Layoff

A layoff, or downsizing, is the suspension or termination of employment for one or more workers. This action is taken for business reasons rather than an individual's performance. Most commonly, it occurs as a collective layoff, which affects a large group of employees at once. While the term originally meant a temporary interruption in work, it has evolved in both British and US English. Today, it often refers to the permanent elimination of a job position. This is distinct from wrongful termination or being fired for misconduct. Layoffs happen because of economic forces or management decisions that are beyond the control of the workers.

Companies use downsizing to reduce their total workforce. This practice became very popular during the 1980s and early 1990s. Managers often view it as a way to deliver better shareholder value by cutting costs. By reducing labor expenses, companies aim to improve their overall organizational performance. In the United States, research on S&P 100 firms between 1990 and 2006 shows a specific pattern. These studies found that layoff announcements often led to a substantial increase in stock prices. In fact, the price gain was often larger if the company had a history of prior layoffs. This financial motivation can encourage publicly traded corporations to adopt regular layoff practices.

There are several different ways a workforce can be reduced. One method is attrition, where positions disappear naturally as people quit or retire. Another is a mass layoff, which the US Department of Labor defines as 50 or more workers losing jobs from the same company at once. Companies may also use a Voluntary Reduction in Force, or VRIF. In a VRIF, employees play a role in choosing to leave, often through resignation or early retirement. Sometimes, employers offer attractive severance packages to encourage this choice. Conversely, an Involuntary Reduction in Force, or IRIF, means the employees did not choose to leave. This includes both layoffs and firings.

Because losing a job is difficult, many organizations use euphemisms to soften the news. Euphemisms are polite words used to describe something unpleasant. Common terms include "rightsizing," "workforce optimization," or "leveraging synergies." Other phrases include "delayering," "smartsizing," and "resource action." In the US government sector, the term "reduction in force," or RIF, is very common. In the United Kingdom, there is a specific legal term called "redundancy." This is defined under section 139 of the Employment Rights Act 1996. These different terms can change how the process is perceived by the public and the workers.

Layoffs create significant challenges for the employees involved. Workers often go through emotional stages when facing a layoff. These stages include denial, anger, fear, and finally, acceptance. A layoff can erode a person's confidence and their trust in future employers. Even if a new employer is not responsible for the past, the worker's performance might still be affected. To help, some companies provide Supplemental Unemployment Benefits, or SUB-Pay. These plans were introduced by organized labor and the Department of Labor in the early 1950s. They allow employers to supplement state unemployment insurance for workers facing involuntary layoffs.

Beyond the individual, layoffs impact the entire workplace and the broader economy. In the workplace, layoffs can create uncertainty and fear among the employees who remain. These surviving workers may experience "survivor guilt" or a loss of motivation. This can lead to what some writers call an "anorexic organization." This term describes a company that suffers from extreme, obsessive cost-cutting that leads to organizational failure. On a macro level, mass layoffs can cause widespread unemployment in specific regions. If a major industry in one area suffers, the ripple effects can be felt nationwide. This affects the entire flow of markets and the stability of the economy.