Is Recession the Main Reason Behind Layoffs?


Is Recession the Main Reason Behind Layoffs? Getting a job on a large job search network like LinkedIn these days is difficult. Employees talk about being fired every third or fourth post. The unique aspect of these postings is that they are not from employees of failing start-ups that are unable to get financing. Google, Microsoft, Amazon, Twitter, Salesforce, and Intel laid off employees. Since January, about 1,600 IT workers have been laid off daily.We can’t even fathom how bad it is.

Myths about layoffs

What evidence exists to support management’s belief that layoffs are beneficial during economic downturns? Do shareholders reward companies that lay off a large number of employees while punishing those that don’t and have low profits?

Many experts, scholars, and consultants have studied this subject over the years, and almost all of them have determined that laying off at the first hint of a recession does not boost a stock’s value. Instead, the company’s reputation suffers as a result.

In 2021, Ryan Atkins and Charles Favreau of Pittsburgh, Pennsylvania’s Duquesne University, published an article on the same topic in the International Journal of Production Economics. It came to the conclusion that if the facility is shuttered, layoffs will boost the stock price. Simply reducing the size of a moving firm does not enhance it.

Thus, investors must decide whether layoffs are a response to a fundamental problem at the business or a strategy to save money before paying more attention to a stock. Retrenchment at a low-performing corporation and retrenchment to get rid of staff are seen differently worldwide. (If two businesses have equal skill, firing off Indian engineers would hurt stockholders more than US engineers.)

Why do businesses do mass layoffs?

Traditionally, as the economic situation worsens, the workforce is reduced in order to cut expenses, i.e., layoffs occur. For example, in addressing the layoffs, Google CEO Sundar Pichai said that the business employed individuals two years ago based on a different economic reality than now. Employees are the most expensive expenditure in technology firms. As a result, they are often blamed in the name of cost-cutting. At this point, it makes no difference how hard or how long he worked for his employer.

Is Recession the Main Reason Behind Layoffs?:The same is confirmed by research results from two decades earlier.
In 2001, the well-known worldwide advisory company Bain & Company performed a year-long study of S&P 500 corporations (August 2000 to August 2001). In the months that followed, further study was conducted. “The fact is that shrinking for survival may ruin your firm,” it concludes. Following that, the study debunked four retrenchment misconceptions. a) The retrenchment was broad or severe; b) Shareholders like layoffs; c) All layoffs are terrible; and d) The choices were not too difficult.

According to Bain’s analysis, a corporation will fail to earn a financial profit until it removes employees from knowledge-based sectors for 18 months.

Why India’s Internet Growth Has Stalled?

Is Recession the Main Reason Behind Layoffs?: The typical recession, according to the Bain analysis, lasted just 11 months. However, firms began laying off workers as soon as they understood the recession had begun, even after 6 to 9 months had elapsed. This indicates that when the boom began, the firm did not have enough workers to capitalize on the opportunity.

Despite India’s economic growth, few jobs and meager pay for urban youth

According to the study, Bain urged firms to ask themselves certain critical considerations before terminating workers, which are listed below.

  • Why is the firm doing so poorly? Is this incorrect product on the market the result of a fundamental problem?
  • What is the company’s strategy, and what choices does it have? Is it possible to compete without layoffs?
  • Which is more important? corporate jets, art collections, business class trips, or staff retention and goodwill.
  • If retrenchment is required, how may it be done as compassionately as possible?
  • Another consultant, Fred Reichheld, authored a book on the subject (“Loyalty Rules”) in the mid-1990s, claiming that having a balanced approach to layoffs produces better company outcomes than just mimicking others.
  • “All layoffs are depressingly identical,” the Bain analysis found. However, it is critical for workers, customers, and shareholders to determine if it is prudent to lay off or if they would be caught in a worse scenario in the future.

So, if CEOs of wealthy firms are laying off workers to placate the stock market, I would advise them to consider if they can manage a recession in any other manner; you may get an advantage over your competition by innovating or launching something new or bagging a fantastic bargain. Difficult circumstances put not just leadership but also character to the test.


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