In downsizing, firms often lose more than they bargained for, study suggests

They have become commonplace even in good times. Now, with fears of economic slowdown multiplying by the day, layoffs and downsizing appear likely to become even more commonplace, as employers seek the quick cost savings that is their chief allure.

But this allure, new research finds, may turn out to mean grief not only for laid-off workers but for employers as well. According to a study in the current issue of the Academy of Management Journal, downsizing can set off an exodus among retained employees that in some cases is much greater than the reduction achieved through the layoffs.

"The downsizing-turnover relationship suggests a sad irony in that employees are laid off by companies that may subsequently find themselves understaffed," write the study's authors, Charlie O. Trevor and Anthony J. Nyberg of the University of Wisconsin - Madison.

"Moreover," they add, "to the extent that turnover rates hinder organizational performance, the performance of downsizing companies may well suffer further through the leaving behavior that the layoffs generate."

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