short term responses to layoffs to foster better long-term agendas for administrating careers in a downsized atmosphere.
  • Companies will have to make extended attempts to break out of the sequences of consecutive rounds of layoff and anticipated issues that each layoff decision has for its survivors.
  • Companies require shifting of gears for planning career management agendas footed upon chances for development and growth.
  • There will be low morale for employees of the company that goes successive layoffs.
  • Employees feel some irritation if there exists continued existence is in doubt. Due to this fact, the conventional method of trying to foster corporate loyalty through socialization and orientation programs may less likely to succeed.
  • For very large size organisations, after downsizing, these organisations have to be more judicious in how career development and training program dollars are expended.
  • Due to downsizing, there will be no monetary rewards. Hence, to boost the employee morale, a company should indulge in propagating in non-monetary awards.
  • If downsized organisations encountered with the external threats, organisations will be required to become more proactive and innovative in response to environmental changes.

Alternatives to Layoffs

Under Short-time compensation (STC), a layoff can be averted by reducing the working hours of all employees, but replaces their lost income with claim from unemployment insurance. For instance , instead of 30% of employees laid-off , each employee takes a 30% cut in labor time by claiming unemployment insurance to the extent of 30% so that they receive their full salary. Thus, younger workers who have been recently hired will able to stick in the job during the period of recession. Further, senior workers will give up some percentage of work hours but they never incur any loss in their earnings as it will be compensated by claiming unemployment insurance.

  • There will be low morale for employees of the company that goes successive layoffs.

However critics argue that STC program would minimize economic productivity, create divergence among employees and it inflicts additional costs on the Unemployment Insurance scheme.

However, STC program has its own limitations. In case of economic restraint and scarce, STC program are rarely implemented or expanded unless there are enough positive results and manageable costs.

Reassuring employees after layoffs

Current roller coaster markets and economic news are creating a variety of concern among leaders and employees alike. Several companies are not caring enough for the survivors of layoff. As the result, employee morale diminishes and it has negative impact on company’s productivity.

  • How to motivate and re-enforce the remaining employees who has survived a layoff?

Company must reemphasize its mission, vision and values

After layoffs, employee morale is negatively affected. Frequently, employees feel baffled about their company priorities and direction. A leader has to underline the company’s values and mission to embolden a work culture / environment that engages their employees. Management should converse with the employees about the work environment and culture that it wants to foster after layoffs. Leaders should communicate positively about the company goals and mission after downsizing and should show gratitude to employees for their involvement. Communicating clearly what the employees need to do as a faction to move ahead. It is better to review company’s recognition and rewards agenda to make sure that the remaining employees feel appreciated and elated.

Be accessible and visible to employees

In the period of economic recession and in the layoff prevalence period, employees always look for a guarantee about their future and their job security. They want to hear not from the rumor mill and from senior management. Top management must be accessible and visible to employees to pay attention to employee worries and answer their questions. It is wise to convene an all-hands meeting to reassure company’s course and retort to employees’ questions. Top management should support managers to have regular team or departmental meetings where employees can raise questions, confer their concerns and fears and lament the loss of their co-workers.

Infusing confidence to employees through efficient communication

Immediately after layoffs, the “emotional contract” between employer and employees has been infringed. Consequently, employees lose faith in management and develop a fear that they may lose their jobs in the near future. It is vital that management have a successful communication approach to restore confidence to employees that management do respect them and their involvement to the company. Through efficient communication, management may help employees let feel of the earlier styles of doing things and amalgamate with new methodology or processes

How to avoid a layoff?

Layoff decisions are objectionable both for employees and management and more hazardous to the organizational growth. Wherever possible, strategies should be worked out to avoid layoffs. It is significant to note that layoff is a drastic step that will have tale telling effect and will have lasting imprecision. The management should understand the knowledge and experience that its employees have fostered over a period of time and the associations with the clients, is not something that can easily be substituted. Hence, layoff should be avoided and should be resorted only as a last resort. Productivity of an organisation will be directly impacted if it looses its experienced employees. Further, morale of the surviving employees will also be in stake.

Some of the viable substitutes of layoffs are as follows:

  • Voluntary retirement
  • Voluntary demotion
  • Job sharing alternatives
  • Par time jobs
  • Voluntary leave without remuneration
  • Moratorium on hiring
  • Providing alternate jobs
  • Voluntary layoff

What is the Reasonable grounds for Layoff?

The following are instances of some legally fitting grounds for downsizing or layoff.

  • Cost-cutting ,financial difficulties or economic trouble
  • Discontinued services or products
  • Meager performance
  • Planned or recent acquisitions or mergers, thereby making some positions redundant
  • Technology advancements thereby making a position outdated
  • The whole operation shifted or moved to a new locality in another state, country or city.
  • Bankruptcy
  • Closure of plant or retail stores

The yardstick for deciding who is to be laid off and who stays in the organisation become vital in layoff-scenarios. For all-purpose, companies that make layoff decisions relied on seniority or positions have regarded as less discriminatory. However, if the management wishes to layoff the “recently hired” may have an unfavorable effect on minorities and women. Normally, companies that formulate decisions on objectives will have a nice way of mitigating or avoiding claims from discrimination suits.

Arbitrary conclusions and prejudiced layoff decisions are liable to legal hazards. However, trade necessities like customer liaisoning, sales may compel operation-footed decisions. For instance, a worker may be a senior but do not have the required talent for the required post.

Further, if employers fail to take into considerations the immanent ingredients in the downsizing operation, they may finally preserve the immoral workforce, which will successively have harmful business ramifications. If layoff choices are taken on functioning basis, insurance company will possibly give more attention to the management’s performance evaluation procedure. The insurance company will look into whether yearly performance evaluations have been made? Whether consistent questionnaires with uniform appraising techniques employed? Whether those officials taking performance reviews had been adequately trained to execute this process? It is to be observed that a business that is not having an appropriate performance evaluation technique in existence will pose a larger vulnerability to claims under EPL.

It is significant to stress that management which methodically manuscript the justification for the downsizing and the systematic procedure for administering the downsizing may be able to offer a positive justification against workers who assert that prejudiced rationales influenced their downsizing decision.

To avoid unnecessary litigation, the company should adhere consistency in its conclusion, make proper documentation and be able to generate obvious grounds for choosing one choice in lieu of other. However if contradictory method is perused, it can amplify prejudicial claims.

To make layoff decision through a downsizing committee?

It is worthwhile that a committee for downsizing be constituted. Such group should not only statistically varied in nature but also include constituents of all locations / divisions impacted by the downsizing. It is significant that committee members should be selected on their capacity and ability and not solely by their diversity.

Employment practices and layoff’s liability that companies need to know about

However, workforce reductions in the guise of layoffs often result in augmented demands from workforce averring unfair dismissal, discrimination or other infringements under employment law.

EPL (Employment Practices Liability Insurance) offers monetary safeguard for workforce-associated claims. Though, EPL policies include coverage for claims arising from layoffs, insurers pay careful attention to a company’s employment exercises at the time of underwriting proposal and management that fail to have strong policies and procedures in existence will generally observe it more arduous and it will be for them more costly to get such cover.

During the course of layoff-associated exposure, employers can initiate precautions to shun possible claim. This section looks into the EPL perils connected with downsizing and offers an impression of what insurance companies search for while they assess potential insurance proposal by the insured

Evaluating A Layoff Policy

Obviously, comparisons on workforce previous to and after the downsizing are significant in appraising EPL coverage by a company. These impact analyzations assist management to decide whether their downsizing choices unreasonably impacted a safeguarded group like aged employees, other minorities or women. To that extent the statistics of the impacted employees, together with those retained and those downsized, must be analytically equated. If it seems that the imminent downsizing will unjustifiably trim down a safeguarded faction, the management is to be cautioned to reassess its style.

Likewise, insurance company which follow-up results of this kind will most possibly will be refusing such perils or not including claims originating from the downsizing, except initiatives are perused by the management to alleviate the peril of claims for discrimination.

It is wise to evaluate, balance and contrast the statistics to decide what the new employee team will comprise of and what if any safeguarded or cosseted categories of workforce will be impacted by the downsizing. This data can assist management to assess whether they are at peril for class action or individual / or combined age, sex and claims race discrimination.

Companies that declare liberal layoff packages and acquire suitable discharges are probably to witness lesser claims under EPL and can ease or totally get rid of claims. Hence, employees should be asked to sign releases when they offered severance packages and should obtain signature in claims waiver forms in barter for benefits under layoff.

The norms prescribed by Older Worker Benefit Protection Act (OWBPA) should be followed in getting the waiver claims from employees. In brief, this law demands the conditions under mentioned to be followed:

  • The release should not be construed as a general waiver, but part and parcel of a contract particularly explaining that the employee has waived his rights under Age Discrimination in Employment Act (ADEA).
  • The waiver contract cannot refuse any privileges or claims happening subsequently after its signing.
  • The employee should be offered in excess of above what is actually payable like extra month’s severance in reciprocal for concluding the contract.
  • Before signing the agreement, the employer is cautioned in writing of his privilege to discuss with an attorney of his choice on the issue.
  • The employee should be cautioned by way of a letter about his right to judge the agreement at least for three weeks prior to it’s becoming in force.
  • The worker is given a right to cancel the contract at least seven days immediately following the signing of the contract.
  • If the layoff package is being offered to a class or group of workforce, the management must notify the workers in writing of the under mentioned: how the category of workforce is specified; the designations and age group of whole of the employees to whom the offer is being made; and the age groups of whole the workforce in the identical job categorization or division of the business to whom the downsizing proposal is being given. At least 45 days must be given to affected employees to think about whether to carry out any such release.

Is Layoff is bad for Business

Layoff decision may be inflicting permanent injury to a company because of the upheaval and fears they create. By laying off, companies not only dropping off their competitive position but also their employees are progressively unconfident and no longer have faith on the management in which they are employed.

With every new downsizing, more experience acquired through employee is lost. Companies that fail to acknowledge the worth of corporate experiences of its employees and fail to initiate actions to retain its talented workforce are actually losing worthwhile intangible assets which cannot be easily substituted.

Corporate memory through its experience can teach new recruiters about their working lives. It can be described as a collection of business memories, ideas, achievements, dramas and collapses of real persons who have worked for a business. Employees could learn from corporate recollection’s messages every time they resolve issues, sell services and products, intermingle with clients, new technology acquisition or devise marketing crusades. It is the cognition, understanding, and insight implemented in daily decision-making process.

For example:

  • A chemical engineer of a company has been laid off. The company lost an exclusive awareness of a new product blueprint because of him.
  • A bank manager who was a subsister of previous downsizing, fight backs to maneuver augmented duties. As a result of shortage of personnel, phone messages have been unattended, replies to customer queries is deferred or overlooked, and personal replies to clients virtually have ceased.
  • Field agents of an insurance company which had earlier resorted to layoff had complained about reduced home office support. Due to paucity of personnel, it takes more time to offer new quotes or clear up claims. As a result dissatisfaction of customers seems to be on the increase.
  • A manufacturer of famous technology has virtually struggled to manufacture new merchandises after layoff. Sales and service employees were downsized and some clients reported that vital technological support is missing.
  • A countrywide retailer which is limping to stay alive discovered that its client’s contentment index is declining. Due to layoff, it had lost well skilled, knowledgeable sales workforce who not only appreciate the intricacies of selling, but also understands the decisive client factor as well. (Challenger, 1997, p.66).

Some companies are forced to reemploy some the experienced workforce who had been retrenched as contractors and consultants.

An employer is required to establish a scheme that assesses a worker’s worth to the company – beyond just monetary parlance. An employee, for example, who has momentous knowledge in servicing the customer and has built intimate relationships with clients, should be assessed cautiously before being regarded for downsizing.

Just after layoffs had been completed, if the company no longer can execute at the degree it previously had, clients will shift their loyalty to some other product. Companies that acknowledge the value of their expertise and prolong to extend them to their business may augment their share of market.

As companies resist minimizing the effect of losing vital employees, survivors of downsizing must struggle with the new realisms of their place of work, which connotes existing in an atmosphere of permanent insecurity. More than 3,000,000 people have been laid off since 1989. It is to be understood the prime motive for layoffs are not due to economic downturn but to boost the corporate’s productivity and profits.

In reality, in the age of economic recession, every employee has valid ground to be worried about being downsized. No employee can have any escape route for surviving in a downsizing scheme. Yesterday, one may be a member of a group, the next day, their whole group might be ousted out.

Downsizing has become a lasting game in U.S corporate stratagem, but they have an awful effect on employee’s morale and in the place of work. One direct impact of continuous layoffs is that the U.S. has become a country of isolate wherein employees are hesitant about adventuring beyond the limits of the places in which they are very much accustomed, even after they have become unemployed. Some job searchers are more inclining to remain idle and they are unwilling to move for a new employment that is holding back for them in a new city.

A study by Challenger of downsized executives and managers from Gray & Christmas, Inc. exposed that downsized individuals were less inclined to search for a new position presently than at any period in the past one decade. According to data from Census Bureau, only smaller number of Americans was ready to relocate than at any occasion since 1950.

Why employees are loosing excellent positions just because they are averse to relocate? Due to corporate bedlam happening in the workplace from mergers, restructuring, re-engineering and downsizing, many worry that a new position in a new town may not survive long. Majority of downsized employees want to remain in the same town to do their job searching rather than risk of losing a job in a new town.

One another ground why job searchers do not want to shift is that, in more and more occasions, the spouse has a secure employment. In number of cases both husband and wife were employed. Most families require preserving both earnings to sustain the style of living that they accustomed to. Rather than both moving to a new town, the couples think that it is wise to stay in the same town with one life partner having a safe employment and the other searching for a job.

Layoffs also have forced many individuals to change their employment many times. Majority of them are executives and managers who had only semi-finished with their work life.

Corporate’s all over the country have indicated that one of their main issues is scarcity of workers with experience, moral principle and devotion. The floods of major re-structuring, mergers and layoff efforts had destabilized the bond that had stimulated employee productivity and commitment.

For example, an audio/video products manufacturer namely Harinan International Industries, Inc, was esteemed by former President Clinton for dedication to advancing the talents and growth in employment for their employees. Harinan’s has a domestic agenda which train its factory employees for promotion and development in their careers. Employees who are non-English-speaking origin are trained to speak and write in English, while English-speaking employees are trained to speak Spanish.

One another strategy is to grant bonuses and stock options to rank-and-file employees, a perquisite generally limited to executives only in the past. Many companies started to offer stock options or bonuses to non-executives and it rose from 25% in 1992 to 46% in 1995.

Stock options and bonuses offer workers the sensation that they are partaking in the achievement of the company. These advantages particularly are encouraging to those who are afraid of downsizing. At Mobil, all fifteen thousand non-executives in U.S. locations are on an incentive scheme in lieu of salary raise. About twenty-two thousands of employees of General Electric own stock options as contrasted to just 200 senior executives in the 1980s.

A property casualty insurer namely The St. Paul Cos, has a wide-ranging helping and psychotherapy plan not only helps employees to sort out their concerns, but also adds value to the company’s profitability. An autonomous research revealed that the scheme, which offers such help as phone number with toll-free facility which employees can demand for evaluation, intervention, counseling and short-term treatment, saved the company about $1 million in the year 1994 or $6 for every $ 1 spent to run it.

The American companies are conscious about new economic realities and the downsizing is creating grave issues with their employees and their capability to satisfy their clients. No doubt, the corporations that are unwilling to tackle these problems to get hold of the dedication of their employees will fall behind their economic feasibility in the long run.

Several rounds of workforce diminution are being perused by many companies than on a single occasion. Companies that reduce positions in a particular financial year will often repeat the same again in the succeeding year, and in the previous years. Many companies have executed four or more rounds of layoffs. Hence, experiences of unjust management of layoff casualties could not only impact subsister’s post-downsizing dedication to organization and employment performance, but also their inclination to file legal suits in the years ahead should they happen to downsizing sufferers themselves.

Lawsuits regarding illegal dismissal as well as the expenses on such legal suits have considerably increased in recent years. It was stated that illegal dismissal legal cases in federal courts augmented by seventy-seven percent from 1993 to 1997. (Jones, 1998). Further, the average jury award for an erroneous dismissal claim augmented by seventy percent from 1992 to 1996. (Goldberg, 1997). There exists proof that workforce diminution does adversely affect certain categories of employees.

If senior status is employed as a chief yardstick for deciding which workers will be held back during an employee’s diminution, minorities and female employees may witness an inconsistent effect. This is particularly true for companies that have of late introduced diversity efforts to augment the strength of minorities and female employees in their place of work well ahead of the employee’s downsizing. Since these clusters frequently have the lowest seniority, they will be the first category to be laid off if a “last come, first go” scheme is employed. (Stein, 1994}

During workforce reductions, age old employees may witness the most rigorous impact. (Marley, 1994).Companies may target age old employees for downsizing since these categories of employees as they belong to the highest compensated employee of the company. Hence, their diminution symbolizes a noteworthy savings in cost to the organisation. Routine reasons like antiquated skills, declining competence, poor health, or decreased motivation can also constitute as a valid ground why older employees are besieged for downsizing.

Of late, U.S. working force is becoming more assorted, managerial worries over termination legal cases footed on gender, ethnic group and age are on the increase; Companies that are carrying out downsizing should understand that subsisters’ views of prejudice toward their ethnic identity cluster could probably be an issue in their intensity to initiate legal case against the company for prejudice should they observe themselves a downsize victim in the near future. (Mollica, 2001, p.22).

What happens after layoff?

It is to be noted that a layoff need not to be the end of the world. This precarious situation will allow one to walk through the financial and emotional valleys caused by a layoff and offer a guideline for finding a way back to employment. If one does the right kind of processing and assessment, one can end up in the other end of the layoff with stronger, happier, and wiser for having survived it.

A layoff creates a chance to stand on one’s own leg. For many, layoff have taught valuable financial lessons, and made the victim to be more concise in financial spending and to save whatever dollar that can help them in periods of troubled times. (Clarke, 2007, p.82).

In case, if one have advance warning about layoff, it is wise to pay down one’s debt and build up their savings as much as possible. Further, it is advised that one can temporarily stop contributions to their retirement plan if one does not have sufficient saved money. It is wise to get a line of credit just before a layoff.

In the case of layoff, an employee should look to his severance package and review his signed employment contract; In case, there is no standard employment contract with the company, the victim may be in a stronger position to bargain a healthier package if one’s employer badly needs the victim to finish projects before leaving.

A layoff may not be end of the life and it may open new vistas. In case of layoff, it is advised not to loose one’s heart and hope and try to plan your future like shifting to another department, trying for higher education, or changing occupations.

It is better to take as much of time as possible to assess the change and get to aware oneself. It is time to evaluate one’s skills, one’s abilities, one’s needs, and one’s purpose.

Layoff and Outsourcing

A CEO of a company who worked in ‘Stanley Works’ for more than a decade quit his well paid job on feelings of shame and guilt as he maintained the profitability of the company through layoffs. One another CEO had no feeling at all and introduced massive downsizing and also shifted the manufacturing facility to provinces where there is lower wages and overheads. Some companies in America have shifted their production facilities to Mexico mainly to minimize its labor overheads.

In his book , “ The Great Betrayal “ Patrick Buchanan observes that due to implementation of NAFTA , it has become more convenient for manufacturers and service providers to hire workers with lower wages and by outsourcing the jobs to these countries where labor cost is relatively very low. Due to this, workers across America are in a situation of loosing their jobs and as result, there is likelihood of increase in unemployment rates.

After NAFTA , U.S manufacturing companies which seeks a cheap labor in the Mexican market has built number of factories at the proximity of Mexican borders which is famously known as “maquiladoras” thereby offering employment to tens of thousands of Mexicans. The real burnt is felt by American textile workers who had already suffered due to outsourcing to Asia, witnessed an export of almost 80,000 jobs to neighboring Mexico mainly due to NAFTA.

Mack McLarty, former chief of staff under President Clinton was of the view that nearly 500,000 American factory jobs were transferred to Mexico mainly due to NAFTA. As promised and guessed, NAFTA had not created any well –paid jobs in Mexico but millions of Mexican workers, illegally and otherwise, hunted job opportunities in the expanding U.S. economy. One of the main intentions of the NAFTA is to create local job opportunities for Mexican and to arrest the illegal migration of Mexicans to the United States. However, actual figures did not substantiate this. For instance, after NAFTA, unlawful Mexican migration to U.S.A was increased from 333,000 in 1993 to 531,000 in the year 2000 and this figure still rose in the year 2004.

Layoff degrades the psyche of those who had once strong physical body. Intelligent and hard working employees will loose their enthusiasm after layoff as they would fight hard to reenter the workforce and but could not succeed due to recession.

Some state and local governments have to be blamed as they spend their money injudiciously by inviting big companies to open their shop in their states or provinces by announcing incentives and tax breaks. For instance, United Airlines established its repairing facility in Indianapolis with the help of grant of $321 million it received from Indianapolis state government. However, after one decade, United Airlines decided to shift its repairing facility and introduced wage diminution to its staff.

Companies argue that there exists cost advantages for outsourcing jobs to India and other countries and thereby a corporation can maximise its revenues. Thus an UK or U.S based corporation can reduce labor cost up to 40% and save in short term competing on price in commodity product / service market. Thus, there exist a tight pressure on competitiveness of any corporation and they have to be more competitive else they can loose their market share. Country specific costs are playing pivotal role in deciding to outsource the same from India. For instance, Intel Corporation in Oregon has announced downsizing in 2008 and at the same time outsourcing the jobs to its development unit in India. Many customer relations jobs and IT jobs have been outsourced and this has aggravated layoff in U.S.A.

Cheap foreign labor is the sole motive for outsourcing and U.S employees have to compete with this cheap labor. Due to this fact, U.S labor is less in demand and do not have due regards. Due to outsourcing of jobs, U.S employees are being laid off in mass. This has resulted in psyche problems and low morale among U.S information technology workforce. Some of the IT employees have been laid off is unable to find new jobs even after six months.

By announcing layoffs, the American companies have increased their profitability due to reduced costs. By outsourcing, the foreign national employee will be provided with employment which was taken from American employee. As a result, American employee loses due to less job demand and will become worst sufferer due to lower salaries paid to foreign nationals through outsourcing.

Hence, the American government should seriously think of banning the outsourcing to create more employment in U.S.A and to boost the morale of the American employees.

Evaluation of analysis and problem solution

It is to be noted that downsizing not only affect the employee morale but also their family and community in general. Thus, when corporate engage in downsizing, it is significant that its policies, programs and communications replicate willingness and understandings to assist ameliorate the injury caused by downsizing. (Van Buren 1996). Companies should peruse a formalized communication plan and should play a major role in organizational change and the growth of corporate culture.

Limitations of the present study

The blueprint of this study distinguished some limitation. These limitations are:

  • This research study was restricted to corporate happening in U.S.A alone.
  • The findings drawn from this research study will be restricted to generalization to identical situations.

Recommendation for the future

A number of previous studies had demonstrated that more than fifty percent of companies that have indulged in downsizing have the similar or even minimum levels of productivity and employees have low morale, fear of future, and distrust of management. (Rubach 1995). In layoff scheme, if wrong employees, functions or levels are eliminated during downsizing process, the company is negatively impacted.

Some industrial psychologists and economists have cautioned that downsizing can harm companies more than help them. (Bridges 1994). If companies want to function effectively after downsizing, they need to be cautious about the way they handle the layoffs. Layoff may leave with inadequate workforces to serve present clients or to attract new clients and new income. (Stamps 1996). In the words of Peter Drucker, the majority of the downsizing has resulted in somewhat that surgeon for hundreds of years have cautioned that diagnosis should be carried over first and then only amputation should be made. If not, the end is incessantly a casualty.

Findings and Recommendations

  • Though, there is a general conception that downsizing would enhance the productivity, but in reality, it often fails to attain what corporate’s tried to fulfill even though laying off saves its overheads. (Stamps 1966).
  • Further, about three-fourth’s of senior management staff reported that downsizing had actually lowered the trust, productivity and morale. Further, about 1500 companies surveyed reported that downsizing actually made no transformation in employee productivity and even it deteriorated after downsizing. (Rubach 1995).
  • Those employees who had survived a layoff are worried about losing their employment, have diminished loyalty to their employers and feel guilty about having survived in a job when their collogues have lost their jobs. (Rubach, 1995). Further, a business cannot anticipate that their employees would play active role in improving the productivity when there is lack of job security or when the company is managed by rude management and contingent employees. (Kutner 1993). Thus, these employees are less likely to be loyal to an organization that does not have a bond with them. Due to downsizing, the existing employees are dumped with the extra workload, with long working hours, more strain and hence, they will be normally burn out very soon.
  • Freezing on hiring may have a chilling effect on company’s commitment to increase diversity. By hiring freezes, organizational progress in building a diverse work force can be significantly challenged.
  • There will be low morale for employees of the company that goes for successive layoffs.
  • Layoff decisions are objectionable both for employees and management and more hazardous to the organizational growth. Wherever possible, strategies should be worked out to avoid layoffs.
  • Productivity of an organisation will be directly impacted if it looses its experienced employees. Further, morale of the surviving employees will also be in stake.
  • However, workforce reductions in the guise of layoffs often result in augmented demands from workforce averring unfair dismissal, discrimination or other infringements under employment law.
  • More than 3,000,000 people have been laid off since 1989. It is to be understood the prime motive for layoffs are not due to economic downturn but to boost the corporate’s productivity and profits.
  • The American companies are conscious about new economic realities and the downsizing is creating grave issues with their employees and their capability to satisfy their clients. No doubt, the corporations that are unwilling to tackle these problems to get hold of the dedication of their employees will fall behind their economic feasibility in the long run.
  • Hence, experiences of unjust management of layoff casualties could not only impact subsisters’ post-downsizing dedication to organization and employment performance, but also their inclination to file legal suits in the years ahead should they happen to downsizing sufferers themselves.

The U.S government should introduce more progressive tax rates to facilitate the government to expend more on creation of employment opportunities, particularly more jobs creation in new technology areas. Further, U.S government should impose ban on outsourcing of services from other countries or it should put some limit on maximum percentage of services that can be outsourced from other country. Outsourcing has denied jobs to U.S citizens and creates prosperity and wealth to the country where the service is outsourced from.

President Barack Obama opined that U.S government should act rapidly and decisively to implement a stimulus plan. Recession represent real suffering, real lives and real fears.

American government should emphasis more on free markets which would create more jobs. It should minimize their burden on the economy and government spending should be minimized. It should raise interest rates and also reduce taxes.


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