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Alternatives to Layoffs

In contrast to periods of permanent structural change when a downturn is


expected to be of relatively short duration, alternatives to layoffs are often
feasible. When companies avoid layoffs, they preserve their investments in
employees’ skills and are able to avoid the expense and delay of hiring and
training new employees once the recovery begins. When employees
change employers, there is some loss of productivity because, if employed
for more than a short time, they have acquired specific skills that do not
apply to the new employer. Although layoffs are numerous, there is
empirical evidence that firms attempt to avoid layoffs, thereby preserving
their investments in human resources. A study of manufacturing firms
found that they retain approximately 8 percent more labor during
downturns than needed for production. Even after some excess labor is used in
alternative assignments such as maintenance of equipment and training,
approximately 4 per-cent is hoarded.78 There are a number of alternatives having
the potential to reduce the number of layoffs in the short term, although layoffs
are better avoided through the use of long-term alternatives. Some of these
alternatives deal with shutting off the inflow of personnel into the organization.
When the inflow is shut down, attrition can then help draw down excess
employees. Unfortunately, during general downturns, attrition usually does not
have the desired impact. For attrition to have an effect, there must be high
turnover. When a downturn is sudden and severe and turnover is low, attrition
may not work quickly enough to save labor costs.79 Another set of these actions
involves some form of redeployment of current employees or curtailment of
subcontracts and reassignment of work from contractors to the company’s own
employees. A different set of actions involves sharing the economic loss through
work sharing or incentives for early retirement. (The latter course of action can be
quite expensive and is not always acknowledged.) Unsurprisingly, the survey of
manufacturing companies noted earlier indicated that nonunion firms place
greater importance on reductions in hours as an alternative to layoffs (69 percent
and 37 percent, respectively).80 There are a few other short-term alternatives to
layoffs, some of which involve pay cuts. Cuts may be accompanied in some
instances by fewer days worked or with commitments from management that it
will make it up to employees when conditions improve. Unpaid leaves of absence
are also alternatives. Those taking leaves are guaranteed the job at the end of the
leave.81 Actions or tactics useful for avoiding layoffs in the long term are
presented in Table 1-3. One of the initial tactics is to conduct human resource
planning with employment stability as a goal. As with the short-term tactics,
several are related to the inflow of personnel into the organization. A lean staffing
approach, staffing for the long term, and focusing on nonspecialists where
possible will help to establish appropriate inflows. Greater flexibility in job
assignment may be gained by providing employment guarantees in return for
reductions in numbers of job classifications.82 Another set of actions or tactics is
related to maintenance of a productive workforce through training or retraining,
judicious termination of unproductive employees, and using human resource
buffers to supplement understaffing. Table 1-3 Techniques for Avoiding Layoffs
in the Long-Term Source: Adapted from James F. Bolt. “Job Security: Its Time Has Come,”
Harvard Business Review 61, no. 6 (1983): 115–23; and Joseph T. McCune, Richard W. Beatty, and
Raymond V. Montagno. “Downsizing: Practices in Manufacturing Firms,” Human Resource Management
The feasibility of buffering appears to be increasing. The
27, no. 2 (1988): 145–61.
range of jobs for which temporary or contract employees are used is
expanding. For example, the services of accountants, computer
technicians, engineers, and financial managers are increasingly being
obtained on a temporary or contract basis.83 Another example of flexible
employment arrangements comes from the entertainment industry. The
Disney Company’s Walt Disney World has three classifications of employees: (1)
full-time, in which employees work no fewer than four days and 20 hours per
week; (2) casual regular, in which weekly minimums of one day and maximums of
less than four days apply except during peak periods when more days may be
worked; and (3) casual temporary, in which employees work during peak periods
or as needed in nonpeak periods.84 A tactic oriented more toward the long term
involves linking larger proportions of employee compensation to company
performance, which has the effect of reducing costs during downturns.85 Of
course, employees would no longer be assured of an even income stream but the
likelihood of being laid off would decrease. Profit sharing and stock options have
become common compensation components in many companies. As profit
sharing, stock options, and other forms of variable pay account for greater
proportions of employee compensation, there could be reduced layoffs when
economic conditions deteriorate. Page