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Impact of employee downsizing on organization

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Abstract
One of the primary reasons for employee downsizing is to reduce costs. Employee payroll counts as a liability on the company balance sheet and, therefore, reduces the owners'' equity. The retained earnings of a company are affected by the amount it pays out in payroll and removing this obligation is one way to cut costs. Aside from payroll, employee benefits are also costly to companies, as are the operating costs associated with overproduction. Companies sometimes downsize their employee base to increase productivity. This may seem counterintuitive on the surface, but some instances exist where this would be advantageous. For instance, if a company knows that it can increase the output of individual workers while remaining constant with its productivity, this can be advantageous for cost reduction. However, a company may also decide to downsize to increase productivity by replacing workers with sophisticated equipment that can do the same job. Downsizing the number of employees a company has generally signaled that some restructuring and changes are underway. These changes generally take place for increasing the profitability of the company. If shareholders and other investors perceive that the company will be making changes that increase its profitability, it will increase the value of company stock. This can result in more investors coming on board or current investors increasing their shareholdings in the organization. In either case, downsizing can increase the company's perceived value ...
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