Economic Analysis: The Hidden Costs of Layoffs and Managing Staff Reductions

Globally, over the past fifty years, more companies have used layoffs to cut costs during periods of decreased demand or economic downturns. But layoffs have far-reaching consequences, generate hidden costs, and harm the company in myriad ways. This note reviews ways to approach and manage workforce change in two ways: 1) It examines the hidden costs and consequences of layoffs on employees (those who leave and those who remain), the company’s financial performance, the community, and industry. 2) It offers suggestions for managing workforce change, including strategies for conducting layoffs to mitigate the negative effects for all parties.