Layoff: Why We Must Talk about It

In this article, I briefly articulate the principal causes of lay-offs and its psychological effects on the employee who has lost his or her job. In what follows is my contribution to a volume titled “Job Loss” in a series known as “You and Psychology”, a reader’s digest which is edited by Dr. Akuamoah-Boateng, Coordinator of Industrial and Organizational Psychology Graduate Program at Department of Psychology, University of Ghana, Legon; the CEO of Industrial and Organizational Psychology Ltd in Ghana; and a specialist in retirement preparation training. Among the You and Psychology series are volumes on retirement preparation, women career issues, job stress, etc. The volume on job loss may still be in a manuscript form awaiting publication. Whatever you read in this article is a non-technical summary of the review of studies on the psychological consequences of job loss and downsizing in the “International Review of Industrial and Organizational Psychology”, an academic journal published in the UK and written to cover researches in Industrial and Organizational Psychology, Human Resource Management, and Organizational Behavior. Interested readers can search for this journal at www.amazon.com. This piece was written with Ghana in mind considering the cross-cultural nature of the all the studies reviewed. There are additions to the original contribution due to changes that have occurred in the literature since it was written.

Job loss has become a fact of organizational life. This is as the result of the turbulent and dynamic nature of the contemporary business environment. The uncertainty and dynamism characterizing the environment more often than not compel corporate leaders to make decisions that impact on the job security of their organizational members. Plant closings, de-layering, downsizing, among others, are usually decisions in response to changes in the corporate environment which weakens the competitiveness of firms. These responses always come with job displacement of employees in one form or another. Why should we bother ourselves to talk about lay-offs? And why must lay-off be everyone’s concern?

The irony in this day and age and the current trend in vogue is that both management and non-management employees are affected by lay-offs. Closing a facility of a manufacturing company in one location may mean getting rid of everyone in that facility. As a result, discussions about job loss should be of concern to everyone. The new deal is that no body’s work is permanent if you are not self-employed and even in such cases the business can simply die due to fierce competition; in the event of an organizational decline, just about anybody can be displaced if doing so is considered financially prudent by the business owner or the board of directors. The days of long-term employment relation is history. Human capital or resources have become the most disposal asset of organizations for quick short-term fixes to corporate problems. To become cost efficient, the first target of management is its labor cost. In Akan, we say “se obi abodwe rehye a na wasa nsu o esi wo de ho”. Consequently, talking about job loss is to discuss what can happen to just anyone of us, managers and employees alike, in an event of massive job displacement. Think of the job loss that accompanied the sale of major state-owned corporations and the fact that downsizing (workforce reduction) is in vogue in the manufacturing and related sectors of most market-driven economies in the world of which Ghana, our dear nation, is a part. Have you ever wondered why the employees of Agricultural Development Bank of Ghana resisted the acquisition of ADB by Stanbic? Part of it could have been the possibility of the dreaded lay-offs that could have affected management and non-management employees. Whiles Bank of Ghana was talking about finance and efficiency ADB employees were naturally concerned about their well-being. I believe much of the agitation was due to the threat of lay-offs than most of the logical arguments made. Threat activates us to find ways to protect ourselves. There is an ocean of rich growing knowledge base on employee well-being and emotions in Industrial and Organizational Psychology. What is known in the corporate governance literature is that there is a take-over risk. This is the fear of management that they may lose their job in an event of mergers and acquisitions. And rightly so, the first thing the acquiring organization may do will be to change the management because it is assumed that, rightly or wrongly, their inefficiency has caused the decline that acquired organization suffered.

Though I am not a prophet of doom, I anticipate that Ghana’s struggle for middle income status will come with heavy job losses in the manufacturing sector which is the third largest industry after agriculture and trading in terms of the proportion of the national labor force it absorbs (according to the Fourth Round of Ghana Living Standard Survey) in response to a need for lean production system or the Toyota Way or just-in-time inventory system and things like that. My anticipation is based on the trend in industrialized world, current trends in corporate Ghana and informal interviews with some workers in Ghana. For the benefit of the readers and my fellow researchers, the methodology was more of a small-sample size and in-depth discussions. This will lead to redundancy of several jobs or layers or levels of management. Management will want to reduce the span of control or supervision (number of employees under a supervisor) due to shift from tall, hierarchical organizations with high labor cost in favor of flat and equally effective organizational structures. If you have seen small but effective organizations in Ghana, then that that is what it will be like. Another factor that makes discussing lay-offs worthwhile is a trend that is already under way in Ghana, particularly at Tema industrial area. Outsourcing of business activities is already trendy; outsourcing means contracting out a function or an activity that was previously done in-house or in-company to an outside agent or firm. Reason for that is always a need for efficiency. Such outsourcing comes with temporary working or working on contract with organizations for shorter periods of time. In most cases the situation is like this: Company A asks company B to perform activity X on its behalf at a fee both companies negotiate because activity X when done in-house is costly but can be done effectively by company B at a lower cost. So company B hires people to work for company A yet they are not employees of company A (they work for company A on behalf of company B); company A pays company B and management of company B deducts their operational costs and related cost items before they pay the workers. This usually brings the take-home pay down to around 30% of what they could have earned if they were employees of company A. Company A is able to avoid paying huge benefits as required by the law and company B also avoids that responsibility through signing contracts with its employees to work for shorter-period. Whenever there is no job to be done company B lays off the employees and asks them to re-apply when they have jobs to be done and this enables both company A and B to avoid having to pay employees when there is no work to be done. That is, waste has been removed from the labour cost. As examples, Ghana Commercial Ghana and Ghana Port and Habour Authority have both outsourced the function of ensuring security of its properties to private security companies. Despite this downside, it creates vacuum that entrepreneurs can fill.

Another trend is ensuring that the organization is flexible. Regardless of the nature of flexibility sought, numerical or financial, the bottom-line is that it involves increasing or reducing the number of employees in response to changes in the operational requirement or capacity at a point in time and/or profitability of the company. The requirement for a flexible organization is that management should have a small number of employees as a core of permanent workers with all the entitlements and benefits bestowed on them by the Labour Act 2003 and a larger proportion of the employees as casuals without such entitlements. This enables the company to hire more workers when the management knows or anticipates an increase in demand for its product and lays them off when they anticipate a decrease in demand to match the anticipated market demand. This is usually done by way of human resource planning – Markov analysis, multiple regression, etc. What is in this for the employer? It helps him or her save a lot of money that would have gone into paying huge benefits like social security and severance pay to the casuals. This makes them flexible to the extent that they are able to lay off employees without benefits at any time the management anticipates a long period of downtime (period during which employees are not producing due to things beyond their control such as when a machinery is stopped for repairs for months or lack of raw materials). Usually, a clause in the contract may say that you may be asked not to come to work again when management decides to do so or statements that have similar implications. This is commonplace in Tema. The other interesting thing is that because the Labour Act 2003 stipulates that after 6 months the employer must either make the worker permanent or causal but with entitlements, workers are laid off before they hit the 6-month mandatory period and asked to sign another contract with the company. This has kept some employees for working at least 5 years with companies without the status of a permanent worker. The National Labour Commission needs to look more into this. How do we ensure that the 6-month rule is not violated by employers?

In the light of this new circumstance within which businesses in Ghana operate operate and will continue to operate in the years ahead, job loss has become almost inevitable and consequently, an important organizational issue that HR policies and practices must be worked out to address. Woyonko da ne woda. Abaa yede bo Takyi no yede bebo Baa. The Labour Act 2003 provides some framework but there is no manual for application. Laws are good but what management needs are tools for translating the laws into actionable programs. Knowledgeable specialists like Industrial and Organizational Psychologists and others are needed in this pursuit. I wish my readers to acknowledge that I don’t intend to discuss the downsides of some of these trendy management practices just to tell ourselves that they have their toll on the employees but to say that we shouldn’t have any illusions about lay-offs resulting from some of them and to get us and our employers prepared for it because at some times it may be the only way out of the problem. Notwithstanding, the author of this article is seriously working on a possible alternative to lay-offs as a response in such dire situations. Interested readers can every now and then shoot me emails to startle me into more action.

Having discussed why we must engage in a discourse on lay-offs from the standpoint of the observed and anticipated changes in our economy, let’s talk about some of the psychological impact of lay-offs on the terminated employees. The problem of job loss has important implications for the psychological health of the terminated employees. Apart from the devastating effect it will have on the psychological health of the terminated personnel, it also negatively affects the survivors. Perhaps, another article will be dedicated to the impact of job loss on the surviving employees.

What are the main psychological consequences of job loss? What are the psychological “defenses” that terminated employees need to have in order to minimize the impact of the job loss on themselves? As we discuss the psychological impact, keep in mind that there are individual differences in how we response to the event of job loss. Some of these differences have been captured in the psychological defenses required to minimize the impact of job loss.

Job loss is known to affect the overall mental health of the terminated personnel. Specifically, persons who lose their jobs more often than not are easily angered, become more anxious and more hostile. In terms of emotional state, such people feel unpleasant and activated to act. This may explain the violence or is similitude that some displaced usually visit on the company or its properties. Most often it results in displacing their anger from their employers to their spouses and/or children and sometimes their relatives. As a result, job loss may be implicated in some of the cases of domestic violence or abuses that occur in some homes. Thus, when people lose their jobs they become angry with their employers and when they cannot directly attack their employers turn their anger and hostility towards less threatening objects or persons and may be minimized if the job loss was predictable or was known to be pending. Again, job losers generally exhibit high level of anxiety. This happens as a result of the fear they begin to have about their employment security which they extend to other facets of their life. This may permeate their entire life to the extent that they simply become afraid to approach things in general. The source of this anxiety is well-placed; employment provides the individual with means to meeting his basic needs, money or income and so job loss threatens the very existence of the person. For most people work is the core of their life and as a result job loss may mean losing one’s life. This fear tends to be high and self-debilitating when the displaced worker’s job loss was not on account of misconduct or was not predictable. This is because such an ambiguous situation creates room for several interpretations as humans always attempt to make sense of environment and our life by seeking the causes. Interpretations such as witchcraft, bad fate and others like these may creep into the picture. The nature of such interpretations can be so intense that they may prevent people from performing their job roles at their full capacity, which is exactly what can enable the worker to stay in an event of lay-offs. Readers should note that apart from the “MBA” principle (Mebaa ha Akye or longer tenure; it leads to ensuring that the last to come or be hired by the company becomes the first to go in lay-offs) that unions prefer, performance level is one of the criteria that determines who stays. Management prefers high-performing short-tenured workers to low-performing long-tenured workers, all other things being equal.

Job loss is also reported to be a major cause of depression experienced by displaced workers. When people lose their jobs they may develop acute level of sadness and experience a loss of interest in activities they previously enjoyed. Such people feel unpleasant and deactivated to act. This results in loss of motivation to participate in some social activities and/or they may even begin to live a withdrawn life. Though withdrawal from social settings is a result of the job loss it is moderated by the income levels during the period of unemployment.

Job loss has also been shown through empirical studies to impact the self-esteem of the displaced worker. Though there is mixed evidence from empirical studies on the exact nature of the impact of the job loss on self-esteem, it is generally accepted that displaced workers lose some of their sense of self-worth, particularly when they attribute the job loss to themselves (such as being stupid or less intelligent). This loss may occur because of the comparison they may make with the workers unaffected by the redundancy. In addition, job loss may also lead to suicidal behavior or parasuicide. Persons who lose their jobs may experience a high level of pessimism and may consciously or unconsciously wish to “end their life”. These suicidal thoughts are a product of the low optimism, depression, anxiety, lowered self-esteem and anger. These conditions are highly related such that one can trigger the rest of them.

In an attempt to help employing organizations undertaking downsizing assist affected workers during such an exercise, Industrial/Organizational (I/O) Psychologists have worked endlessly to identify certain conditions that can enable the displaced worker confront the unemployment. These conditions are individual differences. They were identified by observing how people of varying levels of the conditions respond to the event of job loss. If we observed any meaningful systematic difference in the responses of people high on that condition and those low on it such that those high on it are better able to adjust to it, then being high on the condition is crucial for adjustment to job loss. The assumption in much of the empirical work is that these conditions can be induced or produced through psychological counseling.

First, optimism on the part of the displaced worker has been found to be very crucial. I/O Psychologists have through their extensive empirical studies confirmed the belief that optimistic displaced workers usually are re-employed within a shorter period of time than the pessimistic ones. This may be the result of their positive outlook and their belief that they can still find suitable employment. Even though for optimists the event is unpleasant, they still feel activated to do something by way of engaging in problem-focused solutions to the problem. This propels them to engage in appropriate job-seeking behaviors, which pay off in the end.

I/O Psychologists have also found that the attributions made for the job loss can influence the reaction to the job loss. We have found evidence in support of the belief that persons who lose their job and attribute to themselves or make internal attributions experience more negative outcomes whereas those who attribute the same job loss to external factors experience less negative outcomes. For instance, if a displaced worker attributes his/her job loss to the fact the firm is simply not doing well and not due to his/her lack of skills or abilities, the displaced worker may experience less negative outcomes.

Besides, other empirical studies also have shown that the psychological impact minimizes upon re-employment and that the shorter the time it takes the displaced worker to be re-employed the less the psychological impact. In view of these findings, it is believed than organizations could assist displaced workers by way of providing outplacement services or psychological counseling. This psychological counseling is needed to enhance the optimism of the affected employees and assist them to make healthy attributions in order to protect their self-efficacy and self-esteem. When the displaced workers have a high belief in his or her ability to get re-employed (high self-efficacy for re-employment) they are more likely to select the appropriate job-seeking behaviors. Someone who has had his sense of worth (self-esteem) deflated by a recent job loss is more likely to sink into depression, sometimes leading to suicidal thoughts; this means that the psychological counseling is required to protect or maintain the sense of worth. Readers are cautioned not to use self-efficacy interchangeably with self-esteem because there is an ocean of difference between the two. Self-efficacy is a belief in one’s ability to accomplish something whereas self-esteem is our sense of worth and the value we place on ourselves.

At this point, I invite others to join in this discussion. Mommra na yen ye yeho aduro. To my readers, let’s learn to tap into one another’s knowledge base for the greater good of Ghana. This is the only way we can take control of our nation-building process.

Acknowledgement and dedications: My knowledge on the Labour Act 2003 took adequate form during my recent summer internship at Gamey and Gamey Academy of Mediation (GGAM) Ltd in Ghana which is managed by Mr Austin Gamey, an executive consultant for PULSE Africa Inc., the president and C. O. O of Mediation Training Institute, Africa, and a leading labour consultant with specialization in appropriate mediation and arbitration in Ghana. Many thanks to all the employees at GGAM.

This article is dedicated to Dr B. Pulpulampu, an Industrial and Organizational Psychologist; CEO of PsychonHR Ltd in Ghana; the Departmental Chair of Human Resource Management and Organizations at the University of Ghana Business School (UGBS); and the editor of Management and Organizations, a multidisciplinary research journal published by UGBS, for lecturing and challenging me in Organizational Theory and Organizational Behavior for my Masters coursework and for the wonderful work he is doing as an Industrial-Organizational Psychologist in management consulting in Ghana. Bravo.

Seth Oppong Post-graduate Student in Industrial and Organizational Psychology, Department of Psychology, University of Ghana, Legon. Currently, a visiting research scholar to North Carolina State University, Raleigh, NC, USA. sopping@ncsu.edu xs_xb@yahoo.co.uk org_psyc@yahoo.ca

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.