Protecting worker health during restructuring

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Krista Pahkin, Pauliina Mattila-Holappa, Finnish Institute of Occupational Health, Finland

Introduction

Most employees will face some type of organizational restructuring process during their working careers. Research shows that restructuring can have a negative impact on employees’ health and wellbeing, both for those who remain working in the organization after the changes as well as in those who are made redundant. There is evidence showing that some of the effects continue for years after the actual restructuring process began. However, there are organizational and personal resources, which may help employees to confront and cope with the encountered changes. Key elements of sound ways of organizational restructuring are also discussed.

Restructuring: definition

The term “restructuring” is associated to a structural change carried out in a sector, company, and/or establishment level. It is the “necessary response of the organization to the long term forces of economic development [1]. In other words restructuring of organizations is driven by the need to maintain or enhance profitability and, therefore to, ensure the survival of the company (and thus jobs) over the long term [1]. Restructuring can be defined as an organizational change that affects a large number of employees, an entire company or a whole organizational sector, and sometimes even the surrounding society [2] The restructuring process alters key organizational variables (e.g., like the structure of the organization, production capacity), and, by its very nature, it will pose a challenge to those working in the organization.

During organizational restructuring, different types of actions may be carried out at the same time: for example, some of the activities of the organization may be outsourced to another company, and others may be totally closed down. At the same time, expansions may also be carried out (e.g., establishing a new production unit). The effect to the employee may be that her/his job remains the same, but the employer is a new one or the employer may remain the same but the employee’s tasks change.

Prevalence

According to the European Restructuring Monitor (ERM) database [3], which contains information on large-scale restructuring events reported in the principal national media in the 27 EU Member State and Norway, more than 15,000 restructuring events have occurred in European companies from 2002 to the present. The database is growing at a rate of approximately 20-30 new entries a week. From the collected 15, 254 restructuring cases (situation in 14.11.2012) the vast majority of the cases have involved downsizing of personnel (Table 1). In order to be included in the database, an individual case of restructuring must involve the announced loss or creation of at least 100 jobs, or employment changes affecting at least 10% of a workforce of more than 250 people.

Table 1: Definition and the amount of different types restructuring activities in EU.


Source: ERM, 2012 [4]

According to ERM report 2012 [4] there is a group of employees which is at a disadvantaged situation at the start of a recession, and are more likely to be affected by restructuring activities in organizations. Employees who have low level of education, are migrant, minorities or who are chronically ill have a higher probability of displacement (i.e., loss of job). The job characteristics of the profession and tenure have proved to be highly significant in relation to displacement probability. In an EU-wide study, the probability of displacement was found to be three times higher amongst unskilled blue-collar workers, than it was for professionals and workers with more than 4 years tenure. There were no observed differences between the sexes, and middle aged workers were least likely to be displaced.

Consequences to employees’ health and wellbeing

The following section presents a short overview of research findings related to organizational restructuring and its health and wellbeing effects on those who are made redundant (unemployed). However, the focus will be on these employees who keep their jobs after restructuring, the socalled “survivors” [5]. Less attention has been paid to these individuals although they are the ones who need to meet the production-orientated goals of restructuring.

In the case that an employee loses his/her job as a consequence of restructuring and is not able to find new employment, the long-term effects on well-being are likely to be considerable. Several reviews and meta-analyses have been published [see e.g. [6]], which demonstrate significant wellbeing differences between unemployed and employed subjects. By using different indicators of mental health (mixed symptoms of stress, depression, anxiety, psychosomatic symptoms, subjective wellbeing and self-esteem), all the studies indicate that the wellbeing of the unemployed is weaker compared to those in employment. In addition, the studies show that job loss has been associated with a significant increase in stress symptoms, whereas finding a new job has been associated with a significant reduction in stress [7] [8]. Pre-change mental health may also play a role: for example, there is some evidence that persons with impaired mental health are more likely to lose their jobs or become unemployed after leaving school. Furthermore, among unemployed persons, impaired mental health reduces the chances of finding a new job. [6]

In addition to job loss and becoming unemployed, restructuring also effects the health and wellbeing of those employees who keep working in the organization after the changes. There are different types of restructuring, but downsizing and its consequences on those who keep their job have been most widely studied. The adverse health effect of downsizing has been revealed in several studies [9]. One of the on-going longitudinal studies is the 10-Town study [10] [11], which was started in the 1990’s in Finland. The 10-Town study includes both register and survey data, which has been available from prior to downsizing and then onwards. For example, the findings show:

  • That those employees who had experienced major downsizing had a faster decline in self-rated health [12].
  • That there was an increased rate of medically certified long-term sickness absence (specifically due *to musculoskeletal causes and trauma) following downsizing [10] [13].
  • Employees who were exposed to downsizing but kept their jobs were at a higher risk of being prescribed psychotropic drugs as compared to those not exposed to downsizing [14].
  • That there was a significant increase in the disability pension rate after major downsizing among those who remained in employment. The two leading causes of disability were psychiatric diseases and musculoskeletal disorders [15].
  • That, cardiovascular mortality was found to be twice as high after major downsizing compared to no downsizing [13].

Job insecurity, is a concept which is associated with restructuring situations. Job insecurity has been defined in the literature in several ways [16], it may include the fear of significant changes in terms of the job status, responsibilities, etc., but in most cases it is related to the fear or a threat to losing one’s job. Job insecurity itself has been associated with adverse health effects [e.g., [16] [17] [18]. This fear of losing one’s job is often “in the air” when restructuring activities are carried out in organizations.

Several cross-sectional studies have examined at how restructuring or labour market instability can cause threats to health and wellbeing, even if immediate downsizing of personnel is not necessarily involved [9]. These studies have found that restructuring is associated with poor self-reported health outcomes, e.g.: health problems, poor physical health, prospectively self-rated poor health, health complaints, and longstanding illness. A recent longitudinal study also found that the effect of restructuring on the psychological wellbeing of employees working in the restructuring organization is considerable and similar whether or not there had been no threat of dismissals during the restructuring activities [19]. It has also been found that employees who undergo a change in their organization, experience more job insecurity for as long as five years later compared to those with no such experience [20].

However, it is not only the downsizing or its threat which affects the health and wellbeing of employees. Even though mergers and acquisitions usually increase the size of the organization and the level of production and are thus growth orientated, they too can have detrimental health effects. For example, mergers and acquisitions have been linked with generalized anxiety disorder [21] and increased stress [22] [23]. Mergers can also have negative effects on job satisfaction, organizational commitment, organizational trust , and turnover [24]. In general, a negative change experience can increase the risk of mental health problems [25].

There also seems to be the question of, whether or not the magnitude of the restructuring matters. There is some research evidence [26] that shows that the magnitude of the organizational changes (i.e., major and moderate downsizing and expansionis important. According to Ferrie and colleagues [26], the effects of the different kinds of changes on the physical and psychosocial characteristics of the work environment varied, with different impact effects on women and men and on the private and public sectors. The major change (more than 18 % change in the workforce), including both downsizing and expansion, was associated with a greater risk of physical hazards and this was evident across gender and sector. A moderate change (from 8% to 18% change in the workforce) had a similar effect only in the private sector. It also seems that the effect of restructuring on the wellbeing of employees is stronger if there are a larger number of work areas that are changed due to the restructuring. Cross-sectional findings show that the greater the number of areas that changed, in the perception of the respondent the higher was the emotional exhaustion, the greater was the work related stress and the lower was the job satisfaction was on them [20].

Another question is: how do repeated or prolonged restructuring experiences affect employees? The study of Westerlund and colleagues [27] indicated that repeated exposure to rapid personnel expansion, possibly connected with centralization of functions, statistically predicted long-term sickness absence and hospital admission. The findings of Wiezer and colleagues [20] also suggest that employees who have undergone prolonged restructuring (two restructuring process within one year ) experience: slightly more emotional exhaustion; have a lower job satisfaction; experience less dedication to their work; and have significantly higher percentages of sickness absenteeism, as compared to employees who have not experienced restructuring. Similarly it has been found that prolonged exposure to restructuring adversely affects general health and causes emotional exhaustion in employees, and its influence seems to be explained by job insecurity [28].

The effects of restructuring on work itself and employee wellbeing can be explained through several mechanisms. Downsizing may be followed by increased work load or greater work intensity, which combined with lack of autonomy or reduced job control, is a major source of stress, burnout, and a threat to mental health]# [2]. Downsizing also leads to increased job insecurity, which plays a significant role in the production of ill health [29] [30] [16] [17]. Similar to downsizing, mergers and acquisitions can lead to changes in the work characteristics as well as in co-workers and responsibilities, management, benefits, social networks, and, potentially, job availability and relocation [31] [32]. For example prolonged restructuring can also lead to increased task demands, which in turn cause decreased job satisfaction and increased emotional exhaustion. Similarly, prolonged restructuring affects organizational factors, such as support from the supervisor, which in turn leads to decreased wellbeing [20].

Keeping one´s job is not always the best possible situation from the viewpoint of employees’ health. The findings of Kivimäki and colleagues [33] in fact show that in the employees who kept their job (including, employees exposed to no or minor downsizing) after the downsizing, the risk of increased health problems was higher than in groups of reemployed leavers.

Positive effects of restructuring The associations between different types of restructuring activities and its effects on employees’ health and wellbeing are thus well documented and the results show that the effect is most often negative. However, there is some evidence that the consequences can be positive as well. According to ERM [4], work organization features associated with high performance work systems were found to be more prevalent in the restructured workplace. Employee autonomy tends to be higher in restructured workplaces and this holds true across different occupational groups. Other research also shows that after the change, the employee may feel that his/her situation has improved, for example, due to increased autonomy; which leads to less cynicism and exhaustion and to better work ability [20].

The role of individual resources The way in which the restructuring situation is experienced seems to be important. There are personal resources that can protect employees from a negative change experience. One of these resources is sense of coherence (SOC) which characterises the general orientation towards life. According to Antonovsky [34] a person with a strong SOC feels that life makes sense emotionally, perceives stimuli in a clear and structured way, and is confident that adequate coping resources are available. In fact, the research showing that employees with a strong SOC prior to the restructuring were at a considerably lower risk of reacting negatively to the change [35]. In addition, self-efficacy and coping style [36] [37] can affect the change experience.

With respect to the employees who keep their job, it seems that certain groups of employees are more vulnerable than others to the adverse effects of restructuring on wellbeing. Employees most at risk are those whose wellbeing is already low before the organisational changes or whose personal resources are weaker, for example individuals who are not confident that they have the required work-related skills and abilities. Another group at risk are those who use emotion-focused coping trying to reduce the negative emotions associated with stress, like anxiety or anger; rather than task oriented coping with the aim of improving their own situation. [20]

Addressing restructuring: practices and policies

In the following section, the policies and practices related to management of restructuring at the workplaces are discussed.

EU policies designed to ameliorate the negative consequences of restructuring can either be directed towards the enterprises (shareholders) or towards the employees. EU policy addressing employees relates to three broad spheres: labour law directives; the European Employment Strategy (guidelines); and the Structural Funds. For example the Legal framework of redundancy procedures defines what is meant by collective redundancies. It requires employers to provide information to the employees´ representatives, so that there would be the opportunity for consultations, and it necessitates releasing the information to the public authors [1]. In addition to the Framework Directive (89/391 EEC), establishing a general framework for informing and consulting employees on OSH issues [38], the Framework directive 2002/14/EC [39] lays down procedures through which companies (with at least 50 employees or establishments with at least 20) have to inform their employees about their employer’s economic situation and to inform and consult them on issues concerned with employment and work organization. Contextual factors, like social security in the case of unemployment and reintegration policy and the labor market situation, all play a role from the viewpoint of employees when facing a restructuring situation. In the green paper of European commission on restructuring [40] employability, the necessity of paying attention to human resources development and skills enhancement is also addressed.

The HIRES (Heath in restructuring) group [2] has derived a set of 12 recommendations for the development of healthier ways of organizational restructuring. Some of the recommendations are at the macro level, like collecting empirical data on health effects of restructuring; but some are targeted to the company level, like emphasizing the role of middle managers during the restructuring process, importance of ensuring justice and trust and the need for communication plan. Different researchers have also highlighted the key factors in a responsible restructuring process. For example, according to Westgaard and Winkel [41] the key factors are employee participation, information and communication, inclusive management style (goal clarity and transparency, dialogue, concern for workers), organizational and social support and perceived justice . Sørensen and Hasle [42] have also highlighted the importance of trust. According to European research project PSYRES (Psychological health and wellbeing in restructuring), which was conducted in four EU-countries [20], the most important factors in minimizing the negative impact of restructuring and fostering the positive aspects were communication, support and employee participation. These practices were found to be connected to the wellbeing of employees’ (figure 1).

Figure 1: Organizational treatment during restructuring and wellbeing (The number after the variable refers to outcome which the variable affects)

Source: Wiezer et al., 2011 [20]

Conclusions

To conclude, it seems that restructuring is a process with a double meaning for employees’ health and wellbeing. Different types of restructuring, including downsizing and expansion activities (i.e., employment losses or gains), can have a detrimental effect on the health of the employees, but they can also lead to better wellbeing over the long run. The way in which the restructuring process is experienced and the actual effect it has had on the content of work are also important factors. There is a large set of individual and contextual factors which play a role in moderating or mediating the impacts of restructuring. It is important to remember that it is an employer’s legal obligation to assess and manage all types of risk to workers’ health in all EU member states. An organizational restructuring is the kind of situation where the risk should be assessed and managed.

Even though the economic situation, as well as the practices and policies, differ between EU countries, there is evidence that restructuring (no matter the type) is not only a process which affects rather similarly the wellbeing of employees across national borders, but also the successful ways to handle the associated problems are similar [20]. Communication, support, employee participation and justice are recognized as being the key factors of a well managed change process.

Since restructuring is a part of modern work-life, and it seems to be increasingly the case that employees will not experience only one restructuring situation in their working life, but potentially several, more information is needed on prolonged restructuring and its effect on employees’ health and wellbeing. Intervention studies on effective ways to handle restructuring will also be crucial in the future.

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Links for future readings

Saksvik, P. (Ed.), Prerequisites for Healthy Organizational Change, Bentham Science Publisher Ltd., 2009