Human resource surplus or shortage

¶ … Human Resource Management: Lay-Offs and Downsizing

Companies and business organizations, in order to reduce costs and expenditures for the year, have imposed lay-offs or downsizing -- a reduction in the company's human resources. Human resource is one of the first factors that a company can adjust in saving its expenditures simply because human resource is replaceable and abundant. Thus, a shortage in human resource can easily be remedied by hiring old or new employees (rehiring) in order to meet the demand of the market. Other dynamic processes happen behind these two activities (lay-offs and downsizing), and this paper looks into its nature, advantages, and adverse effects to both the company and its remaining human resource.

Workforce realignment is the term used when companies cut back on human resource expenditures by imposing lay-offs and downsizing. In lay-offs, a company reduces its number of workers or employees just as soon as there is a "shortfall in demand for products." In this kind of work realignment, human resource supply is adjusted to meet the demand for the goods or services produced by the company. While there is a positive and direct relationship between human capital and good/services in lay-offs (i.e., the lower the demand for products or services, the lower the supply for human resource must be), downsizing works under a different principle of workforce realignment. In downsizing, the demand for goods and services remain constant, while the demand for human resource changes, depending on the company's objective and technique of achieving efficiency in reducing human resource expenditures. In downsizing, job reductions are made in order to operate more efficiently regardless of whether the demand for the goods or services of the company remains strong or has weakened.

In today's trend of merging and acquiring smaller or newer companies by the older and more established companies (mergers and acquisitions), lay-offs and downsizing are prevalent. Since employees, once merged by two or more companies, will have an abundant supply of human resource, there is a reduction in efficiency because of the redundancy in work functions. Lay-offs or downsizing are often imposed when human resource supply exceeds the demand in the company. However, workforce realignment is not an easy task: imposition of a lay-off or downsizing inevitably results to a change in (higher) employee turn-over and adversely affects the morale of its (remaining) employees.