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Companies also invest in their human resources when they keep

employees on the payroll through business downturns. Nonetheless, by the
1980s and 1990s, it became clear that employment security policies were
often untenable, and downsizing became a daily feature of the business
press. However, companies differed in the extent to which they resorted to
downsizing or layoffs as many of the best ones did little or no downsizing.
Although some companies provide employment security to enhance their
chances of remaining union free, others provide such security for other
workforce advantages. Increasingly, companies find that they must operate
in environments characterized by rapidly evolving technological change,
compressed product life cycles, and heavy emphasis on quality. In many
such environments, greater employment security helps companies obtain
the commitment, flexibility, and motivation needed from their workforces.65
Indeed, three of Fortune’s 100 best companies to work for have official no-
layoff policies—Southwest Airlines, Harley-Davidson, and FedEx—and
another, Hewlett-Packard, has been a leader in workforce security for

Recognition of the Costs of Downsizing and Layoffs Although there are

many associated costs, downsizing is a fact of life in the United States, and
layoffs occur with downturns in the business cycle. A strong labor market
eliminated most cycli-cal layoffs in the late 1980s and 1990s, but frequent
downsizing has continued into the twenty-first century. Downsizing is
commonly linked to competitively driven structural changes in
organizations, although it also is triggered solely by attempts to cut costs.
Nonetheless, the costs of downsizing and layoffs are becoming better
understood.67 For example, a study of approximately 100 surplus workforce
situations revealed that it would have been more cost effective not to have
laid off workers in 30 percent of the situations and to have laid off fewer
workers in 20 percent.68 Layoffs have been criticized on the grounds that
they are sometimes inefficient, relative to other cost-reduction strategies. A
major inefficiency or cost associated with downsizing or layoffs is that a
firm’s layoff practices may make it less attractive as a potential employer. A
typical result of downsizing is that another 10 to 15 percent of an
organization’s workforce will often quit after layoffs. The uncertainty of
future employment often causes some of the better, more mobile
employees to leave. These, of course, are the employees that the acquiring
organization would like to keep.69 Numerous other costs are involved in layoffs.
One of the major costs is incurred in bumping practices. Because layoffs are
typically conducted by inverse seniority, invariably where there is a union
contract, employees with less seniority are “bumped” out of their jobs by more
senior employees whose jobs have been targeted for elimination because of a
lack of work. A chain reaction then occurs as more senior employees bump those
with less seniority until, as in a game of musical chairs, the least senior is left
without a job.70 The width of the seniority unit that will govern bumping rights
determines the impact of bumping. Narrower seniority units or definitions
prevent a senior employee from displacing a junior employee in a job in which he
or she is not qualified. With broader seniority units or definitions, senior
employees can bump into new jobs for which they lack skills. As a result, training
is needed for them to reach the proficiency levels of the junior employees who
were bumped. Unions generally argue for broader seniority units on the basis of
fairness while employers seek narrower definitions in order to minimize the
dysfunctional aspects of bumping.71 In addition to bumping costs, there are also
severance, administrative, and intangible costs. Intangible costs sometimes
involve declines in morale of the remaining workforce and disruption of work
group synergy.72