Downsizing and the Psychological Contract: A Study of The Ghanaian Insurance Industry

Abstract

The downsizing of employees has been ubiquitous in many industries in recent years with the aim of operating leanly. Management of organizations may be oblivious of the potential effects of this action on the morale of remaining workers. The research sought to ascertain the effect of downsizing on the morale of remaining employees. Using unstructured interview with line managers, human resources managers and union executives and focused interview with employees in various departments of ten insurance companies in the Ghanaian insurance industry, and found that downsizing is tantamount to a breach of the psychological contract employees have with management. Again, it results in a loss of employee trust in management, reduced employee morale, increased labour turnover and absenteeism, loss of job satisfaction and worsening employee performance. These findings contrast existing literature proclaiming that remnant employees display highness of morale.