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November 27, 2020

The danger of indiscriminate layoffs


November 27, 2020

LAHORE: Businessmen have not learnt their lesson from past recessions and have been quick in parting ways with their workforce in the last two years, losing their best human resource in the process.

The demand was bound to come back given the young Pakistani population, as youngsters are the largest consumers of goods and services. Reducing workforce has not worked wonders for most ailing companies, as many of them had parted ways with their best brains.

This also put extra burden on the retained employees, which in turn has affected productivity.

Manufacturing sector in Pakistan has been fighting an uphill task to cope with high costs and dwindling sales. Most companies have been forced to prune their workforce to cut cost.

Demand has not returned to normal level due to high food inflation and recurrent pandemic, slow growth is visible, but in sectors where growth is high there is shortage of skilled labour. The textile sector is awash with export orders, but despite operating on full capacities (apparel sector) productivity has declined.

This is the reason that in the first four months of this fiscal, the textile exports have increased barely by 3.7 percent. In value terms, the exports are no way near their peak.

At least 40 percent of the skilled workforce that was retrenched during the Covid-19 peak has not reported back to work from their homes in rural areas. Some have found other low paying avenues and prefer to be satisfied with less rather than going back to work as the Covid-19 incidences have again started rising.

Firing workers is a risky job because there is a possibility that you fire a competent worker, who might end up working with competitors. In fact, some organisations have benefitted from reckless firing by panicky companies and have actually been able to pick up talent that otherwise would not be available in the market.

They are now in the driving seat, but such companies are few. They acquired talent by financing their salaries from their reserves or assets that they disposed of.

They knew that the demand would return albeit slowly after hitting rock bottom. They were fully prepared to take advantage of that as most of their competitors would face acute shortage of skilled workers and would not be able to cope with the demand.

Layoffs are necessary after a meltdown in the economy, but it should be an effective layoff that actually improves efficiency rather than inflicting strategic damage to the company by releasing even the most skilled and sought after workers just to cut cost.

It is unfortunate that many entrepreneurs fail to realise that downsizing not only hurts those who are forced to leave the job, but also impacts the morale of the retained workforce.

What happened in Pakistan was that companies retained their entire workforce during the peak of recession as they banked on the saved capital when the growth was high. They thought the economy would rebound soon and when it did not, and they exhausted all their reserves, the companies panicked and started indiscriminate layoffs.

Now that the economy is on a slow recovery path, they do not have the required workforce and the workers they retrenched indiscriminately are not willing to come back. The companies where the layoffs were not fair invariably closed down after some time, as the retained workers failed to cope with the high expectations of the entrepreneurs.

It was a shock for companies that retrenched their workforce indiscriminately, as even the workers who they retained were leaving them to join companies that retrenched fairly and protected their human resources.

When productivity goes down appreciably, and need arises to cut the workforce the management should take the entire workforce on board. Workers should be given the choice to either accept uniform cut in wages or accept a fair formula for layoffs.

Another option is to offer some workers marginal salary around half or even less than that and let them spend the year working in some other area, but not in the firm.

They could do something that helps them learn and also helps the firm's reputation in some ways.

The retained workforce should be given more respect and retention should not be considered as a favour to the worker. The retained workers should be assured of job security and the salaries should be paid on time.