Need to choose between cutting people and pay? A work sector may matter if maintaining work attitudes is your concern

Yeongjoon Yoon

European Management Journal, 2023, vol. 41, issue 2, 312-322

Abstract: Despite the increase in the cases of reducing payroll costs (i.e., the costs of wages and salaries), studies that directly compare the effects of related methods (cutting pay vs. downsizing) on work attitudes are extremely limited. Moreover, there has been no effort to answer the question of “who” is more or less affected by one method over the other. This study directly compares the effects of cutting pay vs. downsizing on work attitudes (i.e., affective commitment and job satisfaction) of remaining employees (i.e., employees whose pay is cut vs. survivors of downsizing). The study also examines the moderating effect of the work sector (private vs. public sectors) in this comparison. To do this, 4,359 Irish workers who participated in the 2009 National Workplace Survey (NWS) were analyzed. The analysis reveals no overall difference in the effects of the two methods in maintaining the work attitudes of remaining employees. However, this comparison is moderated by sector. In the private sector, downsizing better maintained the work attitudes of remaining employees than cutting pay. In the public sector, in contrast, there was no significant difference in these effects between the two methods. The results challenge the earlier belief that pay cuts cannot be a feasible alternative to downsizing due to their detrimental effect on employee motivation. The study outcomes indicate that this concern is applicable only in the private sector. Thus, the findings suggest that organizations in the public sector can utilize the pay cut option (rather than downsizing) to gain social approval, which can also be an essential resource that allows firms to better compete in the market.

Keywords: Payroll cost reduction; Pay cuts; Downsizing; Work attitudes; Work sector (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eurman:v:41:y:2023:i:2:p:312-322

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DOI: 10.1016/j.emj.2022.01.004

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