Drastic measures are taken when managers formulate strategies to survive economic crises. Among these are downsizing, outsourcing, firing workers and cutting back on wages. But how do firms balance their interests against those of their workers?
Information on how choices are made in times of crisis is scarce, because studies tend to focus on ‘normal’ economic conditions, when any economic volatility lies within certain bounds. Under such stable conditions, any shocks can be faced by taking relatively minor or piecemeal action. However, during both the so-called Great Recession the shocks are severe and the adaptive policies of firms have to be radical if profitability was to be restored. In such times of uncertainty, the ‘animal spirits’ to which Keynes alluded may well dominate decisions to downsize and/or lay off workers (see Akerlof and Shiller 2009).