Need to downsize? Your future employees may like the idea of cutting pay more

Abstract

Purpose

Studies comparing the consequences of payroll cost reduction methods (i.e. cutting pay and downsizing) have been limited, with no studies comparing these methods' impact on job-seeker attraction. The current research tries to close this gap by comparing the effects of cutting pay and downsizing on job-seeker attraction outcomes.

Design/methodology/approach

Two studies are conducted. The first study compares the effects of the two payroll cost reduction methods (i.e. cutting pay vs downsizing) on job-seeker attraction through a within-subject design experiment of people in the United States. The second study analyzes secondary data in South Korea to compare the two methods' effects on the number of job applicants applying for job openings.

Findings

The results demonstrate that organizations with a history of pay cuts yield more favorable job-seeker attraction outcomes than organizations with a history of downsizing.

Practical implications

Although firms that choose to downsize may better maintain the morale of surviving employees, the decision of downsizing can have long-term costs, such as having a worse capability to attract job-applicants than firms that choose to cut pay and share the pain as a group.

Originality/value

The research provides an insight into which payroll cost reduction method yields better outcomes in terms of job-seeker attraction. The research responds to the call in the payroll cost reduction method literature of identifying a feasible alternative to downsizing in terms of various outcomes other than the morale of current (or remaining) employees.

Citation

Yoon, Y. (2022), "Need to downsize? Your future employees may like the idea of cutting pay more", Employee Relations, Vol. 44 No. 2, pp. 407-430. https://doi.org/10.1108/ER-01-2021-0009