Investing for keeps: Firms' prepandemic investments in human capital decreased workforce reductions associated with COVID-19 financial pressures

• Published in: Journal of applied psychology Vol. 106; no. 12; p. 1785
• Main Authors: Bentley, F Scott, Kehoe, Rebecca R, Chung, Hyesook
• Format: Journal Article
• Language: English
• Published: United States 01.12.2021
• Subjects: COVID-19; Financial Stress; Humans; Investments; Pandemics; SARS-CoV-2; Workforce
• ISSN: 1939-1854
• DOI: 10.1037/apl0001002

We examine how firms' prepandemic investments in human capital influence their use of workforce reductions and layoffs (hereafter, workforce reductions) as a response to financial pressures during the coronavirus disease (COVID-19) pandemic. We contend that workforce reductions must be examined in the context of firms' broader financial and resource orchestration environments. First, we suggest that firms' relative exposure to pandemic financial pressures (PFPs) will determine their need to cut costs during the pandemic. Second, we argue that a firm's prior investments in employees' human capital will reduce the attractiveness of workforce reductions as a cost-cutting response to PFPs, as human capital investment (HCI) increases the value of employees' knowledge, skills, and abilities and motivation, thus inducing firms to seek alternative measures to reduce costs. We then argue that the attenuating influence of HCI on the effect of PFPs on workforce reductions will be stronger when HCI is matched with greater investments in physical capital, as employees' human capital will create more value-and will translate to a bigger loss following employee departures-in such circumstances. We demonstrate support for our hypotheses in a sample of 1,364 U.S. banks using data from quarterly Federal Deposit Insurance Corporation (FDIC) reports, news articles, and Worker Adjustment and Retraining Notifications (WARN) Act filings through the fourth quarter of 2020. We discuss implications for our understanding of the impact of the COVID-19 pandemic on organizations and employees and for research on resource orchestration and human capital. (PsycInfo Database Record (c) 2021 APA, all rights reserved).