The Disadvantages of a Layoff

Employers often cite the need to cut costs as the main reason that they conduct layoffs. However, there are disadvantages to releasing talented and skilled workers during layoffs. The morale, productivity and engagement of workers who are not laid off are challenged after a layoff, not to mention the impact that layoffs have on the economy.

Employers lose talented workers whose skill levels they might not replace in the coming weeks or months. The Missouri Small Business and Technology Development Centers estimate that it costs about $3,700 to replace one employee who was earning minimum wage. After companies conduct layoffs, they must pay money to recruit, train and develop new workers.

It is not uncommon for workers to cite claims of discrimination, harassment and other illegal acts against employers after they are laid off. According to a February 2009 article in the "New York Times," the number of laid-off workers who filed a lawsuit against their former employers rose by 15 percent in 2008, during the recession. The cost to defend these lawsuits, even if the employer wins the court cases, can reach into the thousands of dollars. Should a large number of employees lose their jobs, laid-off workers might band together and file a class action lawsuit against their former employer. If laid-off workers win such lawsuits, employers can spend millions in settlement fees and payments.

When employers lay off large numbers of workers, the economy suffers because these workers cannot put money back into the economy by purchasing goods the way they did before they were laid off. Furthermore, layoffs cause the number of people who file for and receive unemployment insurance benefits to increase, a factor that can cause state labor departments to run low on or run out of unemployment insurance benefits funds. The federal government might have to use taxpayer money to pay for unemployment insurance benefits extensions.

Workers who remain at organizations where layoffs occur might start to feel that their jobs are also in jeopardy. Many of the remaining employees can feel saddened that people they worked with for years were released from the organization. This can lower morale and create feelings of distrust toward management.

As the news of organizational layoffs reaches the media and shows up on television, the Internet and in newspaper and magazine articles, it can become challenging for organizations to attract quality workers after they are financially able to start hiring again. Workers might feel that the organizations cannot offer them job security, and therefore they forgo gaining employment with the organizations. If layoffs are managed poorly (e.g., workers did not receive required Worker Adjustment and Retraining Notification Act notices), workers also might not want to work at the organizations because they do not trust their management teams. This can cause the talent at an organization to get stagnant, a factor that can negatively impact the bottom line.