Newsweek.com published an article this week that takes a fascinating look at the economics of layoffs—and shows them to be ineffective at saving money in the long term.

Here’s a look at some of the findings the article reports.

• Layoffs don’t increase stock prices. One myth the article addresses is that laying off employees can benefit a company by improving stock prices—but studies have apparently shown this to be a false notion. In fact, a study conducted in the 1990s reportedly found that the larger and more permanent a layoff was, the more negatively stocks were impacted.
• Layoffs don’t improve individual companies’ profitability. Another study cited in the article noted that companies that increased productivity were equally likely to have expanded or contracted their operations. This suggests that layoffs don’t necessarily correspond to improved finances.
• Layoffs don’t increase profits or reduce costs. Between severance packages, hiring contract workers, taxes, decreased productivity and other side effects of layoffs, downsizing can, perhaps ironically, serve neither to cut operating costs nor to increase money coming in.
• Layoffs affect morale. Worrying that you might be the next to be let go can seriously affect your engagement and performance at work. Plus, as Human Resources firms are reportedly discovering in this recession, companies that communicate limited respect for their employees through aggressive layoffs are likely to lose other employees when the job market improves.

In a way, none of these figures should be surprising: it’s not shocking that fewer workers can translate to less skill, less innovation and less general achievement at a company. And, on a much larger scale, significant layoffs can damage an entire economy (as we’re now seeing):

• Job loss for large sections of the population means income loss, which means reduced spending.
• Unemployed families borrow against credit cards, often only to file bankruptcy.
• Banks have to write off discharged debts, and become less likely to extend credit to those who need it.
• Retailers begin to struggle in the face of reduced purchasing by consumers.
• Seeing the generally bleak landscape, people begin to fear for their own jobs and may rein in their own spending, meaning even less money gets pumped into the economy.

In light of so much evidence to support avoiding layoffs, Newsweek is right to pose perhaps the most obvious question that presents itself: why do we continue to do it? While this article may be frustrating to those who have lost their jobs in the last few years, it may be encouraging to know that, in the future, there could be a turnaround in American businesses.