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Impact of Organizational Downsizing on Psychosocial Wellbeing of Employees
- Palmer Ilabor Ikechukwu CMIOSH
- 943-953
- Dec 4, 2024
- Psychology
Impact of Organizational Downsizing on Psychosocial Wellbeing of Employees
Palmer Ilabor Ikechukwu CMIOSH
Member American Society of Safety Professionals (ASSP)
Chartered Member Institute of Occupational Safety and Health (CMIOSH)
MSc. Health, Safety and Risk Management
DOI: https://dx.doi.org/10.47772/IJRISS.2024.8110075
Received: 14 November 2024; Accepted: 26 November 2024; Published: 04 December 2024
ABSTRACT
Generally, organization downsizing does not happen by fiat and it has its impact on the organizational employees. Hence, this review seeks to understand the impact of organizational downsizing on psychosocial wellbeing of employees. The review analyzes psychosocial wellbeing of employees, which encapsulate psychological and social wellbeing. The study found that organizational downsizing on employees’ mental health, distress, anxiety, employees’ burnout, despair, stress, depressive symptoms, deterioration in work conditions, and risk of depression. The study also showed that drugs used by employees downsized by organizations, which include antidepressants, hypnotics/sedatives, anxiolytics, opioid, alcohol, and antipsychotics. The findings demonstrated that the influence of organizational downsizing on employees’ social wellbeing include social reputation, social structure, social capital, and social identity. The results indicated that socially responsible downsizing is essential to ensure ethical downsizing. Meanwhile, results showed that psychosocial resilience strategies adopted by employees include psychological resilience, social service, training, increased attention to employees’ craft, communication, employee-centered approach, organizational capabilities, problem-focused coping strategies, emotion-focused coping strategies, systemic change strategies, and special leave assistant programs. It was recommended that organizations should be socially responsible in carrying out downsizing in order to mitigate the negative effects on the psychosocial wellbeing of employees.
Keywords: Downsizing, psychosocial wellbeing, psychosocial resilience, social wellbeing, employees
INTRODUCTION
In recent years, there have been different global economic, social, political, and health issues that have led organizations to consider reducing their staff number or strength. This thought or consideration is often motivated to ensure that the organization adjust to the current economic realities that might have been brought up by different reasons. For instance, during the COVID-19 pandemic, organizations were left to cope with the unforeseen reality of working from home. For some organizations, that might not affect their operations and services. However, there are dire consequences of the pandemic on some organizations, which left them with no option than reconsidering downsizing their staff members. When one considers the downsizing in this situation, it is natural that employees are psychological and socially affected. The thought of being relieved from one’s job may have demining influence on the psyche of individual and may also affect their social status.
Mujtaba and Senathip (2020) note that downsizing can also be known as “laying off”, which is a human resource strategy to reduce large number of personnel to ensure organizational efficiency and adjust to economic realities. The authors indicate that organizational downsizing has its advantage and disadvantage, which ranges from profit boost and reduction in employees’ satisfaction and commitment to the organization. Naturally, the reduction in employees’ commitment may lead to reduced performance employees. Hence, managers must ensure that the impact of downsizing is effectively managed. Other scholars (Bart, 2019; Mushonga, 2021; Narayan, 2023) have noted that downsizing can also be referred to as layoff, termination, sack, firing, voluntary separation option, smart sizing, restructuring, rightsizing, and so on. This is often done in an attempt to reduce large number of workers in an organization as a result of growing pressing need to do so. In all, it is apparent that organizational downsizing does not happen by fiat and it has its impact on the organizational employees.
Carriger (2018) notes that while organizational downsizing may have its advantages, they are usually short-lived. This means that, ultimately, organizational downsizing is not beneficial to organizations at the long run as it might disrupt their growth, productivity, and expansion. Meanwhile, it has been demonstrated that the hazards of organizational downsizing cannot be completely eliminated but reduced by involving and intimating the remaining workers of the reasons for the inevitable lay off (Bergström & Arman, 2017). Even at that, it may be difficult to retain the commitment of the remaining employees. For instance, the study of van Dick et al. (2016) established that social identity-based explanation is essential for the emergence of survivor syndrome, which is conceptualized by decreased commitment and performance. This further accentuates that organizational downsizing has its implications for the psychology of the remaining employees in organizations.
It is noteworthy that employees that survive organizational downsizing are referred to as “survivors” (Frone & Blais, 2020), a concept that is not farfetched in meaning. In a bibliometric analysis of studies in the area of workers’ survivor syndrome, it was established that there are three main themes in the study area including emotional, cognitive, and behavioral syndrome (George & Maheshwari, 2024). These three concepts encapsulate both the behavioral and attitudinal factors that concern the influence of organizational downsizing. This study focuses on the psychosocial aspects of the impacts of organizational downsizing on employees. The need to understand the psychological and social syndromes of organization downsizing on employees is further accentuated by the need to ensure the mental and social status of employees. This is because these two factors are critical for the productivity of employees in an organization (Kurdi & Alshurideh, 2020).
Andreeva et al. (2017) established that organizational downsizing without strategic approach can lead to negative psychological consequences, which can lead to psychological ill health. This means that organizational downsizing has significant influence on the psychological wellbeing of employees. Edwards and Clinton (2023) implied that there is a need to understand the different types of employees’ responses to downsizing, along with the potential factors that explain why groups of employees may exhibit certain psychological response patterns. In all, it is implied that there are psychological issues emanating from organizational downsizing. Paterson and Härtel (2016) affirmed that emotion-based strategies can help cope with downsizing and reduce the negative psychological and material consequences. This could be ameliorated with different interventions that can provide mental and psychological supports. Meanwhile, it is given that psychological factors are both mental and emotional wellbeing of employees (Park et al., 2024). Mathisen et al. (2023) concluded that both psychological and social factors are essential discussions in work environment where there is issue of organizational downsizing.
There are different social factors associated with employees that may be influenced by organizational employees. Sanchez‐Bueno et al. (2020) observed that there are social implications for organizational downsizing, and advocate for socially responsible organizational downsizing. This means that social factors should be considered to ensure that organizational downsizing is effectively carried out. This is to ensure that socially responsible practices are ensured in organizational downsizing practices. Employees’ social capital is one of the social factors that are engendered by organizational downsizing (Schenkel & Teigland, 2017). van Aaken et al. (2022) established that higher social capital increases openness towards employees’ dismissals, while higher cultural capital reduces it. Zorn et al. (2017) concluded that employees’ social capital is lost when they are downsized from organizations. Based on the foregoing discussions, it is essential to analyze the impacts of organization downsizing on employees’ psychosocial wellbeing.
Influence of Layoffs and Job Insecurity on Employees’ Mental Health
Fan and Xie (2020) established that psychological intervention may help in the mental health of employees and help promote individual’s resilience. The study established that downsizing had effect on work conditions, affecting both physical and mental health and ultimately employees’ performance. Park et al. (2024) indicate that organizational downsizing has significant relationship with employees’ depressive symptoms, especially high vulnerability of socioeconomically advantage and stable workers. The study demonstrates that there is a need for tailored mental health support to help alleviate the influence of organizational layoffs. In the same disposition, 73.3% of the respondents in a survey conducted to ascertain the health and safety impact of downsizing agreed that downsizing might lead to the development of mental stress-related work disorders Ikechukwu (2024). Mujtaba and Senathip (2020) demonstrated that organizational layoffs can lead to the feeling of despair, which may lead to a chronic mental health condition that would be battled for the rest of the employees’ lives. This battle may be worse when the affected employees are the “breadwinners” of their families, and could be worst if they have limited budget.
Dlouhy and Casper (2021) demonstrated that there is a negative relationship between downsizing and employees’ psychological and physical health. The study, however, showed that both job demands and job resources mediate the negative relationship that exist between the two variables. This indicates that, with surplus job demands and resources, the influence of organizational layoffs can be mitigated among employees. Fløvik et al. (2019) corroborated that job demands, job control, and social support are pivotal in reducing the influence of layoffs on the psychological wellbeing of employees. Job demands help to ease the unmitigated deep thought that may capture employees when they are laid off by organizations. With relevant job resources, employees that are laid off would be confident of the opportunities that lie ahead. This would help mitigate the possible mental health issues that may be associated with the impacts of layoffs (Brockner & Greenberg, 2015).
Caroli and Godard (2014) indicated that job insecurity deteriorates all health outcomes of employees. The study found that health-damaging effect of job insecurity is established with limited subgroup of health outcomes, which include headaches or eye challenges and skin problems. The study established that the influence of job insecurity is not significant on the mental health of employees. Ahammer et al. (2021) showed that downsizing has significant externalities on the mental health of employees that remained in organizations in Austria. It was further demonstrated that downsizing has continuous effects on the mental and physical health of the employees, and these effects are determined by employees scared for their own jobs. It was further indicated that mental health externalities due to downsizing imply non-negligible cost for firms, and that wage cuts may have similar effects. Gutierrez and Michaud (2019) indicated that job insecurity, measured using self-reported probability of job loss, enhances risk of clinical depression. The study suggest that employers should worry about the mental health workers in the period of downsizing, which is crucial for the recovery of organizations in financial difficulties.
While managers take care of employees’ mental health, they should not be oblivious of their own mental health issues. Graf-Vlachy et al. (2020) demonstrated that the degree of downsizing an organizational experienced during COVID-19 predicts distress, anxiety, and depression for board members only, and not for the employees. Unlike other studies, this indicates that managers were in need of healthcare services as the COVID-19 pandemic affects organizations. Wilson et al. (2020) implied that employers should attempt to alleviate job insecurity among employees and address their financial concern, especially during the COVID-19 pandemic. This is because these factors were associated with mental health consequences among employees. Ganson et al. (2021) concluded that young adults in the US experienced significant mental health issues owing to job insecurity during the pandemic. This means that job insecurity during pandemic could lead to consequential mental issues among employees.
Darvishmotevali and Ali (2020) indicated that job insecurity has negative influence on the psychological capital of employees. Meanwhile, it has been established that psychological capital has negative influence on employees’ burnout and job insecurity (Bitmiş & Ergeneli, 2015). Furthermore, Bitmis and Ergeneli (2015) concluded that job insecurity mediates the relationship between psychological capital and burnout. This indicates that job insecurity could mediate the relationship between stress or exhaustion and their mental health. Costa and Neves (2017) corroborated this finding, indicating that psychological capital moderates the negative indirect relationship between job insecurity on outcomes through psychological contract breach. Probst et al. (2017) demonstrated curvilinear relationship between job insecurity and performance, relationship that is mitigated by psychological capital. This indicates that there is a rising job insecurity among employees, which needs to be mitigated to forestall the adverse effects of the ultimate outcome.
Kim and von dem Knesebeck (2016) indicated that perceived job insecurity and layoffs predicts an increased risk in depressive symptoms. The study established that job insecurity can cause an increase in employees’ depression. Rönnblad et al. (2019) found that there is an adverse effect of job insecurity on mental health. Moreover, it was further shown that there is limited evidence on the effects of temporary employment or unpredictable work hours on mental health. While the study is a kind of preliminary studies, future studies can consider examining the effects of contract job on employees’ mental health. De Witte et al. (2016) demonstrated that there is a usual causation between job insecurity and psychological wellbeing of employees. The study indicated that some of the factors associated with the causation between the two variables include burnout, mental health, self-rated health, and other health complaints.
Meanwhile, there are different studies that have examined the kinds of drugs that are often used by employees that are laid off by organizations. The evidence that emanated showed that there are different, but similar findings in the use of medications related to mental health among employees. Compared with the situation three years before exposure, Kaspersen et al. (2017) indicate that employees were found to purchasing psychotropic drugs one year after exposure increased for antidepressants, hypnotics/sedatives, anxiolytics, and antipsychotics. Blomqvist et al. (2023) established that the odds of purchasing anxiolytics increased more for “stayers” and unemployed compared to unexposed before downsizing, and purchases continued to increase after downsizing for stayers. Furthermore, the study showed that among those without previous sickness absence, stayers increased their purchases of anxiolytics from the year before the event up to four years after the event. Moreover, the study established that sedatives were similarly used but less pronounced. This demonstrates that there is evidence of mental issues among issues that faced organizational downsizing.
In an attempt to understand the purchases of prescription of antidepressants in Swedish population in relation to major workplace downsizing, Hanson et al. (2016) indicate that downsizing is related with a slight increase in the odds of purchasing prescription antidepressants among people without previous sickness absence or disability pension. This suggests that there is element of mental health issues among the employees that were downsized in their organizations. Jensen et al.’s (2019) findings corroborated that of Hanson et al. (2016), however it extends that the association between downsizing and use of antidepressants does not vary by gender. In a national survey of US workers during the Great Recession, Frone (2018) demonstrated that there is a relationship with surviving organizational downsizing and alcohol use among employees. The study showed that surviving organizational downsizing was associated with more frequent and overall use of alcohol among workers in the US during the recession. However, it was shown that excessive use of alcohol was common among younger employers.
In a large-scale study of the US aluminum industry, Elser et al. (2019) demonstrated that the probability of outpatient visits related to mental health increased by 1% during layoffs, and the probability of mental health-related prescriptions increased by 1.4%. Meanwhile, it was shown that the increase in outpatient visits was more pronounced and there was increased prescription utilization attributable primarily to opioid use among the employees. Moreover, several other studies (Cooper & Bixler, 2021; Davis et al., 2017; Imboden et al., 2021) have demonstrated that employees are prone to use substances like opioid when they are faced with the challenge of downsizing in their organizations. Meanwhile, Iqbal et al. (2023) revealed that opioid use disorder has negative impacts on employees’ productivity. This indicates that there is a need for employers to develop strategies to identify and support employees with opioid use. This is not only to improve their health condition, but their psychological wellbeing. This would ultimately alleviate the negative influence of opioid use on employees’ productivity.
Influence of Layoffs and Job Insecurity on Employees’ Social Wellbeing
Shebaya (2025) established that there is a relationship between organization’s reputation and social capital. This indicates that where employees work can determine employees’ reputation. Meanwhile, Andreeva et al. (2017) noted that there is a need for organizations to partake in socially responsible downsizing, which could aid the social image of organizations. Nègre et al. (2017) noted that issues regarding layoffs or downsizing fall under the corporate social responsibility practices of organizations. This implies that layoff or downsizing is crucial in the relationship between organizations and the society. It is a form of social contract between organizations and society. Cohee (2019) notes that there is a need to balance financial performance and social responsibility when layoff is associated with corporate decision or action. Meanwhile, Ferrary (2019) describes corporate social responsibility as a social norm engendered by the collective actions of community stakeholders.
Freak-Poli et al. (2022) noted that people are faced with different life events that are not necessarily negative, and downsizing or layoff is one. However, they may pose some change in social identity that may lead to social adjustment. For instance, downsizing or layoff is a kind of life event that may happen to anyone, which may bring about a change in social identity of the affected people. This means that people that lose their jobs may seek some form of succor. For instance, sudden loss of job may motivate individuals to search for some form of social supports from their friends or families, those known and unknown (Aalbers, 2020). This may offer the affected people the opportunity to start again, whether getting material or immaterial support from the people in the society they seek support from. Moreover, it is possible that those that lose their job consult religious houses or bodies, especially in countries or places where they are strong social institutions.
de Jong et al. (2016) demonstrated that there is a relationship between employees’ wellbeing and organizational downsizing, indicating that some of the factors include social wellbeing of employees. The study established that the social factors include community supports and family dynamics. Snorradóttir et al. (2015) indicate that there is a significant difference in the social wellbeing of both stayers and leavers in organization downsizing, which shows that stayers fare worse than leavers in the early aftermath of downsizing. This means that, in the early part of the downsizing, those that were retrenched from organizations fared better than those that were downsized. Miller et al. (2020) indicated that the social support and empathy that layoff survivors experienced and the influence the layoff had on their organizational commitment. Sanchez‐Bueno et al. (2020) noted that less workforce downsizing appears to be the best socially responsible practice.
Mousa and Ayoubi (2019) recommended that there is a need to reduce staff members to ensure post-redundancy care practices for laid-off staff members may reduce social consequences of downsizing. This means that providing some kind of intervention that mitigate redundancy after layoff would reduce the social influence of layoff. Meanwhile, van Dick et al. (2016) established that social interaction and firm characteristics are essential in organizational downsizing. Moreover, there seems to be no significant relationship in psychological demands, work autonomy, supervisor’s social support, and co-workers social support (Frone & Blais, 2020). Gandolfi and Hansson (2015) note that there are human and socio-cultural consequences of organizational downsizing on employees. The authors argued that these consequences can have dire significances on organizational productivity and employees’ performance. This makes it essential to understand the influence of organizational downsizing or job insecurity on social wellbeing of employees.
Schenkel and Teigland (2017) noted that there are changes to the structural dimension of social capital owing to downsizing. The study indicates that changes to organization’s network structure negatively mediate the relationship between downsizing and organization’s dynamic capabilities. Meanwhile, managers that are of high social capital are more prone to downsize employees while those of low social capital are not open to dismissal of employees (van Aaken et al., 2022). While the study does not provide evidence on why this is so, it is argued here that this may be as a result of the social status of the employers. This implies that healthy social status of managers mean that they are more open to consider laying off staff members of their organizations. It has been established that those with low social capital are associated with higher risk of mental health challenges (Frone, 2018), which makes social wellbeing of employees to be somewhat intertwine with their psychological wellbeing.
Jensen et al. (2019) demonstrated that work-unit organizational downsizing prospectively predicts lower work-unit social capital, and lower social capital is associated with higher employee-exit rates. Moreover, the study established that the detection of weak indications of mediation through social capital, if any, were insignificant as a result of inconsistent relationships between changes and employees exit from their organizations. Céspedes-Lorente et al. (2019) indicate that organizational downsizing does not only damage employees’ social capital, but it also affects the organization’s social structure and social capital. This suggests that the influence of downsizing on both employees and employers is two-ways, indicating that that while the social capital of employees may be shaken, the social structure of organizations may also be affected. Tsai and Yen (2015) indicate that downsize causes social problems. Based on that, it has to follow some psychological process of socio-cognition. To maintain a certain image and gain expected advantage, organizational downsizing should follow some set of recognized social norms.
Dlouhy and Casper (2021) showed that social support had moderating effect on the indirect relationship between downsizing and employees’ job insecurity. This suggests that social support can help reduce negative relationship between downsizing and job insecurity. Tu et al. (2021) demonstrated that social support is an important element helping survivors alleviate the negative implications of COVID-19 layoff. In the study, social support was explored from the perspectives of perceived family support and perceived organizational support. This indicates that social support can help reduce the influence of organizational downsizing on employees’ social wellbeing. Alcover et al. (2021) indicate that there is a positive significant relationship between job insecurity and mental health issues among employees during the COVID-19 pandemic. However, it was demonstrated that social support has mediating role in the relationship. Moreover, the findings showed that there is a moderate buffer effect of perceived social support relative to the size of the social network.
Usman et al. (2021) found that social support during the COVID-19 pandemic, especially from co-workers helped employees to manage the stress and uncertainties that surround the pandemic. This indicates that colleagues at workplace can be of help when it concerns ensuring the social wellbeing of employees. Godinić and Obrenovic (2020) indicate that using social support as an intervention can help mitigate the health risks associated with being laid-off from work. The study established that downsizing may lead to socioeconomic crisis, which would require strong support based to whether through the storm of sudden or unplanned dismissal from work. Bergström and Arman (2017) demonstrated that downsizing leads to skewing away from social support, especial among employees that are least committed and loyal to organizations. This suggests that committed employees would seek for social support from their co-workers for instance.
Psychosocial Resilience Strategies for Employees Affected by Downsizing
Psychosocial resilience is an umbrella term, encompassing both psychological and social resilience. For the psychological resilience, it concerns the provision of interventions that help build the mental and emotional states of employees. Meanwhile, social resilience concerns the use of social elements or factors to alleviate the consequences of downsizing. Meanwhile, resilience is multifaceted socio-technical concept that concerns how individuals, group of people, or bodies handle the uncertainty they were faced with (Wang et al., 2017). Aburn et al. (2016) described resilience as the concept that explain employees’ adaptive and adjustment capacity, dynamism in the face of uncertainties, and mental strength. This means that resilience is all about survival and navigating a difficult terrain. Hale and Heijer (2017) describe resilience as the management of activities in anticipation and attempt to circumvent threats to existence.
Dismissed employees may need to respond to the unforeseen reality of being dismissed from work, which may be through internal control or by adopting adaptive strategy (Linnenluecke, 2017). Lee et al. (2013) noted that discussions around resilience are centered on employees’ “bouncing back”, flexibility, absorptive capacity, and flourishing in an organization in the face of different uncertainties. Walker (2020) views resilience as an interdisciplinary concept that may connote different meanings to different scholars depending on the disciplines. The author notes that resilience, in its simplest form, can be understood as the ability to cope with shocks that allows one to keep functioning in its usual way. The author identified two types of resilience, which include avoiding learning about the attributes of a system that allows for understand to avoid facing similar challenges predecessors have faced and learning how to identify and stay away from such thresholds.
Frone and Blais (2020) established that there is a growing attention to the use of training to increase the psychological resilience, which may help reduce the detrimental effects of downsizing. While the study showed that training is a reactive strategy, it was suggested that a more proactive strategy should be adopted by increased attention to employees’ capacity or craft. Caidor (2023) corroborated that communication is an essential factor to help enhance the resilience of employees trying to survive downsizing. Edwards and Clinton (2023) profiled the psychological responses of employees to downsizing and layoff. The study demonstrated that adopting person-centered approach can help employees to reduce the psychological effects of downsizing. Megele (2015) indicates that using organization’s resources and capabilities can help employees to repeal the negative influence of downsizing. The study further established that psychosocial factors are crucial in employees’ resilience in effort to reduce the influence of downsizing among employees.
Liang and Cao (2021) indicated that employees resilience boots problem-focused coping and emotion-focused coping, resulting in organizational resilience in China. It was suggested that efficient daily management of organizations in China require the need to pay more attention to develop employees’ resilience in order to improve organizational resilience. Lim et al. (2020) concluded that employees’ resilience should be considered in strategies at both organizational and societal level, alongside the organizational human resource intervention. Kim et al. (2024) demonstrated that resilience-sharing human resources management (HRM) practices, such as special leave assistance programs, influenced civil servants’ perceptions of workload and job insecurity.
Ifeoma and Patience (2021) recommended that the use of work redesign or systemic change strategies has a positive effect on the downsizing among employees. This suggests that the strategy can help improve efficiency and productivity owing to the impact of downsizing on survivors and leavers among the employees. Meanwhile, Harney et al. (2018) noted that consultation with employees is important to ensure that the negative experiences associated with downsizing can be alleviated. This means that there should be discussions with employees on the importance of layoff to organizations. This would put them in the picture of things with respect to the incapability of the organization to continuously manage an organization. Neves et al. (2018) recommended that social services can serve as strategies that would help reduce the negative effect the impact of downsizing would bring on employees.
CONCLUSION
This study established that the influence of organizational downsizing on employees’ psychological wellbeing (mental wellbeing) include negative influence on both physical and mental wellbeing, employees’ depressive symptoms, despair, deterioration in all health conditions (headaches or eye challenges), risk of clinical depression, distress, anxiety, employees’ burnout, and stress. The study concluded that there are some drugs that are used by employees that have been downsized from work. Some of the drugs used include antidepressants, hypnotics/sedatives, anxiolytics, opioid, alcohol, and antipsychotics. Meanwhile, the study recognized that downsizing has influence on employees’ social wellbeing as it negatively influences their social reputation, social structure, social capital, and social identity. The study established that socially responsible downsizing is crucial for the ethical organizational downsizing. Finally, it was concluded that psychosocial resilience strategies that can adopted by employees faced with downsizing include psychological resilience, social service, training, increased attention to employees’ craft, communication, employee-centered approach, organizational capabilities, problem-focused coping strategies, emotion-focused coping strategies, systemic change strategies, and special leave assistant programs.
RECOMMENDATIONS
Based on the conclusion, the following recommendations were proffered:
i. Organizations should be socially responsible in downsizing employees to mitigate negative effects on the mental wellbeing of employees. This may be achieved by conducting tailor-made programs to address the issue of anxiety, despair, distress, and depression among employees.
ii. It is recommended that social services should be organized for both survivors and leavers.
iii. Organizations should collaborate with relevant government agency to carry out advocacy and awareness on why it is unhealthy for employees (both leavers and survivors) to abuse substance owing to downsizing or layoff.
iv. It is recommended that employees should not shred their social capital, social identity, and social
reputation owing to downsizing.
v. Organizations should adopt the best strategies to ensure resilience among their employees, which may include communication, training, social service, special leave assistant programs, systemic change strategies, and so on.
vi. Future studies may consider exploring why employees engage in the use of substances as a result of downsizing, which may be quantitative or qualitative study.
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