The spiral of downsizing: Conceptual insights on organizational impact

Abstract

The long-term effects of downsizing, as well as the specific impacts of repeated downsizing, remain an area of limited understanding within the existing body of research. This gap is primarily due to the relatively small number of empirical studies conducted on the subject and the often-conflicting findings these studies present. To address this issue, this article systematically reviews the three predominant theoretical perspectives identified in the downsizing literature: economic efficiency, psychological contract theory, and organizational resilience. Through this analysis, the article establishes that downsizing exerts significant long-term consequences for both employees and organizations. Furthermore, the findings highlight that the nature of the downsizing experience—whether it involves direct layoffs, indirect exposure, or structural reorganization—and the sequence in which these events occur play a pivotal role in shaping the outcomes of repeated downsizing. Additionally, the research underscores that employee susceptibility to or recovery from repeated downsizing events is influenced by the specific outcome being examined, such as job performance, emotional well-being, or organizational loyalty. These insights not only enrich the conceptual understanding of downsizing phenomena but also underscore the need for more nuanced, longitudinal studies to unravel the complexities of repeated downsizing in diverse organizational contexts.