Abstract
Purpose. This research examined the effects of drastic workforce fluctuations upon profitability and productivity among Fortune 500 companies. It was hypothesized that, consistent with economic theory, drastic changes in inputs (labor) would affect productivity and profitability. Process and behavioral theories are discussed within the context of drastic workforce reductions as potential intervening variables which affect the outcome. Theoretical framework. Microeconomic theory on the allocation of resources as a method for cost minimization is applied. The theory of the firm was used to describe the technical relationships and monetary values embodied in the production function. Consideration is given to the impact of motivation and process theories upon the remaining workforce, which is often left demoralized. Methodology. Secondary data were obtained from the annual listing of Fortune 500 financial and workforce complements for 1986 through 1995. Labor variation was used as the independent variable while profitability and productivity measures were the dependent variables. Labor variation is any employee fluctuation outside one standard deviation (both positive and negative) from the mean number of employees for all firms in the 1995 Fortune 500 population. Results were measured at the time of intervention, one year, and three years after the intervention using t-tests to analyze the data. Findings. It was found that statistically, on average, companies on the Fortune 500 lists over the past ten years, have not shown that drastic employee variability has led to generalized improvements in productivity or profitability. This does not mean that singular company success can not be achieved, only that on average, employee variability does not lead to generalized success. Drastic workforce reductions were found to produce a negative impact upon employee mental and physical health. Conclusions and recommendations. This study found that drastic workforce manipulations fail to improve productivity or profitability one and three years after the intervention. The null hypothesis, which states that workforce variations do not affect efficiency ratios, was not rejected. Further research should be done to determine if intangible factors like loyalty, culture, or employee dedication affect productivity or profitability. Perhaps such a study could be tied to the method by which downsizing was conducted. This suggestion invites researchers to repeat the Hawthorne Studies, which would be a fascinating rerun given the present economic environment.