The Long-Term Impact of Layoffs on Morale and Business Performance

When businesses consider layoffs, they often only look at the bottom line and how much money will be saved. However, the impact of layoffs usually outweighs the short-term cost savings and even hurts profits in the long run.

You see it almost daily — news headlines and social media posts announcing another round of layoffs. Some messages come from those directly affected, expressing shock, frustration, and a sudden urge to reevaluate their coffee budget. 

Others come from employees still at the company, nervously wondering if updating their LinkedIn profile is a sign of disloyalty or good sense. 

While layoffs are often framed as necessary cost-cutting measures, they have long-term consequences beyond immediate financial relief.

Layoffs impact the employees who lose their jobs, those who remain, future hiring efforts, and ultimately, business performance. 

While they may improve the balance sheet in the short term, do they genuinely strengthen production and revenue over time? Or are they just a corporate version of crash dieting—quick results, but long-term consequences?

Let’s take a look at the long-term impact of layoffs.

The Impact of Layoffs on Those Who Are Laid Off

Losing a job is more than just a financial setback. It can disrupt an individual’s stability, identity, and purpose. Even when layoffs are handled with care, they feel deeply personal. The following uncertainty creates significant stress, and the financial repercussions can be severe.

• Financial Strain: The job market can be uncertain, and finding a new role may take time, sometimes leading to economic challenges. In the meantime, many people explore creative ways to make ends meet; oftentimes, those solutions are not viable or long-term.
• Emotional Impact: Employees who once felt valued may suddenly feel disposable, eroding trust in leadership. They feel like they’ve been dumped via text message and are hesitant to get into the next relationship.
• Long-Term Health Effects: Research indicates that layoffs increase mortality by 15-20% over the following 20 years. That’s right—getting laid off is bad for your health.

The Weight on Those Who Remain

Layoffs do not feel like a victory for employees who retain their jobs. Instead, they introduce stress, uncertainty, and often, survivor’s guilt—like being the only one left standing in a game of corporate dodgeball.

• Increased Workload: The exact amount of work often needs to be managed with fewer resources, leading to overwork and burnout. “Congratulations! You survived the layoffs. Here’s your prize: Jim’s work, on top of your own.”
• Decline in Morale: Studies have shown that 71% of layoff survivors report declining work motivation. Watching colleagues disappear like a magician’s trick isn’t great for company loyalty.
• Erosion of Trust: Following layoffs, companies see a 47% impact on trust and loyalty among remaining employees

The Hit to Future Hiring

A company’s reputation matters when attracting talent, and layoffs—especially repeated or poorly managed ones—can make recruitment more challenging. Would you board a plane that’s been randomly ejecting passengers mid-flight?

• Employer Brand Damage: Companies that have undergone layoffs may struggle to attract top talent, as potential candidates perceive instability. “Join our team! Until we decide you’re too expensive.”
• Reduced Recommendations: 61% of layoff survivors are less likely to recommend their company as a great workplace.

The Reality of Business Impact

While layoffs may provide short-term financial relief, their long-term impact on business performance is often negative. With fewer people to handle essential functions, companies frequently experience operational slowdowns, reduced customer satisfaction, and knowledge loss.

• Productivity Decline: Research has found that productivity among surviving employees can drop by as much as 20%.
• Profitability Issues: Studies have shown that layoffs do not generally result in improved profits.
• Hidden Costs: Layoffs can increase healthcare costs, absenteeism, and reduced productivity, resulting in significant financial losses.

A Better Way Forward

Decades of research demonstrate that layoffs rarely deliver on their promises. Studies consistently show that companies that downsize do not outperform their peers. Moreover, layoffs can lead to long-term costs, including reduced employee engagement and increased turnover.

Beyond the numbers, layoffs have a human cost that spreadsheets cannot capture. Each workforce reduction creates ripples of uncertainty, disengagement, and lost potential. The decisions made during difficult times have shaped the company's culture and leadership legacy for years.

Effective leaders recognize that people are not just a line item on a balance sheet. They are the driving force behind business success. Protecting that investment is not just about employee morale—it is a sound business strategy. Companies can achieve long-term profitability without the hidden costs of downsizing by exploring alternatives to layoffs, fostering transparent communication, and ensuring the well-being of remaining employees.

OptiPeople Resources specializes in providing fractional talent acquisition support to help you drive innovation, automate processes, and transform your talent function. To learn more about how we can support your organization's needs, call us today or schedule a time to discuss your requirements. Embrace this innovative approach to talent and watch your business thrive with the right expertise at the right time.