From soft to hard downsizing methods: Organizational flexibility following the crisis

Arney Einarsdóttir, Katrín Ólafsdóttir, Auður Arna Arnarsdóttir


Private and public organizations have had to adapt to the sudden negative shock to Icelands economy that took place in the fall of 2008. The most common downsizing method used by organizations appears to be layoffs. In a flexible labor market, however, they can be expected to use also other methods such as pay cuts, hiring freeze and prohibiting overtime, to mention only a few. Such methods may even be used in order to distribute the effects of downsizing more evenly among employees and to alleviate the need for dismissal of employees. This paper establishes a conceptual framework by classifying downsizing alternatives into three groups, ranging from mild alternatives with low impact on employees, to severe alternatives. The classification sheds light on the alternatives used following the economic collapse, as well as on the degree of flexibility in the public and private labor markets. The data was collected from HR managers in public and private Icelandic organizations with more than 70 employees. The research spans two time periods: eight months from the collapse and 9-20 months from the collapse. The results indicate strong flexibility in both the private and the public sectors. Although the public sector showed a delayed response to the economic situation, it increasingly and vigorously adopted non-traditional and hard methods as time elapsed from thec ollapse.


Labor market flexibility; downsizing methods; layoffs; pay-cuts.

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