Approach cutting labor from both a practical and human angle. From a practical perspective, if the company needs to cut labor in order to be more competitive, productive or change focus then it may be a necessity. Similarly, it is unlikely people want to be in jobs where they don't feel valued and where their contributions aren't making an impact.
The human element of cutting labor cost comes in via the fact that even though people need to be let go there's a good and bad way to do it. The good way involves being transparent, providing reasonable severence, and access to services to get re-employed. Often organizations get this part wrong and that's where it leads to a lot of conflict and negative issues