Economic & Non-economic Impact of Layoffs on Employees: An Overview

Layoffs sometimes referred to as downsizing of staff; typically involve the deliberately planned reduction of a significant portion of the workforce in order to increase organisational effectiveness. Some short-term or immediate benefits of downsizing include increasing revenues, avoiding bankruptcy, building connections, reorganising, and reducing the amount of “deadwood” or dissatisfied staff. The impact of layoffs on employees is not as positive as organisational profit. Many workers have lost their jobs as a result of the previous COVID-19 pandemic, which has affected the entire world.                              

What is Layoff?

A layoff, commonly defined as an employee reduction, is the process wherein a company suspends or permanently fires an employee or group of workers in order to diminish the size of an organization’s workforce. Employees are not laid off because of poor performance or negligence of duty. People are typically let go as a result of a fall in revenue, sales, or some type of financial difficulty. For a variety of reasons, many businesses all around the world remove personnel and lay off workers. The act of an employer choosing to suspend or fire a worker, either temporarily or permanently, for reasons unrelated to the employee’s actual performance is known as being laid off.

Notably, a layoff^[1] can occur whether or not the position is being held by an employee at the time. A layoff means that a position will be eliminated by the employer, and the person who held that position will now have to leave. When a worker is laid off, his position is terminated, and they are dismissed without regard to performance or policy violations. There have been numerous layoffs in 2022 from major corporations like Wayfair, Ford, Tesla, and Microsoft. Employee morale and team productivity frequently decline, and it can be challenging to handle the impact of layoffs on employees. Every organisation must first comprehend how these significant changes will affect their employees. 

Economic Impact of Layoffs on Employees

Even for the survivors and potential hires, the impact of layoffs on employees is much more detrimental. Layoffs lower the chances that the unemployed and underemployed will find employment. Job applicants become discouraged by the hardship experienced by those who lost their jobs, and some give up totally on ever finding employment. Here are some impacts of layoffs on employees.

Time Wasted in Unemployment

Research conducted in the past suggests that the impact of layoffs on employees results in longer periods of unemployment. According to immediate reports, a person who is laid off is expected to experience six months of unemployment, and over the course of their entire lifetime, they are likely to give up years to unemployment. It is argued by opponents of this perspective that such an experience is not uniform because it differs from employee to employee or from event to event. They continue by stating that an employee is more likely to experience prolonged unemployment during economic recessions than it was during expansions.

Loss of income

Companies reduce their workforce numbers as part of extreme cost-cutting initiatives during recessions. Employee reductions result in job losses since some employees are let go. Income is lost when a job is lost. According to numerous publications, the impact of layoffs on employees results in migration and instant income. According to these studies, the overall lifetime earnings loss is 20%. Despite the impact of layoffs on employees, laid-off workers are more likely to find new employment—even part-time employment—than new job seekers. Low spending capacity is directly correlated with income loss.

Lowered standards of pay and employment

One of the most major impacts of layoffs on employees is felt by those who are relocated, which may also be explained by the subsequent impact of unemployment on their standard of earnings and employment.

According to researchers, wages and job quality decrease as unemployment duration increases. They also claim that there may be other factors besides the length of unemployment that contribute to the decline in employment and income quality. They also believe that the difficulties workers face in the labour market may be the root problem of such impact layoffs have on employees. It can take longer for employees to find new employment. Some of these obstacles may be sector-specific, such as a change in business practices by a former employer or a decision by the employer to operate permanently with a smaller workforce.

Non-Economic Impact of Layoffs on Employees

Job layoff is a detrimental event that affects an employee in ways unrelated to the economy. From the moment a person is informed of the layoff, through the expectation, the actual termination, the period of unemployment, and until the person is able to find new work, it is typically an unpredictable event that is accompanied by stressful situations.

Following is a list of some non-economic impact of layoffs on employees:

Physical Impact

When removed from their jobs, employees’ physical health both temporarily and permanently deteriorated. A few of the things they show are poor self-health, cases of disabilities, cardiovascular-related problems, an increase in hospitalisations, a higher reliance on disability allowance, and a rise in self-destructive behaviours.

Psychological Impact 

A significant and adverse impact of layoffs on employees is that it leads to a negative impact on a person’s mental health as a result of the stressful situations that follow. Loss of status, diminished ability to plan ahead, and alterations in their social network are also all consequences. People frequently exhibit acute stress from an immediate interruption and psychological stress from ongoing socio-economic and mental stress. According to researchers, workers who have lost their employment are more likely to experience worsened physical symptoms, anxiety, and depression symptoms, as well as a loss of psychological impacts, including determination, self-esteem, self-acceptance, and more.

Conclusion

Job layoff not only delays a person’s development but also causes the rapid decline of already-developed abilities. Employee layoffs negatively impact employee morale and health, workplace innovation and collaboration, and work quality. The negative impacts affect not only the laid-off employees but also the organizations that implemented this process. We have discussed the economic & non-economic impact of layoffs on employees. Keep reading our blogs to expand your knowledge base on topics pertaining to hiring, job positions, IT recruitment services, etc.

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