Waking up each morning and scrolling the news feed is beginning to feel reminiscent of the 1993 film Groundhog Day. For months it’s been a never-ending stream of mass amounts of layoffs reported within tech companies, with no sign of a grumpy weatherman played by Bill Murray to come and turn things around. According to Layoffs.fyi, the tech industry saw an estimated 160,000 employees laid off from their jobs in 2022, and 2023 is already off to a devastating start. With not quite two months in the books, the number of displaced employees is already over 100,000 and promised to climb higher. Companies large and small are scrambling to deal with the repercussions of the 2020 Covid pandemic and are playing a contagious game of “follow the layoff leader” which is resulting in staggering amounts of (potentially unnecessary) workers without a job.
What is a Layoff
A layoff is a situation in which an employee loses their job because of decisions made by company executives for the long term health of the business. The difference between being laid off vs. being fired comes down to who is at fault: the company or the employee. In the case of a layoff, the company is the one who is to blame.
Layoffs within a company can happen for a variety of reasons as each company has unique aspects that separate them from others. Some of the most commonly seen situations include some of the following:
- Cutting Costs
- Avoiding Bankruptcy
- Mergers
- Buyouts
- Relocation
Are Layoffs a Good Idea?
Despite countless research showing that layoffs rarely achieve the end goal of the company leaders, they continue to be used both inside the U.S. and out. The lasting positive effects of layoffs are often difficult to find, but their negative effects are like neon flashing lights – impossible to miss.
Let’s pretend you are the CEO of a large company in the tech industry. We will call it “Company X.” Company X is experiencing a difficult financial situation all while watching the way surrounding businesses are laying off employees left and right. Discussions of a feared recession are happening, and an employee layoff has been talked about with the Human Resource department for months now. In the chaos felt during the 2020 pandemic, you over-hired and are now regretting that decision. It seems like in order to cut costs and avoid bankruptcy, following the current layoff trend might be the best option.
As a leader in this imaginary company, what would your vote be? It might seem easier to look around and copy what is happening all over the country, but it’s in your best interest to hold off and dig a little deeper. Displacing employees could help in the short term but the negative effects far outweigh the benefits, and voting against it might ultimately be the best choice of your career (imaginary or not). Listed below are 5 reasons why:
5 Negative Effects of Layoffs
- Bad Publicity
If not handled carefully (and even when they are) a layoff can do a number on a business’s reputation. It’s often said that “all publicity is good publicity,” but that logic doesn’t hold up here. Hearing a company will be conducting a layoff process signals to the public that the company is headed in a negative direction and can alter their perception of the business. Consumers might decide to invest in competitors due to a fear that the other company could go out of business, leaving them to look elsewhere anyways.
Read more: 7 Epic Layoff Failures
For years it was easy to keep a lot of information hidden about a layoff process, but that is no longer the case. Thanks to social media and the ease at which news travels rapidly, your business is everyone’s business, often within a matter of minutes. This leaves company leaders often scrambling in an effort to save their public image. Social media use also makes it all too easy for furloughed employees to share their negative layoff experience with their family, friends, and strangers across the internet. It’s not unheard of for large media outlets to catch wind of the story and create viral outrage directed at the company.
- Risk of Lawsuits
One of the risks when implementing employee layoffs is suffering potential legal consequences (which also will become PR and financial consequences as well). If careful steps are not taken and the rules are not played fairly then things can turn an unfortunate job loss into a nightmare for company leaders. Some examples of this are:
- Whistleblowing is a term that can be used when an employee suspects they were chosen for a layoff out of retaliation. If they had previously complained about unfairness or lack of safety in their work environment, the company might have to prove this was not the reason they were let go from their position.
- Discrimination lawsuits are important to consider before moving forward with laying off employees in a company. They are filed when an employee feels they were unfairly targeted for job loss based on things like age, gender, ethnicity, or religion. For example, Twitter’s CEO, Elon Musk, is facing a lawsuit from disabled workers who lost their job last year. during the organizational change, Musk gave workers the option of volunteering to leave the company, or remain and agree to long hours and unrealistic working conditions. This disproportionately affected disabled workers who were physically unable to agree to such conditions and were left with no choice but to leave.
- Advanced notice is often required when laying off employees and can result in unwanted lawsuits if not given. Some states have different rules based on the number of employees a company has, but here is what the U.S Department of Labor states regarding providing advanced notice:
“Worker Adjustment and Retraining Notification Act (WARN) (29 USC 2100 et. seq.) – Protects workers, their families and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs.“
- Increased Unemployment
Currently, in the U.S., we are sitting at an unemployment rate of only 3.4% – the lowest it has been in over 50 years. So far, the massive amounts of layoffs within the tech industry have not managed to move that in a significant way (at least not yet). That isn’t always the case though.
Typically, when the economy slows down and companies respond by laying off lots of workers, claims for unemployment compensation spike; it’s happened before with recessions looming.
You don’t need to make too big of a leap to see how this could turn into a problem for the economy and lead to even more layoffs. When people make less money, they spend less money. When people aren’t buying as much, businesses aren’t profiting as much, which means they either cannot afford more workers, or they simply don’t need as many on their payroll. The natural progression of this is a vicious cycle that is difficult to break.
- Less Engagement + More Turnover
If a company is focusing on numbers, they might overlook the way layoffs could effect the remaining employees. This can, unfortunately, be a huge oversight. When employees are the backbone of your company, the last thing you want to do is make decisions that destroy their trust and loyalty, increase stress and burnout, and ruin employee morale in the workplace. Yet that is precisely what layoffs do. Many are left with the unsettling “survivors guilt” and no understanding of how to move past it. When an employee feels like the effort they put into a job will not guarantee security in that position it becomes difficult to feel engaged and want to work to improve job performance. Trying to work in that stressful state of “could I be next?” will undoubtedly stifle creativity and make it difficult to foster relationships with coworkers. It leaves little doubt as to why employee turnover rates rise following layoffs.
“…downsizing a workforce by 1% leads to a 31% increase in voluntary turnover the next year.”
Harvard Business Review
Read more: What is Corporate Survivors Guilt?
- Emotional Damage
One study conducted showed that of the most stressful life experiences studied, being laid off was ranked at number seven. On that same list, it ranked above a close friend dying or getting divorced. The trauma from unexpected job loss causes serious physical and emotional distress in displaced employees and can lead to potentially life-altering consequences. Layoffs have been linked to depression, anxiety, the development of new health conditions, substance abuse, violent acts, and self-harm. Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business tells the grim yet honest truth: “layoffs kill people, literally.” Not only do they raise the risk of suicide two and a half times, but they also increase the chance of death by 15-20% in the next 20 years.
“We ought to place a higher priority on human life”
– Jeffrey Pfeffer
Conclusion
The research overall is pretty clear – layoffs do more harm than good. Harvard Business Review states that of the companies that execute layoffs, the majority of them do not see improved profits. If little to no benefits come with so many negative effects, it raises the question – why risk it? With the challenges in today’s workforce, especially in the tech industry, many leaders will be faced with an important choice to make – follow the current trend of choosing a mass layoff, or bravely navigate a path of alternatives that leads to something healthier and more beneficial for both the company and it’s employees.
