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