The effects of downsizing on labor productivity: The value of showing consideration for employees' morale and welfare in high‐performance work systems

Abstract

Abstract Although downsizing remains a topic of great interest to scholars and practitioners, little research has examined the link between the process and organizational performance. The current study examines whether organizations showing greater consideration for employees' morale and welfare in the downsizing process experience increased labor productivity. Further, because downsizing diminishes human capital and interferes with an organization's social exchange relationships, we posit that attention to employees' morale and welfare will be particularly important for high‐performance work systems (HPWS) that rely on human capital for competitive advantage. We tested our hypothesis with a sample of organizations that had downsized using survey data matched with secondary data. Results support our prediction that organizations with more extensive HPWS can reduce productivity losses from downsizing by heightening their consideration for employees' morale and welfare. We discuss the implications of these findings. © 2011 Wiley Periodicals, Inc.