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Redundancies should be ‘last resort’ in downturn

Published: 5 January 2009
As UK unemployment looks set to peak at 3.1m in 2009, The Chartered Institute of Personnel and Development (CIPD) warns companies of the hidden cost of redundancies.
Redundancies should be ‘last resort’ in downturn
The CIPD's annual Barometer Report says 2009 is 'shaping up to be the worst year for jobs in two decades'. It also urged companies to think twice before laying off staff as a short-term solution to financial difficulties.

The average cost of redundancies could be more than £16,000 per employee but the CIPD also warns that such action can also lead to a drop in morale among workers, a fall off in staff productivity and higher staff turnover.

CIPD chief economist John Philpott said: "Businesses are under huge pressure right now and restructuring is a fact of economic life that can never be ruled out, but while making people redundant can seem one of the most straightforward ways of cutting costs, redundancy in itself is a significant cost to most organisations with a number of direct and indirect or hidden costs."

He added: "This is particularly true if redundancies are an employer's first resort in difficult times and have to be quickly reserved by renewed hiring when conditions improve.

"While the average direct cost to employers of making redundancies can reach £16,375, on top of this are hidden or indirect costs resulting from the effect of redundancy on survivor employees, such as higher labour turnover and a fall in staff productivity."

"Redundancies should be a last resort in the downturn. We urge employers to plan for recovery by investing in and growing their people, rather than reducing their workforce."

CIPD's comments come as the British Chamber of Commerce (BCC) predicts that 3.1m people could be unemployed in 2009 - 10% of the workforce. It also forecasts a bigger decline in UK GDP in the current recession than in the early 1990s recession - 2.9 per cent in 2008-09 compared with 2.5 per cent in 1992-93.

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