Negative Effect of Corporate Restructuring
In order to cut back losses, and increase productivity, efficiency as well as profitability, a firm may decide on corporate restructuring. As the term implies, corporate restructuring, including leveraged buyouts and mergers, is to reorganize the firm. In the process, various departments of the organization may need to be permanently dismantled. Hence, research reveals that corporate restructuring must inevitably lead to staff reduction (Yoshio and Toshiyuki). As a matter of fact, “companies that have been restructured see a substantial fall in employment in the period immediately after the restructuring has taken place compared to those that have not (Yoshio and Toshiyuki).” After all, new directors and managers of a firm – especially in cases of leveraged buyouts and mergers – may decide on hiring new employees with the assumption that the old employees were simply not good enough, which is why the firm had to be restructured. As time passes, however, the rate of staff reduction at the firm that has been restructured would start to decline (Yoshio and Toshiyuki). Research further shows that four years after restructuring, employment at the organization “will be more safeguarded than at a firm that has not been restructured (Yoshio and Toshiyuki).”
While corporate restructuring does not necessarily have a direct impact on wages, it is undoubtedly a fact that those who lose their jobs during the restructuring phase would experience a reduction in their standard of living (Yoshio and Toshiyuki; Armour and Deakin). When an employee leaves his or her job, he or she must certainly experience a change in lifestyle. Perhaps he or she would not be able to send his or her children to school after losing the job. Or, maybe the employee would become financially incapable of visiting the doctor for his or her regular medical checkups. Studies have consistently shown that redundancy has “far reaching effects on the welfare of employees (Armour and Deakin).” It may take many years for employees to “recover their previous level of earnings,” if they ever do (Armour and Deakin). After all, other firms would know that such employees had lost their previous jobs because they could not meet their firms’ targets for profitability. Moreover, fired employees may have had “firm-specific skills” that they may not be able to use elsewhere (Armour and Deakin).
Of course, employees that have worked in a firm for a long time may opt to leave it at the time of restructuring, especially if they cannot adjust to new conditions in the workplace. Regardless of whether they are fired or not, however, it is a fact that corporate restructuring leads to staff reduction, which is inevitably tied to the employment rate of the economy as a whole. During periods of large-scale corporate restructuring, the employment rate of a country may fall drastically. Of a certainty, when people lose jobs they cannot afford to maintain their previous lifestyles, unless they get jobs with similar pay scales soon after leaving their previous jobs. Unfortunately, not every employee who loses his or her job through corporate restructuring would be able to find a new job that pays as much as or better than the lost job. When a large number of people experience unemployment or reductions in their incomes, the economy as a whole is bound to experience a reduction in the standard of living, even if it appears that it is only the unemployed people and their families that are directly impacted. The logic is simple: A ripple in one sector of the economy causes a wave elsewhere.
Armour, John, and Simon Deakin. “Insolvency, Employment Protection and Corporate
Restructuring: the Effects of TUPE.” 12 Jun 2008. <http://www.chass.utoronto.ca/clea/confpapers/JArmour.pdf>.
Yoshio, Higuchi, and Matsuura Toshiyuki. “Corporate Restructuring and its Impact on Value-
added, Productivity, Employment and Wages.” Research Institute of Economy, Trade and Industry. 12 Jun 2008. <http://www.rieti.go.jp/en/papers/research-review/015.html>.