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The recent wave of layoffs sweeping through the US job market, especially in the tech sector, might be viewed by business leaders as a dose of corporate Ozempic, creating leaner, more efficient, organizations but, like any wonder drug, it may come with serious side effects.
There are significant questions about the long-term impact on employee engagement among those who remain with the company, according to continued research from the Harvard Business Review (HBR).
Companies might find workforce reductions an attractive solution for navigating financial cross-currents, but the research suggests that the long-term cost of such an approach could outweigh the short-term gain.
Evidence says that reducing headcount can dramatically affect employee morale, engagement, and loyalty, leading to long-term negative repercussions on productivity, retention and recruitment.
The damage caused by tech layoffs
In 2024 alone, more than 100,000 jobs have been cut by tech giants such as Microsoft, Intuit, and Dell. While layoffs may provide a temporary financial respite and bolster a company's agility, HBR’s research reveals that the potential damage to employee morale and loyalty often comes at a considerable cost.
An extensive study of 146 companies that downsized their workforces between 2020 and 2022 showed that employee confidence in an organization fell by nearly 17 per cent on average. Similarly, belief in career advancement dropped by over 12 per cent, and trust in leadership took a hit of more than 10 per cent.
One surprising finding from the study is that layoffs can be the most damaging to organizations with existing high engagement levels.
Companies with highly engaged employees prior to layoffs reported the sharpest declines in engagement post-layoff. Not only does this drop in engagement result in lower productivity, but it can also lead to increased turnover among remaining staff, as employees jump ship.
Layoffs can also dampen the morale of remaining employees, making it more difficult for a company to return to pre-layoff productivity levels. According to the research, engagement tends to recover only after a year and a half, and in some cases, it can take as long as two years to rebound fully—assuming the company hires new staff to fill essential roles.
A period of lowered morale can be a challenging time for businesses, which may face decreased output, lower customer satisfaction, and, in some cases, increased difficulty in attracting top talent in the future.
How workers are affected by redundancies
The consequences can extend far beyond a temporary dip in morale. When employees experience a layoff, they often lose trust in the organization. Workers begin to question whether their employers genuinely care about their well-being, creating an atmosphere of anxiety and insecurity. Employees who survive a round of layoffs may be looking over their shoulder to see if they are next, affecting their commitment and eroding any sense of belonging or purpose - vital for engagement.
Leaders should understand that the cumulative cost of disengaged employees can severely hinder an organization’s ability to thrive in a competitive market.
But it is possible to mitigate against some of the damage, if layoffs are unavoidable. Transparency is essential. Companies that are open about the reasons for the layoffs and how the decisions were arrived at tend to experience less of a morale drop.
Uncertainty can be demoralizing, so communicating openly and honestly will help employees feel more secure, included, and respected.
Trying to “do more with less” following redundancies is a classic pitfall as employees will already be dealing with increased workloads and stress.
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Instead, leaders should prioritize essential tasks and allow employees to focus on what really matters. Attempting to maximize output immediately after a workforce reduction can place undue pressure on remaining employees and may exacerbate the loss of morale.
The way in which companies handle employee exits is also important. While it’s common for employees to be quickly cut off from company systems for security reasons, a more gradual transition allows workers to say goodbye to colleagues, process the change, and move on with some degree of closure. It helps maintain relationships and leave a positive impression on departing employees, who may go on to serve as ambassadors for the company in the broader industry. Great for your employer brand.
Retaining ex-employee goodwill
Finally, acknowledging the importance of professional relationships can help smooth the transition for both departing and remaining employees. Layoffs not only affect individual jobs but also disrupt entire networks of relationships. Companies can ease that adjustment by facilitating post-employment connections, such as alumni networks or Slack channels, which can help former employees stay connected with their ex-colleagues and the company and may even entice them back when the company starts growing again.
Cutting jobs may provide temporary relief, but the lasting impact on morale and productivity can hinder an organization’s ability to recover and grow. Instead, businesses might consider alternative strategies for cost-cutting, such as optimizing processes, reducing operational expenses, or finding ways to diversify revenue streams.
In an era where talent is a primary competitive advantage, businesses cannot afford to ignore the importance of employee engagement which remains a critical driver of organizational performance and resilience.
