It's been a rough year for the American worker. In the first half of 2008, U.S. employers reported six straight months of jobs losses. Since Jan. 1, companies struggling to weather the economic downturn have laid off 324,000 employees. Yet layoffs are "certainly not a quick fix" for most businesses, according to research by industrial/organizational (I/O) psychologist Kenneth P. De Meuse, PhD. In fact, in a study of Fortune 100 companies, De Meuse found it can take at least two years for a company to recoup its losses after a layoff, which eliminates skilled workers who may be expensive to replace, boosts turnover and lowers productivity (Journal of Managerial Issues, Vol. 16, No. 2).

"I equate it to surgery," says De Meuse, vice president of research at Lominger International, a talent management and leadership development organization. "If you have heart surgery, it's going to take your body much longer to heal than if you have a broken bone in your leg. Companies are not going to recover from significant problems overnight."

Of course, beyond the financial struggles of a layoff, downsizing can sap employee enthusiasm and trust, says I/O psychologist Wayne F. Cascio, PhD, professor of management at the University of Colorado at Denver. Research by Cascio and others shows that workers who have lost their jobs in a downsizing-particularly through such callous but not uncommon tactics as text or e-mail messages-report feelings of betrayal, anger and decreased self-worth. The employees left to pick up the pieces report declines in organizational commitment and job satisfaction, and they experience more stress, often due to feelings of uncertainty.

Psychologists are working with companies to help them develop alternatives to employee downsizing, such as implementing salary freezes or offering unpaid vacation time. But when it's absolutely necessary to cut staff, they're helping organizations manage layoffs in the most humane way possible, both for the people being let go as well as those who remain employed.

The field's work is more respected than ever: 10 years ago, most psychologists involved in company restructurings simply helped laid-off employees with outplacement assistance. More and more, they're being brought in during the early stages of a downsizing, and many I/O psychologists devote their entire practices to helping manage layoffs.

"You hate to say it, but business is good," says Cascio.

A gentler ax

For many companies, downsizing employees is a last-resort tactic to cut costs, says Cascio. Psychologists can help executives head off layoffs by encouraging them to try short-term alternatives, such as delaying new hire start dates or reducing incentive pay-outs. Some companies, he notes, may even be open to long-term alternatives such as redeployment, which requires retraining and moving employees from a low-performing area to work in a more profitable one.

"Employees, by a large margin, are in favor of a philosophy where all bear a little bit of the pain and no one loses his or her job," Cascio says.

But when such cuts aren't enough to help the bottom line, keeping employees as informed as possible about layoffs may make them less resistant to change, says Mitchell Marks, PhD, who heads the consulting firm Joiningforces.org, which has helped AT&T, Pfizer, Bank of America and others manage downsizings. Too often, executives try to implement a layoff quickly so the company can move on, but that tactic runs counter to everything psychologists know about loss and grieving, he says.

Instead, Marks says psychologists are schooling managers on how to answer questions from employees and express empathy. They also work with companies to reframe the cuts as a time of transition, to rethink how work is prioritized and to communicate with employees about when they can expect the tumultuous times to end.

Companies are also calling in clinical or counseling psychologists to help employees understand that the anger, fear and insecurity they may feel is normal. They work with employees to create contingency plans so they feel prepared should additional layoffs happen, he says.

"Survivors often don't want to speak up when they're hurting because they're afraid if there's another downsizing, that could be used against them," says Marks. "By bringing in a psychologist to help manage the process, not only do you help people get their focus back more quickly, but you can also use it as an opportunity to help people work more efficiently."

Effective interventions

Research suggests that psychologists' involvement really works, says De Meuse. After a Southern computer company acquired a California-based engineering firm, mainly to gain access to the firm's employee talent, the company got wind that the anti-anxiety drug Valium had become the No. 1 prescribed medication among the California employees, possibly due to concerns over the transition. De Meuse organized company meetings sharing information about the acquisition, created a Web site that discussed work-life balance and healthy ways to deal with stress, and established an employee hot line staffed by a therapist. In the months after the program was installed, Valium prescriptions began to decline, he says.

Mostly what employees crave during such transitional times is to believe that layoffs are being done fairly, says Columbia Business School psychologist Joel Brockner, PhD. When senior executives explain the strategic reasons for the downsizing before it is implemented, and when managers make themselves available for questions and express regret when handing out pink slips, both employees and the business benefit. A 2006 Harvard Business Review article by Brockner provides evidence that when companies emphasize such procedural fairness, few laid-off employees file wrongful termination claims, and theft and turnover among surviving employees are greatly reduced.

Psychologists' work in the area is not only humane, it's profitable. Management consultant and University of California, San Diego, clinical psychiatry professor Judith Bardwick, PhD, points to numerous studies in her book "One Foot Out the Door" (AMACOM, 2008), which show that when employees show pride in their workplace, they draw in customers, which on average can triple earnings compared with competitors that don't have committed and engaged work forces.

It seems treating employees well isn't just a frill--it's essential to a company's bottom line.