Layoffs carry long-lasting impact on workplace morale, study finds

The mass layoffs that happened in 2023 — more than 305,000 American workers lost their jobs, according to Forbes.com — can negatively impact the morale of their former colleagues still on the job.

As the recently released “Glassdoor 2024 Workplace Trends” report notes, “[e]mployers who undertook layoffs in 2023 have seen sharp drops in employee satisfaction,” based on Glassdoor ratings provided by employees of more than 100 companies that experienced significant layoffs.

“[P]erhaps surprisingly, these effects are still ongoing even many months after the layoffs took place,” according to the report. “Glassdoor ratings continue to stagnate if not deteriorate even up to 180 days after the layoffs in 2022 and 2023.”

Aaron Terrazas, chief economist at Glassdoor, told CNBC.com that increasing compensation is one of the surest ways company leaders can boost morale, but that might not be feasible under current circumstances.

“I think they’re going to try to do a lot of the other things on the margins of compensation,” he said, referencing “carrot stick” policies.

According to CNBC.com:

Economists traditionally distinguish policies aimed at enforcing employee engagement and performance as carrots (incentives) or sticks (penalties). Carrots, such as raising compensation or offering perks such as free lunch in the office, are costly, but sticks can have a bad effect on employee satisfaction.

Seeing that employee satisfaction and engagement are both suffering, Terrazas says employers will “be reluctant to lean too heavily on the sticks.” Seeing both options as undesirable, he believes they will instead focus on carrot sticks, aka a mix of incentives and penalties that work by giving carrots only to more engaged employees.

Recognizing employees who are more involved in community-building activities in the workplace to encourage employee engagement is an example of a carrot stick policy, he says.

Related: Layoffs announced by a range of employers

Terrazas also stressed that layoffs can more adversely affect middle managers, who often are asked to enforce unpopular workplace policies and cost-cutting measures.

“With companies focusing on productivity and where they can cut costs, middle managers were a natural target for those cost savings,” Terrazas said. “They are facing layoff stress themselves as companies seek to flatten their organizations.”