Is poor performance contagious?

That is an interesting question Caty. I think the answer is that it very well may, especially depending on the credibility and position of the poor performer.
Studies on employee engagement indicates that somewhere between 17 and 20% of employees surveyed are "actively disengaged" which means unhappy and doing the minimum possible. These folks aren't any more inclined to leave than people who are neutral- they just stay and "poison the well".
The impact when that "poor performer" is a manager is exponential. Studies show one bad manager can impact performance up and down the organization and across departments...
The old expression misery loves company has merit to it...

I would concur with what others have written thus far. The problem is, if we allow poor performance to go unnoticed or fail to take action on it and hold poor performers accountable, others will begin to lose respect for the organization and their performance will slip as well. As much as we'd like to think we're all adults and would be mature about it, not holding one another to account for job performance will bring down the performance levels of everyone. It gets pretty tiring after a while to realize that no one really cares because that's the message being conveyed by management - so yes - it does become 'contagious'.

As Mark Herbert says it may, but there is no causal relationship; it depends on how the group reacts. If someone, for instance, is underperforming simply because it is lazy, it may well happen that he/she becomes isolated from the group, provided that the group 'culture' is against laziness.

By the same token, if someone if underperforming because he/she has family problems, he/she may not be isolated from the group but nevertheless his/her behavior will likely not affect the other members of the team.

An interesting point to note is that because of 'social loafing' (see for instance Group dynamics by Donelson R. Forsyth), there will always be someone underperforming. So, removing the underperformer from the team will not solve the problem.

Last but not least, it is very important to keep in mind that someone may be underperforming according to some metrics, but the metrics may be wrong, or at least not to provide the full picture. In today's companies because of the need of having each quarter good financial results there is less and less attention to long term aspects. Someone may be underperforming according to these short-term metrics, but actually making huge contributions according to long-term metrics.

Although the simple answer is, 'Yes,' I think there are several facets here.

Any organization has people that overachieve and people who - at least by comparison - underachieve. Tolerating underachievement can have a negative impact on morale but it also depends on the circumstances. For example, an underachiever may have other qualities that mitigate the psychological impact of under-performance, such as organizing team events or being someone that people enjoy working with.

Also note that there's a big difference between not tolerating under-performance and not rewarding great performance - as long as top performers feel rewarded and appreciated they are less likely to let their own performance slide or feel resentful of underachievers.

Finally, there are some people who are unable to do a shoddy job, even in an organization where shoddy is tolerated. Such people keep poorly led organizations gasping along despite themselves and sometimes even thrive in such an environment because everyone needs them. The risk here is that if poor performance permeates the organization, even determined high performers will find themselves blocked at all their dependency points.

In other words, even though the low performance isn't "contagious" in the sense that the high performer decides to become a low performer, it nonetheless has the same effect.

I think that the attitude and actions that drive poor performance are contagious or maybe infectious is a better word. If you have someone that is consistently under performing and does not desire to make positives changes, it will no doubt start affecting others.

Poor performance that is either permitted or rewarded is indeed contagious, due to the obvious perception that it makes no difference. If supervisors ignore bad work and management reinforces such negative behaviors, observant employees will question why they should exert themselves for something that is not valued by their bosses.

I think Jim Brennan is absolutely correct. Employees know when one of their colleagues isn't pulling their weight and leaders who ignore poor performance sacrifice their own credibility.

I agree with Kellie's point. Poor performance is contagious only if there are no repercussions. If Employee A shows up for work late everyday and leaves early without punishment, then Employee B will quickly notice and possibly follow suit. But if Employee A is warned or suspended for their actions, then Employee B will be less likely to repeat the same actions. You could compare this to raising a child. If a child misbehaves and doesn't get reprimanded, then they think their actions are tolerated and will continue being mischievous.

You have the point there Kellie. Contagious is something that the person has a weaknesses to adopt what others have. The point is toleration comes in if there is no consequence what they are doing.