The case against layoffs: they often backfire

http://www.newsweek.com/id/233131?from=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+newsweek%2FTopNews+%28UPDATED+-+Newsweek+Top+Stories%29

by j_baker • 16 years ago

57 24 16 years ago

newsweek.com

paul9290• 16 years ago

Is the job market that bad for us techies; web designers, developers, Internet marketers, SEO and such? Which fields are suffering the most? Ones that don't require special skill sets?

Where I live and fortunately (mid Atlantic region) there are always many job postings for web design/development on craigslist. My viewpoint Im not seeing all the unemployed; even with friends.

JeffJenkins• 16 years ago

Assuming you're a male between the ages of 25 and 44 with a college education, probably not that bad. The New York Times did a good infographic:

http://www.nytimes.com/interactive/2009/11/06/business/econo...

_delirium2• 16 years ago

Of the factors you listed, it looks like being 25+ and having a college degree are the main ones. The unemployment rate is almost as low for 45+ as for 25-44 among college graduates, and the unemployment rate for women in those groups is actually lower than for men (the lowest unemployment of all groups in the infographic is for white women 25-44 with college degrees).

(edit: thanks greatly for the link, btw. it looks like it's been up for a few months, but I missed it the first time around.)

joe_the_user2• 16 years ago

Well,

At best, this is an argument for postponing layoffs at long as practical. If you in a declining industry, for example, layoffs are inevitable.

Indeed, the goal of keeping as many employees as possible is nice but if it causes the entire corporation to go bankrupt, you haven't avoid layoffs.

It seems like the best policy for an organization would be maximum honesty, minimum practical layoffs and giving all employee a shot at switching positions within the organization.

But these generalization really are hard. Intel has profited while laying-off people through continuous internal competition. It could be brutal but it worked for keeping the company profitable.

_delirium2• 16 years ago

Some can be avoided by not doing cyclic shedding/adding of workers. The justification for layoffs in a downturn followed by hires in an upturn is that it cuts costs: if you fire someone today and then hire someone else two years from now when things pick up, you've saved two years of salary/benefits over just keeping them on payroll through the downturn. I see this article as providing an argument that maybe saving that two years of salary isn't worth it.

(There are other problems in that particular case, like companies that follow that hiring/layoff model always being a step behind in recoveries--- they're never well placed to catch booms early, because they spend the first year desperately scrambling to hire talent instead.)

Mz• 16 years ago

if you fire someone today and then hire someone else two years from now when things pick up, you've saved two years of salary/benefits over just keeping them on payroll through the downturn.

The problem with that thinking is that there are costs involved in laying someone off and hiring anew two years later. And you have paid those costs to get no productivity out of them. I read an article some years ago that indicated that one company which paid top salaries for its industry saved money by doing so because they spent so much less on the hiring process and on training, and also because of general quality of work and customer satisfaction, because their employees tended to stick around. I have also read that one company/industry which laid people off suffered 10 years down the road when they found they had no one in the pipeline to fill managerial positions as they came open. So the (potential) costs involved here are not just the salary involved.

jimbokun2• 16 years ago

"If you in a declining industry, for example, layoffs are inevitable."

In other words, layoffs are often an indicator of a failing company, so it's no wonder that layoffs do not lead to an increasing stock price.

sabat5• 16 years ago

There are two sides to this -- layoffs are acts of desperation, and layoffs can be good for a company's health.

Here's what I mean.

The corporate world seems to have Layoff Fever. So many of the 2009 layoffs seemed as though they were inspired solely by herd mentality, and perhaps by a desperate attempt to please investors. Layoffs cost a lot of money in severance packages, decreased ability to execute, and probably more. A layoff is a bet against the future.

Conversely, though, if you've ever worked at a larger company, you may have noticed people who don't actually seem to do anything except play political games and collect paychecks. It's corporate welfare; they take more away from a company than they contribute. Those people should be laid off in any economy. Unfortunately, because of their political savvy, they usually survive at least the first rounds.

j_baker• 16 years ago

Those people shouldn't be laid off. They should be fired. There's a big difference.

sabat5• 16 years ago

They should be fired, but in practice they rarely are.

There's not really a big difference between a firing and a layoff, except in terms of scale. Rarely are whole groups of employees fired, but layoffs are -- well, precisely that.

When planning layoffs, managers are usually told to identify the "dead wood" in their organizations -- unproductive, wasteful souls. That'd include our corporate politicians, and in some cases, they are actually included.

aminuit• 16 years ago

FYI the term 'corporate welfare' typically refers to governments giving special treatment to corporations, not corporations tolerating unproductive hangers-on.

sabat5• 16 years ago

I'm aware of that usage, but I think it's still OK to use it in a different way. :-)

lmkg• 16 years ago

I'll flip that on its head: if a company will benefit from layoffs, those people should have already been fired. The fact that they weren't is probably contributing to the dire straits forcing the layoffs.

I think the only other time that layoffs are a good idea is if you're closing an entire business unit/department to retreat from a market and focus on your strengths.

jimbokun2• 16 years ago

"if a company will benefit from layoffs, those people should have already been fired."

Or even better, never hired in the first place.

Frequent layoffs are evidence of incompetent management, as they keep hiring people they don't actually need and then must let them go again. Better to just go slow on hiring, adding people only when absolutely necessary. Then layoffs are unnecessary.

Tiktaalik• 16 years ago

There are entire companies formed by bitter ex employees who will never work for Electronic Arts again.

I agree with everything in this article. It just really nails it.

access_denied• 16 years ago

SAP was founded by former IBM employees who weren't allowed to do the project inside of IBM.

sabat5• 16 years ago

It's funny -- I live in Redwood Shores and am often in Starbucks when current EA employees saunter in for an afternoon coffee. They rarely seem like people who are happy in their jobs.

phpnode• 16 years ago

FTA: "...about one third of the companies that had laid people off subsequently rehired some of them as contractors because they still needed their skills."

This happened to me a few months ago, I was made redundant by my employer only to be immediately rehired as a contractor because they need my skills. Now they have to pay me more than before and I get to work from home and use the saved commuting time on bootstrapping my startup. I'd never go back as an employee now. So it was a pretty inefficient cost cutting scheme on their part.

holygoat• 16 years ago

You might be surprised at the amount of money they save by not having you as an employee.

They save a few thousand a year on your desk; thousands on unemployment taxes in many states; SS and income tax contributions; healthcare benefits, stock awards, and bonus schemes; etc.

Regardless, it's not necessarily intended to be a pure cost-cutting scheme: switching you to being a contractor essentially improves their liquidity.

It's a little like someone with lots of cash getting a mortgage to buy a house: they could afford it, but they'd rather pay a little more over time to get additional flexibility.

houseabsolute• 16 years ago

> A study of 141 layoff announcements between 1979 and 1997 found negative stock returns to companies announcing layoffs, with larger and permanent layoffs leading to greater negative effects.

The simpler explanation is that companies in the worst straits are likely to make the deepest cuts when performing layoffs.

jteo• 16 years ago

On one page: http://www.newsweek.com/id/233131/output/print

The case against layoffs: they often backfire

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