By Rebecca A. Clay

The high-powered engineers at one large com puter company never dreamed that down-sizing could touch them. Most had worked for the company since graduating from college, and, like many other workers in their 50s, believed that their employer would stand by them until they retired.

They were wrong.

When the engineers got caught up in a wave of industry cutbacks, the impact was devastating, says psychologist James W. Pennebaker, PhD, who was called in to help them cope with losing their jobs. Ashamed and embarrassed, they couldn?t talk to their wives about the experience. And they couldn?t find new jobs. ?They were probably the angriest, bitterest bunch of people I have ever seen,? says Pennebaker.

Although displaced workers like these engineers are downsizing?s most familiar victims, they aren?t the only ones. The workers who are left behind also face grave risks to their mental and physical well-being. And even organizations themselves aren?t immune to ill effects: New research suggests that downsizing?s emphasis on cutting costs actually lowers profits down the road.

Yet, the downsizing trend continues, and psychologists have an important role to play in helping displaced workers, survivors and organizations come to grips with a changing workplace, say experts.

A real savings?

Because labor represents about 60 percent of the cost of doing business, employees are always a tempting target when organizations seek to cut expenses.

Since the late 1980s, the business community has reacted to increasing global competition by trying to boost profits through downsizing, restructuring and other methods. More than 90 percent of medium and large organizations have laid off workers in the last decade, management specialists estimate. Even the public sector has jumped on the downsizing bandwagon. As part of the ?reinventing government? initiative, President Clinton cut 172,000 workers from the federal payroll.

?The conventional wisdom is that downsizing is invariably good from a business standpoint,? says William C. Howell, PhD, executive director of APA?s Science Directorate. ?There are obviously lots of organizations where greater efficiency is needed and downsizing is appropriate. But the idea that downsizing is the answer to every problem is probably suspect.?

A recent study by psychologist Wayne F. Cascio, PhD, a professor of management at the University of Colorado?s Graduate School of Business in Denver, confirms Howell?s suspicion. Cascio and his colleagues examined the Standard & Poor 500?s performance over the last 15 years and discovered that companies that had downsized without making other changes never outperformed other companies.

Indeed, Cascio found that the companies that did the best had actually upsized.

Neither companies nor Wall Street understands the true costs of downsizing, says Cascio, author of ?A Guide to Responsible Restructuring? (Government Printing Office, 1995). In fact, former Secretary of Labor Robert Reich coined the term ?the 7 percent rule? to describe the tendency for companies? stock to rise about 7 percent after announcements of downsizing.

What companies just don?t get is the fact that short-term savings do not equal long-term profits, says Cascio. Why? Cascio and other management specialists point to the deleterious effect downsizing has on the productivity of remaining workers.

?For hardnosed financial managers, the well-being of employees is a secondary or even tertiary consideration,? he says. ?They just don?t see that as important.?

Human costs

They should, says psychologist James Campbell Quick, PhD, co-author of ?Preventive Stress Management in Organizations, Second Edition? (APA, 1997) and a professor of organizational behavior at the University of Texas in Arlington.

Downsizing an organization without downsizing the workload can lead to psychological and physical problems that can cost the organization plenty, says Quick, who is also editor of APA?s Journal of Occupational Health Psychology. The stress of being overworked can manifest itself psychologically in the form of depression, burnout or breakdowns, he says.

And it can manifest itself behaviorally in the form of workplace violence or accidents, or physically in the form of heart attacks, hypertension or psychogenic problems. Employees simply can?t function at 100 percent all the time, he emphasizes.

Quick lays the blame not on organizations but on changes in the world economy.

?Downsizing is not some kind of sadistic process on the part of senior management to wrench blood out of a turnip,? he says. ?It?s based in companies? need to deal with a very large set of global economic forces.?

Entrepreneurial employees

Psychologists can help workers and employers adjust to those new economic conditions, say experts.

?As consultants, clinical and industrial psychologists can help improve the mental health of individual employees and organizations themselves,? says psychologist John D. Kraft, PhD, a former federal employee who helped the government plan its downsizing before he retired. He now serves as a consultant to the U.S. Office of Personnel Management and other federal agencies.

Helping organizations keep their lines of communication open is the key to success during organizational change, he says. Although that goes against managers? instincts, failing to communicate with employees will lead to even worse problems.

?Whether it?s good news or bad news, you have to let employees ask questions,? says Kraft, adding that employers must also convince employees that they care about them. ?Without open communication, the gossip chain starts and even worse stories get told.?

Cascio agrees and adds that employers also need to develop more humane ways of announcing layoffs.

Workers must adapt, too, he says. Instead of despairing at changes in the workplace, he says, they must embrace a more entrepreneurial attitude and start thinking of themselves as the CEOs of ?You, Inc.? That means saying good-bye to the notion that employers will cultivate employees? talents, map out their careers and generally take care of them.

Addressing psychological needs can help workers cultivate that kind of self-reliant attitude, say psychologists. Take the engineers described above. In a study involving 63 of them, Pennebaker divided them into three groups. One group spent half an hour during five consecutive days writing out their deepest feelings about the lay-off. A second group wrote on the emotionally neutral topic of how they spent their days. A third group did no writing at all.

The results were striking. Although the groups didn?t differ in the number of phone calls made, résumés sent out or job interviews undergone, the expressive writing group fared significantly better than the other groups. Eight months after the study, 52 percent of the experimental group had found jobs compared with only 20 percent of the two control groups.

Pennebaker suspects that the difference lies in how the engineers conducted themselves in their often-lengthy job interviews. Because control-group members hadn?t had an opportunity to work through their emotions, he speculates, they had a tendency to spend at least part of their interviews talking about how their previous employer had mistreated them.

?These people were dealing with things they hadn?t dealt with before,? says Pennebaker, author of ?Opening Up: The Healing Power of Expressing Emotion? (Guilford Press, 1997) and a psychology professor at the University of Texas in Austin. ?When you get people to translate a traumatic experience into language, it helps them organize it and put it into a coherent framework.?

Rebecca A. Clay is a writer in Washington, D.C.

Further reading

? ?A Guide to Responsible Restructuring? by Wayne F. Cascio, PhD (Government Printing Office, 1995).

? ?The New Organizational Reality: Downsizing, Restructuring and Revitalization,? edited by Marilyn K. Gowing, PhD; John D. Kraft, PhD; and James Campbell Quick, PhD (APA Books, 1997).

? ?Preventive Stress Management in Organizations, Second Edition? by James Campbell Quick (APA, 1997).