Layoffs may be a quick way to slash budgets in a downturn. But weigh up the long-term damage... loss of talent, lower productivity and a wounded brand

The most popular cost-cutting measure in a recession is getting rid of people. It's fast, it's obvious, and the savings look impressive. Experience shows that companies continue doing it right up to the end of a downturn and even beyond. There's just one problem. It may be a terrible idea. Before axeing employees, consider some of the drawbacks:

1. You'll face the costs and delays of hiring and training new employees when the economy improves. That day will come, and when it does, companies that have held on to their workers will be able to respond more quickly and confidently than competitors who need to find new employees and get them up to speed.

2. Your company will lose productivity before, during, and after the layoffs. Within 10 minutes of redundancies being planned or even considered, the rumour mill will be spinning furiously. From that moment on, productivity will tank as employees trade information, prepare CVs, and spend much more time thinking about themselves than about their work. The effects will last long past the layoffs.

3. Your company will damage its brand as an employer. Hundreds of companies now state an explicit goal to be an "employer of choice" in their industry or locale. That's a worthy goal in an economy where the war for talent is a long-term fact of life, even if it has been interrupted by the recession. Companies still clamour to get on to Fortune's annual list of the 100 Best Companies to Work For. How badly will layoffs damage your company's ability to attract top talent?

4. Your leadership pipeline will suffer years from now. Layoffs greatly increase the chances that you're firing a future company leader. You may never know who, but the effect is still real. The banking industry and the electric utility industry both went through severe cutbacks in the 1980s, and executives in both industries have told me that they paid a heavy price 20 years later—when they needed experienced, knowledgeable leaders to succeed the generation that was retiring and found only a broad empty space in the ranks.

5. Even the survivors will pay a price. Workers who remain after the layoffs make many more medical claims, especially for mental health, substance abuse, and cardiovascular issues, reports a study by Cigna and the American Management Association. Research from the Beth Israel Deaconess Medical Center in Boston found that managers are twice as likely to suffer a heart attack in the week after they fire someone.

Put all those factors together and you realise why layoffs may be very nearly a company's worst option in responding to a recession. Traditionally, it's the choice many managers consider first. This time, do yourself a favour: consider it last.

Geoff Colvin is the author of The Upside of the Downturn: 10 management strategies to survive in a recession and thrive in the aftermath (Nicholas Brealey Publishing)