Hamline News

The Impact of Layoffs


If it’s not you, it’s your spouse. Your parent or your child. Your neighbor or your friend. In these economic times, everyone knows someone who was laid off by a company or organization. As of November 2008, there were more than 188,900 unemployed individuals in the state of Minnesota, and nationally, the number of unemployed persons in the U.S. has increased by 2.7 million from December 2007 to November 2008. For businesses, it’s a financial decision. For families and communities, it has not only financial but also social, community, and personal implications.

For School of Business Professor Sunil Ramlall, layoffs create more questions than answers.

“What is the impact of layoffs on individuals, organizations, families and as communities?” he wondered. “How do employees deal with layoffs? What are the psychological and financial impacts on the survivors of layoffs?”

Ramlall teamed with Hanne Haas, a student in the School of Business’s MBA program, to explore the issue. The two hoped that by helping individuals and organizations better understand the consequences of layoffs, they will be better able to more effectively manage them and their repercussions. The data was gathered using a sample of individuals collecting unemployment insurance in the state of Minnesota. The total participation is expected to be over 10,000 when the research is completed.

Here is a summary of some of their findings.

The Emotional Impact
“It is no surprise that stress-related illnesses were 50 percent higher in the companies that had downsized their workforce compared with those companies that had not undergone downsizing,” Ramlall and Haas wrote (Cappelli et al., 1997). “Reports of employee burnout were more than twice as high at companies that had downsized compared with those that had not downsized. With the high number of individuals being laid off from their jobs and the relative unavailability of similar job openings, people are left without adequate income for extended periods of time, resorting to very different and frequently lower-paying jobs, resulting in higher levels of stress and more health symptoms.”

To explore the emotional impact, Ramlall and Haas focused their study on six coping strategies commonly used to handle the stress of being laid off: positive-thinking coping, direct-action coping, instrumental support seeking, avoidance, disengagement, and job seeking.

“Positive-thinking coping, direct-action coping, and support seeking represent control-oriented coping strategies, whereas avoidance and disengagement are forms of escape coping, according to Latack (1986),” they wrote. “Control-oriented coping strategies are more likely to be exhibited when situations are viewed as controllable, whereas escape coping is likely to be used in situations in which there is little the individual can do to control the outcome or recurrence of the event (Folkman, 1992).”

Coping strategies are important because they dictate what actions the people will take. “Coping goals explain why individuals pursue different coping strategies when confronted with the same situation,” Ramlall and Haas noted. “For example, when displaced, some workers establish and pursue the goal of finding another job. This goal presumably necessitates job-search efforts (a control-oriented coping strategy) aimed at reemployment. Other displaced workers may choose to ‘mellow out’ because of the stress and anxiety associated with job loss (an escape-oriented coping strategy). The more positive one stays, the more active one will remain in the job search and continue to utilize control-oriented coping strategies.”

Financial and Familial
Ramlall and Haas also explored the financial implications of layoffs. In addition to “the lifestyle changes people have made, including reduction of savings and the sale of stock and other property by individuals to cope with the loss of their income,” they found that the financial loss spurred social losses. “Many individuals describe the changes in their earlier lifestyle and a greater impact on their social life as additional consequences of layoffs,” they wrote.

Layoffs also have a significant and enduring psychological impact on children. “This stems from parents experiencing financial challenges that lead to heightened states of anxiety, depression, behavior problems and poorer peer relationships in kids,” Ramlall and Haas found. “Some previous research findings have even suggested that layoffs can have effects similar to other kinds of trauma, such as parental divorce.” While it is a difficult subject to discuss, Ramlall and Haas encourage parents talk with their children about what is happening and the rationale for lifestyle changes.

Ultimately Effective?
“Given the current economic challenges, layoffs are a natural course of action for organizations,” Ramlall and Haas wrote. “Organizational downsizing as a change management strategy has been adopted for more than two decades, but today, the prime impetus of most downsizing efforts is the desire for an immediate reduction of costs and survival. The rationale underlying organizations’ decision to downsize is straightforward: by reducing costs, executives hope to improve firm profitability.”

But what isn’t straightforward, they found, is whether layoffs really achieve their intended effect. “Studies show that the effects of layoffs on organizational performance are mixed at best, and in some instances they fail to produce the desired improvements (e.g., Cascio, 2003),” they wrote.

Layoffs also affect how a company is seen in the marketplace. “At stake in the layoffs is the reputation of the employer, inability to attract and retain top quality hires, and maintain established levels of productivity.”

This topic is just one of many that Ramlall and Haas plan to pursue in their continuing research.

While they still have as many questions as they have answers, what is clear from their work is that layoffs do not have only short-term effects, but also critically affect the individual laid off and his or her entire family.

“Hopefully, this research can serve as a resource to our Hamline community and beyond in really understanding layoffs from a broader perspective,” they said.

by Breanne Hanson Hegg MNM '04

Dr. Sunil Ramlall is an associate professor of management in the School of Business at Hamline University. In addition to his work on layoffs, Ramlall is actively conducting research on HR practices in various industries and the impact on organizational outcomes. Ramlall earned his PhD from the University of Minnesota and BA and MBA from the University of St. Thomas and has been published in the Journal of Applied Social Psychology, Applied HR Research, Human Resource Planning, Journal of Business and Economics, and Journal of Air Transportation.

For references and more information about Ramlall and Haas’s research, please visit www.hamline.edu/magazine