Layoffs often leave companies worse off

Bloomberg Opinion — Today, employers seem to have the feeling that they have too many employees, perhaps even too many, as the economy slows. That is what is causing the layoff of tens of thousands of workers in the technology, banking and and others.

But executives must be careful about making big cuts. Because, as the last three years have reminded us, having too few workers is almost always worse than having too many. When organizations are short of staff, morale plummets and profits suffer. And companies often end up spending a lot of time and effort rebuilding their workforces soon after downsizing.

Good companies, whether they are understaffed or overstaffed, if they have that culture of innovation will do very well in a downturn.”says Angie Kamath, dean of New York University’s School of Professional Studies. It’s not so much about exact staffing as it is about factors like product mix and pricing strategy.

A company with a slight excess of staff should consider what to do with that capacity, instead of panicking and firing your hard-earned people. “The research has been incredibly consistent that layoffs are not good,” Kamath cautions, listing a number of ills ranging from poor public relations to increased turnover among remaining employees.

Companies considering job cuts could take into account the experience of the retail sector, which for years tried to keep the workforce as small as possible. Algorithms helped them predict peak and off-peak periods and ensure stores were staffed “just right” at those times, which in theory saved them from having to employ so many workers.

Nevertheless, Focusing so much on optimizing the number of workers left stores woefully understaffed during peak periods. A study published in 2014 in the journal Production and Operations Management analyzed 41 stores of a large (anonymous) retail chain. The researchers, led by Vidya Mani of the University of Virginia’s Darden School of Business, found that all 41 stores were chronically understaffed at peak times. The researchers concluded that if more staff had been hired during those hours, sales and profitability would have increased.

The problems of understaffing go beyond lost salesargue Zeynep Ton and Amanda Silver of the Good Jobs Institute, a nonprofit organization that works with low-wage service companies to simultaneously improve financial results and job stability.

The work builds on research by Ton, a professor at the Massachusetts Institute of Technology, showing, among other things, the dangers of being too short-staffed. Understaffing breeds waste: When there are not enough staff to move pallets of groceries from trucks to warehouses, food spoils. Angers customers: When they can’t get the help they need quickly, they get fed up and go somewhere else. Creates inefficiency: Inventory becomes disorganized and workers have a harder time finding what they need quickly.

In healthcare, where understaffing has been a problem for decades, understaffing can be life-threatening. There are studies that link the shortage of personnel in hospitals with worse results for patients. In particular, in an understaffed hospital, patients are more likely to contract an infection (for example, because staff do not wash their hands well). They are also less likely to receive the correct dose of medication and generally more likely to die. Nurses at these hospitals are more likely to feel burned out and less likely to recommend their hospital to sick friends and family.

The lack of personnel is not always due to the lack of vision of management. Busy workplaces in the best of times, restaurants have had to cut hours – by about 6.4 hours a week in the US compared to 2019 levels – as the pandemic prompted workers to quit.

Regardless of the cause, acute staff shortages have a measurable impact on revenue. On a recent holiday in England, I found that my favorite pub had closed for two weeks – in the height of the high season – due to lack of staff. And that they had already halved the number of diners. At another restaurant, a full-page, single-space manifesto posted by the restroom explained that they had had to stop offering hot food and table service due to a “very difficult staffing situation,” exacerbated by a “lack of [o ninguna] affordable housing” in the area.

The anonymous writer’s stress was palpable. Not surprisingly, a pandemic-era study among restaurant workers found a relationship between understaffing and excessive alcohol consumption.

Workers cannot withstand these conditions for long. One only has to look at the latest strikes by nurses, railwaymen, teachers and waiters. Their main demands are: hire more people.

Undoubtedly, some entrepreneurs see it differently. They may think that these workers are lazy, that “nobody wants to work”, as the intern Kim Kardashian once said. It is a complaint from managers as old as work itself.

I am willing to admit that there is some degree of human laziness. (That’s why we invented the remote control, not to mention the bluetooth electric kettle.) And overstaffing has its risks. Workers can feel bored and unchallenged, collecting their salaries but not really committing. In 2022, we were calling it “silent abandonment.” In the 20th century, scholars called it “social loafing.”

Mild staff shortages can keep staff focused and motivated, allowing employees to use a greater variety of skills (something most people are happy with). But many industries have moved well beyond staff shortages, and have done so for a long time.

Chronic staff shortages hurt motivation and, of course, performance. Overburdened staff make mistakes. They disconnect. Employees think that if the company doesn’t care enough about its future to hire more people, why should they? Basically, they have been set up to fail, and no one likes to feel incompetent.

There comes a time when work can’t be done, which affects the economy in general. There are still 90,000 fewer childcare providers in the United States than before the pandemic (when there weren’t enough), making it harder for parents to take paid work. The shortage of dockworkers has contributed to clogging ports and blocking supply chains. The shortage of public transport workers is a drag on cities trying to convince remote workers to get back on the road.

This shared pain is worth remembering when companies try to “resize” their workforces. Demand for their services may have slowed, but if they cut too many jobs, it’s not just the remaining workers who will pay the price. It will be all of us.

Layoffs often leave companies worse off