The Cost of Layoffs

In this economic environment, layoffs are unavoidable at many firms. However, Geoff Colvin at Fortune reminds us that managers often underestimate the cost of layoffs. They typically focus only on the direct costs, i.e. the severance payments that occur at the time of the layoff. However, firms do incur other costs as well. Rehiring and retraining expenses often prove much more significant than firms estimate. Firms should pay particular attention to these types of expenses if they have a highly skilled workforce with specialized capabilities that are hard to acquire and/or develop.