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Lessons for Employers in a Slowing Economy 

Douglas Waldo
University of Sarasota

As we hear more predictions of an economy showing signs of weakening, I keep coming back to a couple of key questions: Is our field prepared for a recession reminiscent of the early 1990s? Did we learn enough from experiences nearly a decade ago to improve how we respond to the people we serve in 2001? The answer: Probably.

While the financial experts monitor and project the extent of an economic slowdown, little doubt remains that the early years of this decade will likely feature staff reductions across every industry. These reductions, or even the anticipation of them, can have a dramatic influence on individual and industry productivity. Despite the value of an MBA in predicting the financial impact of such decisions (Carbone, 2001), the field of I-O psychology is the best equipped to manage the impact on employee motivation.

What advice then can we offer our corporate clients, our HR departments, or our senior management teams as they consider the option of downsizing staff in the face of an economic slowdown? Here are a few lessons from the literature that may help them to understand the significant motivational impact on current and future employees within their organizations.

Employees seek consistency in every aspect of their lives and crave a steady availability of work to meet their own financial obligations. Future employees look for a company that offers consistency and will shy away from a company with media attention caused by periodic layoffs. The fear of potential downsizing directly and negatively influences employees perceptions of consistency and stability within their positions and causes job candidates to look elsewhere (Cialdin, 1985). The lesson: If it must be done, downsize wisely and rarely.

Senior managers seeking to assure stakeholders that all is well may postpone tough financial decisions, thereby making the extent of downsizing more severe. In many instances, companies are forced to undergo more than one wave of downsizing during a recessionary period, a fact that can all but eliminate the motivation of the surviving employees over the near term. Too many companies overhire in good times and quickly look to downsizing as a temporary fix to slowing demand. The lesson: If it must be done, downsize wisely and rarely.

If a company is viewed as a team (and much of the recent literature has focused on team development), then downsizing takes on an even greater role in shaping near-term motivation. As our field coaches clients to build and reward teams, we must remember that downsizing focuses on individuals and causes them to recoil in order to protect their investment of time and energy. The harm of downsizing can be felt indefinitely as surviving team members wonder if they will be next or if their individual performance is measured sufficiently in relation to the team. Self-preservation becomes the dominant element of motivation in this case (Kerr, 1975). The lesson: If it must be done, downsize wisely and rarely.

As downsizing is discussed openly as a possibility, the employees comfort levels fall and a widespread descent down the hierarchy of needs (Maslow, 1943) can be felt through the organization. This has the possibility of stifling creativity and individual achievement as employees become more concerned with their newly jeopardized personal financial goals. This is true for older workers with near-term retirement plans, mid-career workers with families and children preparing for college, and for younger workers preparing to buy their first home. In any case, even their basic level of need may appear in jeopardy until the trend subsides. The lesson: If it must be done, downsize wisely and rarely.

Employees may be able to rationalize that nothing will happen to them. Dissonance may allow them to separate their desire to flee from a troubling situation to a more stable environment and keep their motivation on track (Aronson, 1973). If this is the case, it will likely be so only with a minority of your employees. The lesson: If it must be done, downsize wisely and rarely.

The lesson here is quite simple, but the responsibility of I-O practitioners to communicate it is not. We must get to the decision makers in our companies and share with them the importance of considering the human impact of a recession and its most immediate consequence, downsizing. Join me in reinforcing our role as coaches to the economys most valuable players. Together, we must merge the lessons learned from the past with the our fields best research and develop a game plan that will get our clients through what may be rather tough economic times.


    Aronson, E. (1973, May). The rationalizing animal. Psychology Today, 3844.
Carbone, E. G. (2001). Turf issues and professional identity. The Industrial-Organizational Psychologist, 38, 2729.
Cialdin, R. B. (1985). Commitment and consistency: Hobgoblins of the mind. In H. J. Leavitt, L. R. Pondy, & D. M. Boje (Eds.), Readings in Managerial Psychology (145182). Chicago, IL: University of Chicago Press.
Kerr, S. (1975). On the folly of rewarding A, while hoping for B. Academy of Management Journal, 18, 769783.
Maslow, A. H. (1943). A theory of human motivation. Psychological Review, 50, 370396.

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