| Abstract: | This paper investigates the performance effects of major job cuts.1 1 Like Wayhan and Werner (2000 Wayhan, V. and Werner, S. 2000. The Impact of Workforce Reductions on Financial Performance: A Longitudinal Perspective. Journal of Management, 26: 341–63. [Crossref] , [Google Scholar]), we interchangeably use the expressions ‘workforce reduction’ and ‘job cuts’ instead of the broad concept of ‘downsizing’ which is subject to multiple confusing definitions (DeWitt, 1998 DeWitt, R.L. 1998. Firm Industry and Strategy Influences on Choice of Downsizing Approach. Strategic Management Journal, 19: 59–79. [Google Scholar]). Using data from Compustat S&P database, we examined the longitudinal impact of workforce reductions on labour productivity and operational indebtedness of 239 US and Canadian companies. Repeated measures analysis showed that firms that substantially cut jobs failed to improve their labour productivity and their operational indebtedness. Then, taken a step further, statistical analysis surprisingly revealed that firms that cut the highest proportions of their workforce had a significant deterioration of their operational indebtedness and a non-significant change of their labour productivity. These results call into question the economic legitimacy of major workforce reductions increasingly institutionalized to the detriment of the strategic approach of HRM. |
