The recession has had a serious psychological impact on many businesses, due to the stress associated with layoffs.

We know from various research studies that negative emotions such as fear, anxiety and sadness, which often accompany workplace stress, have a detrimental effect on workers' emotional and mental state, and performance.

Executives' and managers' judgments and decisions, particularly regarding relationship issues, can become skewed or unstable under stressful conditions, particularly if the company's focus is a "numbers" emphasis on sales targets.

History has shown that best practice companies which survive tough economic times focus on managing their human capital assets well, will outperform those companies which focus on other things, by a considerable margin. Inadequate human capital management leads to inadequate strategic thinking and decision-making.

Recent research shows that there is a correlation between declines in work performance and the negative climate produced by layoffs--often referred to as "layoff survivor syndrome."Layoffs not only create stress for workers who are laid off, but also for those co-workers who remain behind.

It is a management fallacy that keeping people anxious about keeping their jobs, motivates them to perform better. The evidence shows the reverse is true. Researchers have shown that people exposed to prolonged job stress face twice the risk of having a heart attack as non-stressed workers.In companies where layoffs have been implemented, there is a tendency by leaders to assume the survivors need little or no attention, and should believe they are "lucky to have a job."

The firm, Sirota Survey Intelligence conducted numerous surveys during and after the recession in the early 2000s, and reported that survivor employees wanted two things from management: competent management--competence to lead through a crisis; and caring management--humanistic behavior.

Many studies of the use of layoffs to reduce costs show that projected savings are greatly overestimated; showing that only 30% of companies that significantly downsized gained increased productivity and profits over a 3-5 year period; further, those companies underperformed on the stock market over the long term. One study found that, on average, a 10% reduction in employees resulted in only a 1.5% reduction in costs.

The stress that has come from layoffs has affected the managers that were responsible for implementing them. Since the economy took the plunge, more than 50% of managers have reported stress-related symptoms, according to the U.S.'s EAP company, ComPsych. Leon Grunberg, a sociologist at the University of Puget Sound who conducted a long term job stress study among managers, reported that managers were reporting stress symptoms up to 3 years after layoffs took place.

While it's clear that layoffs are frequently used as a management strategy during tough economic times to reduce costs, the true cost to companies are rarely calculated in terms of the impact on employee productivity and emotional health.

Author's Bio: 

Ray B. Williams is Co-Founder of Success IQ University and President of Ray Williams Associates, companies located in Phoenix and Vancouver, providing leadership training, personal growth and executive coaching services.