The Impact of Workforce Reductions on Financial Performance: A Longitudinal Perspective

Abstract

During the last two decades, workforce reductions played an integral role in the restructuring strategies of many companies, especially for Fortune 500 companies. However, research in this important area has been limited. A doubly (multivariate) repeated measures design was chosen for this study to determine the longitudinal impact of workforce reductions on financial performance. The largest 250 U. S. corporations, as measured by 1992 revenues, were divided into two groups based on whether or not the company announced a significant workforce reduction initiative of at least 3% during the period 1991–92. Financial performance was measured by growth in sales and market capitalization for the period 1989 to 1996, thus providing two years of pre-event data and six years of post-event data. We found that workforce reductions significantly improved subsequent financial performance, particularly in the short term.