Psychological impact of redundancy in employment and well-being

Redundancy

Definition of Redundancy

Redundancy is defined as "The state or fact of being unemployed because work is no longer offered or considered necessary…A dismissal of an employee from work for being no longer necessary; a layoff ("redundancy")." In other words redundancy occurs when an employee is fired because the job he performs is no longer necessary. In addition according to Waters (2007) job redundancy can also be defined as "the planned process of 'cutting back on human resources'…by terminating or making redundant, an individual's position within the organization (Waters 2007, 279)." The term redundancy as applied to has its origin in British law and society.

There are two forms of redundancy: voluntary and involuntary. Voluntary redundancy occurs when employees choose to leave a job prior to a downsizing. In many cases those employees that choose voluntary redundancy are offered severance packages by employers. These severance packages often include a lump sum of money that is presented to the employee. The amount of severance pay that the employee receives is based on the amount of time the employee has been working for the company.

On the other hand involuntary redundancy occurs when employees are simply laid off. They are likely to receive unemployment benefits but not severance pay. Voluntary redundancy usually takes the most severe toll of the employee because they do not have any control over the situation. On the contrary, those that can choose to leave voluntarily are able to receive a significant amount of money and even education assistance as they pursue a new job.

Whether the redundancy is voluntary or involuntary, in many cases, employees that lose their jobs as a result of redundancy cannot find new work immediately. This difficulty is often due to the fact ht at the job position is becoming obsolete as a result of advances in technology and/or a changing business environment. The difficulty that some people face in finding another job can have a real impact on their psychological well -- being. In this way redundancy has a real psychological impact. According to Clark et al. (2010) unemployment is highly correlated to the well-being of individuals. The authors further explain that job loss is not only associated to a loss in income but also the loss of non-monetary benefits associated with working. The psychological impact of redundancy is also inclusive of a less contact with individuals that are not family members, the lack of structured time that leads to a decrease in motivation, loss of social status, and a lack of purpose or goals. The authors further explain that "In the well-being literature, these non-pecuniary effects are most often estimated to be more important than the loss of income itself, so that the "compensating differential" for unemployment (the rise in income that would make the unemployed just as happy as the employed) is typically an order of magnitude larger than the observed difference in income between the employed and the unemployed (Clark et al. 2010)."

The authors further explain that there is a great deal of research that discusses the link between individual unemployment and independent well-being (Clark et al. 2010). Research has also found a relationship between individual well-being and the unemployment of others (Clark et al. 2010). Additionally, "At the broadest level, the novel work on the macroeconomics of happiness has shown that individual well-being is related to aggregate macroeconomic variables such as the unemployment rate, inflation, and the interest rate. The estimated coefficients on these aggregate variables can be used to construct sacrifice ratios (Clark et al. 2010)."

Causes of Redundancy

Redundancy can occur for several reasons. In the definition provided above it is explained that redundancy occurs when a particular job position is no longer required or when an organization cuts back on human resources. This latter definition is also referred to as downsizing. Downsizing is quite often a major reason for redundancy. According to Datta et al. (2010) although there has been increased emphasis placed on the occurrences of downsizing in the job market in recent years, the act of downsizing as never truly been absent from the workforce. The authors also explain that over the past twenty years the downsizing of employees has become an important part of the life of an organization. There are several reasons why downsizing has become so popular. The article explains that chief amongst these reasons for downsizing is the pressures associated with competing in an global business environment. In addition, organizations have the added responsibility of confronting the constantly changing demands which have caused organizations to evaluate and reconstruct their cost structures which is inclusive with the cost of human resources. The article further explains that there was a time when the concept of downsizing was most common in America; however, downsizing is now popular in many different countries around the world. Granted, the current economic situation around the world has caused downsizing to increase a great deal. Indeed, the number of job losses caused by the current recession has been extremely high. For instance in America nearly 7 million positions have been downsized in just a two-year period. It is likely that these numbers will continue to increase (Krugman, 2009). The article further explains that

"In 2008, the U.S. Bureau of Labor Statistics recorded 21,137 "mass layoff events" in the United States involving more than 2 million job losses (Bureau of Labor Statistics, 2009). Other countries have witnessed their share of job reductions, including countries that have traditionally shunned the practice of employee downsizing. The past year has witnessed significant employee reductions in countries such as Japan, Hong Kong, South Korea, and Taiwan. Even the economic juggernaut of China has been affected, with major layoffs in a number of sectors (e.g., among export-oriented firms and labor-intensive small businesses in China's coastal areas). Large-scale layoffs have also become commonplace in Europe, resulting in a spike in unemployment figures in many countries (Datta et al., 2010)."

For instance in Ireland the unemployment rate went from 5.6% in 2008 to 10.6 in 2009. In addition Spain also saw a drastic increase in unemployment from 9.5% in 2008 to 17.4% in 2009 (Datta et al., 2010). Downsizing is not limited to certain industries. That is a broad range of industries have adopted downsizing as a business strategy. The article further explains that "given its magnitude and impact, employee downsizing can legitimately be viewed as one of the most far-reaching and significant management issues of the current era (Datta et al., 2010)." The authors further explain that downsizing is related to three factors that impact organizational change. These factors include content, context and process (Datta et al., 2010).

The authors further explain that even though content is represented by the downsizing of employees. Content also has other underlying attributes, such as (a) whether layoffs are permanent or temporary (b) the rate at which the downsizing occurs), (c) the level and compass of such downsizing and (d) the rate with which downsizing is carried out (Datta et al., 2010). Even though downsizing decisions are impacted by both external and internal contexts, the downsizing outcomes both the external and internal are influenced by issues associated with the decision and implementation method (Datta et al., 2010).

A great deal of the research on this topic has industrial theory and industrial organization as a foundation. The article reports that the process of downsizing is usually associated with demand declines (Datta et al., 2010). In addition, downsizing is usually related to decreasing labor costs while also increasing the use of capital (Datta et al., 2010). The author "demand declines often invoke market-clearing mechanisms that weaken and weed out underperforming firms, thereby causing significant employee layoffs (Datta et al., 2010)." Downsizing has also been correlated to structural changes that occur as a result of technological advances. These advances result in increased productivity and leads to redundancy through the layoff or downsizing of employees. Furthermore, the deregulation of industry and globalization has led many firms to focus on competence and productivity improvements through employee reductions so they can stay competitive (Budros, 1999; Datta et al., 2010).

Redundancy also occurs when companies are confronted with the realities of global competition. This competition can cause companies to use the same strategies of their competitors. This means that if a competitor decides to outsource all of its manufacturing to China to reduce cost, the company in question will do the same. This move will require that certain positions will become redundant or obsolete.

Survivor Syndrome

Survivor syndrome is a condition that can occur under many different scenarios. As it pertains to job redundancy, survivor syndrome can be a real problem for an organization that has undergone the downsizing process. Survivor syndrome is a condition that affects the employees that were not laid off as a result of downsizing or changes in the need for certain types of workers. Just as people who are unemployed are subject to dealing with psychological turmoil, survivors also deal with issues as a result of surviving the lay off. According to "Survivor syndrome is mainly characterized by feelings of guilt, for having survived the layoff, and anxiety, reduced motivation and risk taking due to the insecurity of further layoffs. It is a side effect of downsizing that is detrimental to both the individual survivors, and to the organization, since productivity may also be compromised (Appelbaum & Donia)."

For the most part one of the primary emotions that survivors feel is guilt. This guilt is present because the survivor still has a job along with the financial benefits associated with being employed. The guilt can also be more severe for those that have friends or even relatives that have been laid off. In recent years a great deal of downsizing has occurred at manufacturing plants that have been in communities for decades. These older organizations have served as employer to entire families for generations. As such there is a real emotional attachment to the place of employment.

Survivors also have to deal with the anxiety that come s with layoffs. This anxiety arises because survivors realize and understand that their ob positions are not secure and they too could lose their jobs at any time. This anxiety is particularly pronounced when those who are laid off have been working with the company for longer periods of time than the survivor. This type of anxiety can be quite detrimental to the organization because it interferes with the ability of the employee to be productive.

According to Appelbaum & Donia the emotional well-being of survivors is affected after layoff in a profound was, especially when there is an inadequate amount of communication. In addition some survivors have difficulty dealing with the destruction of the old psychological contract. In fact the authors report that "A survey by Rights Associates (an outplacement firm) of over 900 human relations executives found that over 70% of remaining employees feel insecurity about their jobs (Mathys and Burack, 1993; Appelbaum & Donia)." Any addition other researchers have found that when the emotions of survivors are not addressed the fears that they have intensify (Appelbaum & Donia).

In fact for many survivors a feeling of resignation and numbness intensifies when management fails to effectively communicate with survivors. Failure to communicate makes survivors believe that managers have no empathy and that the well-being of the survivors is not important to the organization (Appelbaum & Donia). Additionally as time progresses, survivors will begin to have less confidence in their capacity to control the direction of their career (Appelbaum & Donia). They will also feel a significant amount of insecurity about their future. The author explains that when this f vulnerability is combined with distrust and unwelcoming ideas about the future, survivors become cynical. Cynicism is particularly damaging when survivors also believe the layoffs are inequitable (Appelbaum & Donia).

Cynicism, which can be defined as a decreased confidence in management and change efforts, coupled with the conviction that the downsizing process was not equitable, can be the most harmful of emotions because the integrity of the organization is damaged in the eyes of employees. Once survivors become cynical concerning the downsizing and view the layoff as unreasonable, negative behavioral usually occur (Appelbaum & Donia). This often means that poor performance and lack of productivity occurs amongst survivors (Appelbaum & Donia).

The authors explains that in most cases the all of the aforementioned emotions come together to produce an intense sense of cynicism. The authors further explains that in the context of workplace redundancy cynicism is usually a response to a history of unsuccessful change attempts that have been provoked by intentions that do not have the best interest of employees in mind. Additionally cynicism involves a genuine loss of trust of those who managed the change and can have disadvantageous consequences on the confidence and output of employees. The authors further explains that

"Many of the factors responsible for survivors' lack of trust in management are also responsible for growing cynicism in organizational change. For example, employees are more likely to be cynical about change when they feel uninformed about what is going on in the workplace and about change efforts as well as when they are not offered meaningful opportunities to participate in the decision making. Also, as with decreased trust and faith in management, employees who become increasingly cynical will exhibit lower commitment, motivation, satisfaction and productivity (Reichers et al., 1997).