Why Do Lay-Offs Come in Waves?

The past year has seen many well-known technology companies lay off massive numbers of employees. According to estimates, in 2022, more than 120,000 people were laid off by tech giants such as Meta, Amazon, Netflix, Google (said to begin its layoffs soon), as well as smaller companies and start-ups.

Elon Musk, has reportedly widespread layoffs following his recent acquisition of Twitter. Meta, which previously focused on the developing The Metaverse, laid off 11,000 employees, and Amazon is planning to lay off a similar number of employees in 2023. HP is also said to lay off as many as 6,000 employees in the next three years.

Layoffs are coming in massive waves in both technology and finance. In the banking industry, a sharp decline in trading and bond issuance revenue has alerted investment bankers. Goldman Sachs is embarking on its biggest job cuts since the pandemic began, with plans to cut hundreds of jobs.

Citigroup dozens of jobs in early November, while the London-based Barclays expects to cut about 200 jobs in total, according to people familiar with the matter.

However, the scale of the "waves of layoffs" since 2022 are not even close to that in 2008. After all, the tech industry accounts for only about 2 percent of all jobs in the U.S., according to data from the ADP Institute.

Cynthia M. Sanborn, Chief Operating Officer of Norfolk Southern, told Wall Street analysts on October 26 that companies must ensure that they survive the economic downturn. Therefore, they use leverage such as layoffs to solve urgent needs for cash when needed. But at the same time, companies also want to maintain high quality recruiting pipelines so that they can get enough staff once the economy improves.

Additionally, many IT workers laid off by large companies may end up being hired by smaller companies, said Tom Gimbel, CEO of LaSalle Network (a Chicago-based employment agency). "The good news for small and medium-sized companies is that they don't have to pay the same outrageous salaries that big companies pay," he said.

Why are so many companies laying off at the same time?

Jeffrey Pfeffer, a professor at Stanford Graduate School of Business, says the answer is simple: imitation.

(Source: Stanford News)

Pfeffer notes that the layoffs happening across the tech industry are the result of "social contagion": layoffs spread across the web, with companies copying, almost thoughtlessly, what everyone else is doing. When some companies lay off employees, others may follow suit.

There have been examples of such contagious layoffs in the past, from which we can learn some valuable lessons.

After the terrorist attacks of September 11, 2001, all airlines except Southwest Airlines laid off workers. By the end of the year, Southwest had gained market share.

AG Lafley, former CEO of Procter & Gamble, said that the best time to gain an advantage over the competition is when your competitors start to pull back, cut service, and cut product innovation because of layoffs.

One of the things Lincoln Electric, a well-known manufacturer of arc welding equipment, did really well is that instead of laying off 10% of their workforce, they took a 10% pay cut for everyone employed, and even more for senior management. Instead of causing 100% of the pain to 10% of the people, they chose to cause 10% of the pain to 100% of the people.

Companies can certainly turn economic recession into an opportunity, like James Goodnight, CEO of the software company SAS Institute, who never laid off workers and hired a lot of people in the 2008 recession and the 2000 tech recession. He did so simply because those were the perfect time to pick talent. He used the downturn to up-skill the workforce, and this gave him the edge to gain market share at a time when every other company was laying off workers and stopping innovation.

If layoffs are contagious within one industry, then it can spread to other industries as well.

Retailers are cutting staff, and many companies have reduced staff costs while sacrificing customer experience. What they fail to consider is that attracting new customers is often much more expensive than keeping existing ones happy.

What's more, layoffs don't improve company performance. Academic research has shown time and time again that reducing workforce doesn't do much to cut costs. Severance pay costs money, layoffs increase unemployment insurance rates, and layoffs lower the morale and productivity of remaining workers, who are left wondering: "Am I going to next?"

In an interview, Pfeffer was asked about the layoffs in the tech industry. Is the technology bubble bursting? Are businesses preparing for a recession? Pfeffer answered in the affirmative. "Has Meta overrecruitted? Probably. But is that why they're laying off workers? Of course not, Meta has a lot of money. These companies are making money, and they're doing it because other companies are doing it too."

Layoffs literally kill; it can cause suicide rates to increase by 2.5 times. The same goes outside the United States, such as in New Zealand. Layoffs can increase mortality rate by 15-20% over the next 20 years. Layoffs add to people's stress, and just like every other attitude or emotion, stress is contagious.

If you are one of the many prospective engineering students concerned about the future of the tech industry, use this moment as a chance to reflect on your decision. Did you choose your major because of its once promising job prospect, or did you choose from your heart? There is certainly nothing wrong about being practical about major choices. But on the other hand, setbacks like what we witness now can test students' intellectual and professional drive better than anything else.

At the end of the day, choosing a major and a future career should be a balance between practicality and idealism, a result of negotiating real world concerns and beliefs.

At Enlighteens, as a group of realist idealistic educators, we believe in finding a purpose and a path for every student with their unique backgrounds and strengths, and we want to help every student and their family at any stage in their education and career planning, with the bigger picture in mind.