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1. Significant indirect costs often wipe out the direct savings of layoffs.

While layoffs may seem like a good way to cut costs in the short-term, the direct and indirect costs of downsizing can paralyze your company’s long-term revenue-generating streams.

2. Your best employees might bolt after a round of cuts.

The top performers who survive a layoff won’t necessarily feel obligated to soldier on. A 2000 study by Roderick Iverson and Jacqueline Pullman from the University of Melbourne, and a 2003 study by Sarah Moore, Leon Grunberg, and Edward Greenberg from the University of Colorado at Boulder, both confirmed that employees were far more likely to quit jobs in environments of repeated downsizing.

3. The best types of workplaces often suffer the most.

If your company touts itself as receptive to the needs and personal development of its workers, layoffs can be even more troublesome. A recent report by researchers Christopher Zatzick and Roderick Iverson of Simon Fraser University found that layoffs at “high-involvement workplaces” — those with management strategies that give employees the skills, information, and motivation to be competitive — can be markedly more detrimental to the organization than layoffs at an average company.

4. Layoffs don’t improve organizational performance.

Since some of your best and most experienced employees will jump ship after a layoff, workplace productivity is bound to suffer, and the psychological effects of a layoff on those who remain can be even more detrimental to your company’s continued performance.

5. Employee retention is linked with customer retention.

Negative public perception of a layoff can be another unexpected cost.  Convincing customers that layoffs are absolutely necessary is probably impossible, since most companies that lay off employees aren’t actually in dire straits.  So companies that hold on to their employees and eschew a policy of frequent downsizing are far more likely to keep customers — and thus keep revenue flowing.

Link to the original article from BNET