Workforce size adaptation under uncertainty: evidence from the COVID-19 pandemic

We build on the behavioural theory of the firm to examine how firms adapt their workforce size under unprecedented high uncertainty, that is, when they need to respond with no memory of similar situations and an unclear vision of the future. We argue that, in this context, adaptation continues to reflect prior experience in cognitive and experiential search for technological adaptation. Our empirical analysis focuses on workforce adaptation decisions made at the onset of the COVID-19 pandemic and is based on a dataset of 1042 US technology firms that, between February and September 2020, publicly announced workforce size changes. Our findings show that experience in both cognitive search, proxied by engagement in formalised innovation activities leading to patents, and experiential search, captured by prior investment in digital technological infrastructure, are associated with adaptations involving downsizing. The paper concludes by discussing the implications of these findings for theory and practice.