🤨 Do Layoffs Actually Work?
Layoffs are making headlines everyday. But are they really necessary, and do they even work? If not, what are other alternatives to layoffs? ReadOn!
That's how many people have been fired globally in 2023 due to mass layoffs.
So, today we're looking at:
Why is this happening?
Do layoffs actually work?
🧐 Why are Companies Laying Off People?
Most startups and major tech companies are laying off employees in hordes.
This is not only traumatic for the employees but also their families.
For every person laid off, probably four more people are impacted.Companies have justified their mass layoffs citing these reasons:
Lack of funding (mainly applicable for startups)
Upcoming recession
Hiring boom amid the pandemic
Well, the first one kind of makes sense due to the funding winter.
Let’s analyse the other two reasons.
📉 Are Recession Worries Valid?
Most major economists have predicted that a global recession is imminent.
This has hit companies like a warning bell and they are now trying to cut down costs by laying off people.
While this may help companies survive in the short term, it leaves a long lasting impact on the employees being laid off. It leaves them with no job, no routine, and no hope.
Studies say that getting fired is the seventh most stressful experience for a human
It takes about two years to recover from the psychological trauma of getting fired.
In fact, layoffs may not be the solution to companies’ short-term problems. Research shows that it may actually have the opposite impact. Because:
There’s a loss of knowledge
Survivors see a 20% decline in profitability
For every 1% of the workforce laid off, voluntary exits increase by 31%
The company also faces negative publicity causing stock prices to fall
Severance costs also cause the company to bleed valuable cash at a crucial time. For instance, Spotify will see severance-related costs of 45 million euros for laying off 6% of the workforce.
So, layoffs don't really seem like a good idea, especially to counteract a recession that typically lasts 10-18 months.
Why can't profitable companies find some other ways to counteract this temporary down period?
😮 Mass Hire Now, Mass Fire Later?
The Covid pandemic was a blessing in disguise for many tech companies. They saw their businesses booming and revenues hitting through the roof. With this, came the need for more employees.
And thus began the hiring boom.
But little did these companies know that the boom would last only till the pandemic lasted.
Now that we have bid our goodbyes to Covid (hopefully), companies are forced to bid farewell to their employees.
But layoffs are not the only way to reduce costs. Several companies have figured out alternatives to layoffs. How?
The Alternative to Layoffs: Strong policies around workforce management.
These companies have their “why” figured out (here’s what that means), so they can remain calm in difficult situations.
A strong example of this is Michelin, a France-based tyre-manufacturing company.
When a French plant of Michelin was struggling, the company completely changed the product produced in the plant, changed shifts and brought in other people to boost productivity.
They hardly had to lay-off anyone and the plant boomed.
Now, this approach may not work for everyone. Here are some examples that all companies could benefit from:
AT&T: When AT&T realised 1,00,000 of its workforce would soon be redundant, it invested in their education to retain them.
Starbucks: Companies like Starbucks and Bank of America retained employees throughout Covid through executives taking pay cuts or temporarily laying off some people.
These companies have proved that layoffs are not the answer. There can always be other workarounds to keep your people, and build with them.
But, for some Big Tech companies, the recession could just be an excuse to lay off employees they already wanted to let go of.
You see, these companies are betting big on automation and AI.
All of them – Alphabet, Microsoft, Apple and Amazon – have some AI tool in the works.
These tools could make some percentage of the workforce redundant. So, could this be the reason behind tech layoffs?
And if so, will we see more layoffs? Or will we see these companies hire again when the economy is booming?
Only time will tell.
Let us know if you found this informative. You can reply to this email with your responses or ping us directly on WhatsApp!