The impact of IT sector layoffs on the workforce

After a year that was marred by uncertainties thanks to the aftermath of the pandemic, geopolitical uncertainties and impacts like soaring inflation and slowing economic growth, 2023 saw a spate of layoffs in the technology industry globally. It is estimated that over 10 million people lost their jobs within the first 40 days of 2023. The pandemic created a huge enthusiasm around digitization and technology and several organizations had gone on a hiring spree in 2022. However, towards the end of 2022, the recruiting spree came to a screeching halt with several companies freezing recruitment and announcing layoffs. 

What is a layoff?

Layoffs mean deliberately reducing staff and downsizing the workforce in order to increase organizational effectiveness. Downsizing has short-term benefits like maintaining profitability and reorganizing human resources for the best benefit of the organization. Layoffs have a negative impact on employee morale because they are typically not laid off for non-performance or the negligence of duty but for other reasons. Several companies, both big and small, have indulged in layoffs in 2023. While all sectors have indulged in layoffs, it has been the tech sector that has been the most impacted by layoffs. Most companies have adopted a strategic layoff plan to restructure and align their workforce based on altered business goals and realities. Organizations are exercising some caution because of recession fears. 

Impacts of layoffs on the workforce

• Reduced morale and productivity

One of the most immediate impacts of layoffs on a workforce is a reduction in morale and productivity. When employees see their colleagues losing their jobs, they can become anxious about their own job security and feel demotivated. This can result in decreased engagement and enthusiasm for work, which can ultimately lead to lower productivity levels. Additionally, the employees who remain may have to take on additional responsibilities to compensate for the lost positions, which can increase stress levels and further impact productivity. Employers should be aware of the potential for decreased morale and productivity in the aftermath of layoffs and take steps to mitigate these effects, such as providing support and resources for remaining employees and offering opportunities for professional development and career advancement.

• Loss of trust

Layoffs can be devastating to the workforce, especially when it comes to trust. When employees see their coworkers being laid off, they may become concerned about their own job security and wonder if they will be next. This can lead to a breakdown in trust between employees and management, as employees may believe they are not valued or that their contributions are not valued. Furthermore, layoffs can result in increased workloads for remaining employees, leading to burnout and decreased job satisfaction. This, in turn, can erode trust because employees may believe their employers are not concerned about their well-being. Overall, the impact of layoffs on the workforce can be significant, and employers must be aware of this.

• Increased workload

One of the most tangible impacts of layoffs on the workforce is the increased workload that remaining employees often face. When a company downsizes, the same amount of work still needs to be done, but with fewer people to do it. This can lead to a sense of overwhelm and burnout among employees who are left to pick up the slack. Working longer hours, taking on additional responsibilities, and dealing with a higher volume of work can take a toll on employees’ mental health and physical well-being, as well as their productivity and job satisfaction. Moreover, when employees are stretched too thin, they may be more prone to mistakes or oversights, which can have negative consequences for the business as a whole. To mitigate the impact of layoffs on workload, companies can consider redistributing responsibilities, bringing in temporary support, or providing additional resources and training to help remaining employees manage their new workload.

• Impact on diversity and inclusion
• Loss of institutional knowledge (Layoffs result in the loss of experienced staff members who have valuable institutional knowledge. This can make it harder for the workforce to operate effectively)
• Reduced innovation

Economic impact on the workforce

Unemployment: The impact of layoffs on employees is always detrimental. Job applicants feel discouraged when they see people who have lost their jobs and their hardships. A lot of time is wasted and layoffs result in a long period of unemployment. The period of unemployment may vary from employee to employee. 

Loss of Income: Companies decide on layoffs based on cost-cutting initiatives during recession. When a job is lost, income is lost. This directly impacts the lives and families of those who are laid off. Studies estimate that overall, an employee can lose up to 20% of their lifetime earnings to layoffs. Income loss leads to other impacts like lower spending capacity and directly impacting the economy.  

Lower standards of living: Employees who are relocated face the brunt of layoffs. It directly impacts their standards of living and earning. Employees and their families have to face untold hardships during the period of unemployment. They have to endure this till they find alternative employment. 

Non-economic impact on the workforce

From the moment a person is informed of the layoff till the actual termination, the employee has to go through immense stress. There is a lot of unpredictability during the period of unemployment till the person finds a new job. The employee’s family too is impacted by this stress. There is a huge emotional toll that a layoff has on the family. This is one reason why a layoff has to be supported with career guidance and psychological counseling. 

Physical health: The physical health of a person is directly impacted and even deteriorates when they have stress. There are possibilities of even hospitalization and in some cases, there may be a tendency to cause self-harm and indulge in self-destructive behavior. 

Mental health: Loss of status is a direct impact of a layoff and this causes immense stress and even a loss of identity to people. The inability to plan ahead and changes to daily routine and altered social networks – all these impact mental health very adversely. Socio-economic stress and interruption to things that are considered normal can affect a person’s mental well-being and even impact their physical health. In some cases, layoffs can lead to anxiety and depression as it directly impacts a person’s self-worth and self-esteem. 

Last word

Job layoffs affect an individual’s growth and development. Employee layoffs also affect the health and morale of employees. Layoffs can also have a direct impact on teamwork, innovation, collaboration and the quality of work. Not only do the layoffs affect those who have been terminated but also those that continue working in the organization. There is an increase in work pressure and restructuring of job roles. All this causes a huge churn and unpleasant situations in an organization. The impact on people who have been laid off is unimaginable and difficult to overcome.