Firms were today urged to make sure redundancies were the "last resort" in the current economic downturn after a new study showed the cost of laying off staff could be more than £16,000 per worker.

The Chartered Institute of Personnel and Development (CIPD) said there were other hidden costs, such as falls in productivity, lower morale and higher labour turnover.

Firms should retain their staff and plan for the economic recovery, otherwise they risked causing long-term damage to their business, it was argued.

CIPD chief economist John Philpott said redundancies could impede quick recovery from the downturn, adding: "Businesses are under huge pressure right now and restructuring is a fact of economic life that can never be ruled out, but while making people redundant can seem one of the most straightforward ways of cutting costs, redundancy is itself a significant cost to most organisations with a number of direct and indirect or hidden costs.

"This is particularly true if redundancies are an employer's first resort in difficult times and have to be quickly reversed by renewed hiring when economic conditions improve.

"While the average direct cost to employers of making redundancies can reach £16,375, on top of this are hidden or indirect costs resulting from the effect of redundancy on survivor employees, such as higher labour turnover and a fall in staff productivity.

"This is likely to be a conservative estimate and provides a hard business case for why redundancies should be a last resort in the downturn. We urge employers to plan for recovery by investing in and growing their people, rather than reducing their workforce."

Firms were urged to "hold their nerve" as the UK headed for a recession, and try to focus on retaining staff and invest in their skills.

TUC general secretary Brendan Barber said: "Unions often have to challenge employers who turn to redundancies as their first response in troubled times.

"This important study makes it clear that it makes good business and economic sense to explore all the alternatives before laying off workers.

"Raising statutory redundancy pay, which has seriously deteriorated in value in recent years, would be an important way for the Government to make redundancy a less attractive option for employers."