Least-cost alternatives to layoffs in declining industries

Abstract

The demand for services provided by a telecommunications firm dropped sharply during the 1979 recession. The company had no history of layoffs. Because it was in a regulated industry and its rate-of-return was guaranteed, the firm was buffered from many of the usual uncertainties associated with declining demand. In spite of its secure position, history, and reputation, top management made a decision to respond quickly to the downturn and lay off 100 employees. Perhaps the layoffs were intended to be a symbolic gesture, since the number of people affected was very small relative to the total number of employees. If this was the company's intention, the impact was grossly miscalculated. Because of the unwise timing of the layoffs, they caused widespread disaffection. Employee morale and confidence in top management plummeted. The event gained in infamy, and in the corridors and washrooms of corporate headquarters it became known as the “Christmas Eve Massacre”.