Outsourcing, offshoring, downsizing, rightsizing, and reorganizing: Every day, local and national headlines proclaim events that mean just one thing to workers— their jobs are at risk. Job loss, as discussed here, is the involuntary removal of paid employment from an individual. Those who experience job loss are known by many different names: they are “laid off,” “redundant,” “dislocated,” or “displaced” workers. Regardless of the label, experiencing job loss is a stressful event, on par with the death of a spouse in terms of potential life impact. Moreover, not only does job loss affect individual workers, but its impacts also through relationships with spouses and children and into the communities affected by the precipitating events.
In the United States, as around the globe, a declining unemployment rate signals a recovering economy. The unemployment rate, the ratio between the number of people looking for work and total employment, underestimates the impact of job loss in two ways: First, only those actively looking for work are included in the computation. The unemployment rate does not include “discouraged” workers, those who have stopped looking for work because they think that their chances of success are slim. Second, the unemployment rate fails to account for the number of lost jobs that are offset by the creation of new jobs—jobs that tend to be lower-paying service jobs. Hence, while the overall economy experiences a net gain, people continue to experience displacement in an expanding economy. Such broad-scale trends of economic recovery thus mean little to the individual who has to bring home a pink slip instead of a paycheck. The ever-increasing competitive pressure within the global marketplace shows no sign of abating, suggesting that workers around the globe will continue to lose their jobs and face the challenge of looking for a new job. The risk of layoffs now extends to all sectors, affecting unskilled manufacturing workers and white-collar professional employees alike.
The remainder of this overview is organized around five sections: Section 1 includes an outline of the potential negative effects of job loss. Section 2 focuses on how displaced workers cope with losing their jobs, and Section 3 identifies some individual differences that may account for the differential impact of job loss by looking at the importance of identifying the “personal meaning” of job loss. Section 4 summarizes interventions targeted at getting employees back to work and minimizing the detrimental effects of job loss and identifies resources and benefits that may be available to unemployed workers. Section 5 looks briefly at issues related to downsizing. The entry ends with a conclusion and summary.
Effects of Job Loss
The most obvious and pervasive effect of job loss is the loss of income. Highly paid executives may have lucrative layoff packages that provide a financial cushion, but many displaced workers find themselves without adequate income to cover the necessities: rent or mortgage, utilities, food and clothing, transportation, health insurance, and the like. Financial resources—in the form of a monthly income, savings, retirement accounts, credit cards, and friends or family from whom to borrow money, for example—may provide a protective resource from the negative impacts of job loss. These resources vary in terms of accessibility, however, and a more important consideration seems to be the degree of financial strain or worry that the worker experiences. That is to say it is not just having or not having money available, but the perception of money problems that affects the displaced worker. Financial strain tends to become more severe over time. As unemployment duration extends, unemployment insurance benefits or severance packages run out, savings are spent, and reserves are depleted. Finally, those who experience acute financial stress are often more likely to take the first job they are offered, which may not be the best long-term strategy.
There are also effects on the displaced worker’s career. This section discusses the effects of job loss on employee wages and career trajectories, the subtle but important differences between reemployment and quality of reemployment and underemployment, and the importance of career stage in the impact of displacement.
First, economics research consistently demonstrates post-job loss wage reductions. Laid-off workers’ salaries at their new jobs tend to be lower than in their previous positions. In declining or cyclical industries in which employees are likely to face repeated downsizings and layoffs, these wage reductions can significantly diminish an employee’s lifetime earning potential. Along with salaries come other intangibles, such as position titles and prestige, leading to an additional impact on the employee’s career trajectory coupled with the financial implications.
Traditional unemployment research focused on the outcome of finding a new job or reemployment. Research is accumulating, however, that suggests that it is not just finding a job that is important but also the quality of the new job. The distinction thus is made between reemployment and quality of reemployment. Some workers may take jobs that pay less, that are at a lower level in the organization, that are less prestigious or are outside the employee’s area of expertise and training, that require working during nontraditional hours or shift work, that are part time or of limited duration, or that do not require the use of the worker’s full skill set. These workers rejoin the ranks of the employed, but their jobs are of low quality, leaving them dissatisfied with their underemployment. Such employees do not realize the psychological and practical benefits of employment that their fully employed counterparts experience, causing them to continue coping with the stresses of their displacement by continuing to look for another job or experiencing negative psychological states such as dissatisfaction, anxiety, and depression. Workers who experience acute financial stress are more likely to take the first job that is offered to them, regardless of quality, and thus are more at risk for the effects of underemployment.
The impact of a layoff differs according to the basis of the individual’s career stage. For example, middle management often bears the major brunt in a downsizing event as the company seeks to flatten its organizational structure. These employees are likely to have been in their jobs or careers for several years, with significant investments in their professions and careers and correspondingly high salaries. These employees may also have company-specific skill sets that are not easily transferable to another company and command higher salaries. As a group, this set of employees also tends to be at midlife, with large mortgages and children either in the home or in college, and they may be at an age where they begin to experience subtle age discrimination (which is exceedingly difficult to prove). This combination of factors may explain the U-shaped relationship between psychological health and career stage that has been found in unemployment research, whereby workers at midcareer are “harder hit” by unemployment than those who are earlier or later in their careers. Although early-career employees face an additional burden of establishing their career and professional identities, they are also less likely to have significant financial obligations and thus have greater flexibility. For example, this group is less likely to have constraints on relocation.
At the other end of the spectrum, those who are near retirement may also have additional options, such as taking an early retirement or voluntary severance package. Of course, these broad trends do not apply to every individual within the classification, but they do provide insight into the differing effects of displacement at various life and career stages.
Psychological and Physical Health
Job loss also takes a toll on a person’s sense of well-being, affecting both psychological and physical health. Compared with fully employed workers, displaced workers experience anxiety, depression, distress, emotional withdrawal, and illness or health complaints, as well as reduced self-esteem, satisfaction with life, and physical health. Job loss has also been linked to high-risk health behavior, such as smoking and substance abuse. Some workers exhibit a grief-like response to unemployment, shame from being out of work, or threatened identity following job loss. When workers are subjected to repeated layoffs, the stress appears to accumulate, rather than building a protective effect or resiliency for facing future layoffs. Despite the well-documented differences in mental health and unemployment, some controversy remains over the causal direction between unemployment and reduced well-being. That is to say, does unemployment cause poor psychological health (the social causation effect), or are those with poor health more likely to experience displacement (a social selection effect)? Evidence exists for both explanations, so the jury is still out on this question. Population studies have linked higher unemployment rates to increased mental health hospital admissions and suicide rates.
Spouse, Family, and Social Networks
The person who has lost a job is not the only one in a household affected by the layoff. Family members also bear the brunt. For example, a working spouse or partner may buffer the financial burden of job loss because a steady income continues to come into the household. However, this shift in financial responsibility may play out in unanticipated changes in the power structure or in domestic responsibilities within the household. As couples adjust to restructured roles, other detrimental effects of job loss can include domestic violence, partner depression and physical health symptoms, children’s problems at school, reduced relationship quality and satisfaction, and even divorce. The social support provided by a close family or a network of friends can provide an important resource on which to draw when faced with displacement. Unfortunately, those same families and friends may “undermine” displaced workers or place undue pressure on them to find new jobs. Social networks may also shrink following job loss, leading to less contact with others.
In sum, the negative outcomes associated with job loss are pervasive and well documented. These outcomes range from the obvious loss of income, to the psychological well-being and physical health, to the relationships within families and into the community. The next section looks at how displaced workers cope with unemployment.
Coping with Job Loss
One way to examine the effects of job loss is to examine it as a stressful event with which the displaced worker must cope. The coping process begins with a perception or an appraisal that the situation requires more resources than the individual has available. Some workers possess coping resources such as an optimistic outlook, a supportive spouse, or financial reserves that make them less likely to form a strong negative appraisal to displacement, while others’ lack of resources puts them more at risk. Those who fall into this latter category are more likely to appraise displacement as a harm (damage has already been done) or a threat (damage is likely to occur) rather than as a challenge (which can be used for good). Once the appraisal has been made, efforts to cope begin.
Displaced workers must deal with the fact that they are now unemployed and with the accompanying psychological and emotional responses to being without work. Research on coping with job loss focuses simultaneously on attempts to manage both components, typically by examining the dimensions of problem-focused or control-focused coping directed at rectifying the source of the problem, in this case unemployment, and emotion-focused, symptom-focused, or escape-focused coping aimed at managing the emotional response to the stressor. Problem-focused coping entails efforts to alter the source of the problem, such as enrolling in a retraining program, relocating somewhere with greater employment opportunities, or cognitive reappraisal to change one’s thinking about being unemployed. It also includes job search. Emotion-focused coping encompasses thoughts and behaviors focused on decreasing the isolation or hardship from being unemployed and making oneself feel better, including activities such as seeking support from one’s social network and getting involved in community activism to create more awareness and services for unemployed workers, as well as escape-oriented strategies such as devaluing the importance of holding a job or distancing oneself from job loss.
An active job search is a critical factor in becoming reemployed following displacement, and thus looking for a job is the most obvious form of coping with job loss. Job search behavior includes activities such as preparing a resume, filling out job applications, reading the want ads or searching online job postings, visiting a career counselor, and participating in mock interviews. Those with high self-esteem, an internal locus of control, high job-search self-efficacy and greater financial need, employment commitment, and social support are more likely to engage in job-search behaviors; and a significant relationship exists between job search and reemployment. Job-search intention and job-search behavior appear to be important intervening variables between individual differences and attitudes (as antecedents) and reemployment (as an outcome).
There is a somewhat counterintuitive negative relationship between job search and well-being, given the strong relationship between job search and employment. Looking for a job is a stressful process, often filled with rejection that can lead to self-doubt and frustration. Indeed, job search takes a greater toll on well-being for the most motivated and engaged searchers, leading some to experience job-search burnout and others to become discouraged and stop looking. There is also some evidence that looking for a job too soon is detrimental to the displaced worker, highlighting the need to examine a broader range of behaviors for coping with job loss.
The Personal Meaning of Job Loss to the Individual
Unemployment research has typically focused on identifying broad trends related to how displaced workers react to unemployment. As summarized in the previous section, there are a variety of ways to cope with job loss, and no two displaced workers react identically to job loss. For example, as mentioned previously, research indicates that workers who lose their jobs at midlife tend to be impacted more negatively than those just beginning their careers or nearing retirement. Several alternative scenarios provide potential explanations for this trend. Perhaps the impact comes from the financial implications of job loss: As mentioned previously, workers at midlife are more likely to have children in the home or attending college, with large mortgage payments and high living expenses. As such, they may have larger expenses than new entrants and fewer investments and savings than those near the end of their careers. Alternatively, it could be that the impact of unemployment stems from strongly identifying one’s sense of personal identity with one’s occupation or career. The worker may not be able to secure a new job that is similar to the one he or she lost in terms of prestige, level in the organization, or salary and compensation. Thus, the layoff may be seen as a “slip” down the corporate ladder. Another plausible explanation centers on the development of company-specific skills that are not transferable. Mid-career workers, given their likelihood of having longer tenure with a company, may have skill sets that are not marketable to other companies or across industries. Moreover, losing one’s job midlife could impact the family and the roles within the family. Perhaps the displaced worker was the primary wage earner, and his or her job loss means that the other spouse must return to the workforce. This change could send shockwaves through the family as new daily routines emerge, household responsibilities shift, and interpersonal dynamics adjust.
Any one of these scenarios could alternatively explain the relatively stronger impact of displacement on midcareer employees, or it could be that these issues accumulate in an additive or multiplicative way. Research to date has been unable to test complex models that would be suggested here, but recent attention focuses on explaining the variation within groups of unemployed workers. More research is needed to develop more complex and highly individual models that account for this variability of dislocated workers’ responses to unemployment.
Interventions and Resources for the Unemployed
Job Loss Interventions
Job loss interventions typically focus on (a) facilitating reemployment, (b) diminishing the negative emotional and psychological effects of displacement, or (c) both. These programs include components such as providing resources (e.g., help writing resumes, computers to type resumes and for e-mail access), enhancing job-search skills, aiding participants in identifying their own transferable skills and setting job-search goals, having realistic job-search expectations, improving the self-efficacy and motivation of job seekers, and providing a social support network of career counselors or trainers as well as other displaced workers who empathize with the job seeker. Participants typically experience positive outcomes from these interventions, including higher rates of reemployment, higher salaries, shorter unemployment duration, and better psychological well-being. Finally, interventions tend to disproportionately benefit those who are most at risk for the negative outcomes of job loss, such as those with low self-efficacy or high levels of depression, suggesting that interventions should be specifically targeted to at-risk groups of displaced workers to maximize effectiveness.
Resources for the Unemployed
Severance packages and unemployment insurance or unemployment compensation are designed to provide replacement income for a short time while the displaced worker seeks replacement employment. Benefits vary by country and state, and not all workers are eligible to receive assistance. Those who receive unemployment benefits may also be eligible for additional resources, such as retraining and wage subsidies if the layoff was certified for Trade Adjustment Assistance because jobs were lost due to import competition or to offshoring, for example.
Higher-level and professional employees are also likely to have access to outplacement services. Outplacement programs serve to help displaced workers regain a sense of well-being, plan for their careers and the future, and find new jobs. These programs vary in their comprehensiveness and support and include resources such as help writing resumes, training modules, career counseling, networking, negotiating job offers, and the like. Outplacement programs are not used by all to whom they are available, suggesting that this avenue should be added to coping-strategy research.
Downsizing and Reorganizing
The detrimental effects of downsizing are not limited to laid-off workers. Those who manage to keep their jobs face increased workloads and responsibilities, compounded by the uncertainty and fear that surround layoffs and guilt that they kept their jobs while friends and colleagues were let go. This combination of factors causes some remaining workers to exhibit symptoms of “survivor syndrome” or “survivor sickness.” Among other detrimental outcomes, survivors may have low levels of organizational commitment, job satisfaction, and trust in management, along with high levels of stress, hostility, and intention to quit.
A great deal of prescriptive advice is available for those required to implement layoffs in their companies due to downsizing or reorganization. In general, following this advice provides benefits to both those who are laid off from the organization and the survivors who remain employed with the company. Recommendations to managers include ensuring a procedurally fair and transparent process; providing timely, complete, and accurate information; giving advance notice when possible; and making resources available to deal with the practical and psychological issues brought about by the event, such as providing survivors opportunities to air their concerns in a safe environment and supplying displaced workers with severance packages and outplacement services. Additional resources to dislocated workers may be available through governmental services provided under the Worker Adjustment and Retraining Notice (WARN) Act or through Trade Adjustment Assistance, but the services and eligible populations vary by state, industry, and the cause of the downsizing event.
Millions of workers face involuntary job loss every year in the Unites States and around the globe. These workers are laid off, downsized, right-sized, reengineered, dislocated, or redundant. The negative effects of job loss and unemployment are pervasive and well documented and intensify over time as unemployment persists. Beyond the immediate economic impact of the loss of income, displaced workers also potentially experience detrimental career effects, such as lower wages or underemployment, or employment in a job that does not utilize all of the individual’s education, skills, and experience. Psychological troubles such as anxiety, depression, reduced self-esteem, and threatened identity may also manifest following displacement, along with physiological symptoms such as trouble sleeping, substance abuse, weight gain or loss, headaches, or other illness. Job loss also affects the spouse, family, and community of the dislocated worker.
Given the potential life disruption from job loss, displacement has been identified as one of the most stressful life events an individual can face. The process of coping with job loss begins with the individual’s perception or appraisal of the event. This entails taking mental stock of one’s resources in relation to the demands of the situation. Those who possess coping resources such as a healthy self-concept, a supportive spouse, and financial resources are less likely to perceive job loss in harmful or threatening terms and thus tend to fare better than those who lack resources. Displaced workers face two sets of issues with their unemployment: the lack of a job and the emotions and psychological reactions that goes along with it. Coping with job loss includes both problem-focused coping, such as looking for a job or relocating, and emotion-focused coping, such as seeking social support or distancing oneself from unemployment. Both strategies can be helpful at different times following job loss, and the coping process changes over time. A counterintuitive relationship exists between job search and well-being, on the one hand, and reemployment, on the other. The process of looking for a job is stressful and full of rejection, resulting in a negative relationship between searching and well-being. At the same time, research consistently shows a positive link between engaging in active job search and reemployment. These seemingly incongruous results highlight the importance of simultaneously examining the dual outcomes of (a) personal well-being and the quality of reemployment and (b) testing complex models that account for individual variability in response to job loss and unemployment.
Interventions designed to diminish the detrimental effects of job loss have shown promise, particularly when used in at-risk populations such as those who lack coping resources. These interventions typically focus on speeding reemployment or managing the psychological effects of displacement. Unemployment insurance and severance packages provide a financial cushion following job loss. Companies can also provide outplacement services for dislocated workers as an additional resource. Organizations conducting layoffs must also be mindful of the effects of a layoff on the employees remaining with the company and guard against survivor sickness. In general, clear, effective, and open communication and implementing a fair, transparent process are important components of ensuring effectiveness in the post-downsizing organization.
In conclusion, the current competitive environment suggests that employees and companies alike need to prepare and plan for the potential of employee displacement. Employees are advised to focus on their employability and maintaining a current portfolio of transferable skills.
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