Layoffs Don't Work

&gt; After the early-2000s dotcom bust, Bain researchers found that stock prices for S&amp;P 500 companies that had no layoffs or laid off less than 3% of their workforce increased an average of 9% in the next year. Meanwhile, stock prices were flat in companies that laid off between 3%-10% of their workers, and prices plummeted 38% for companies that laid off more than 10%.<p>Failing companies go through layoffs. Companies like Sun Microsystems, Kodak, Sears, Circuit City, Kmart all went through lots of layoffs. But everyone knows that&#x27;s not what killed them.

This is a terrible opinion piece. Layoffs do work. Cutting hours does not work. I am always amazed how few people understand how a business operates. They think its a community organized event where there is unlimited revenue.<p>There are a few basic accounting principles employees need to understand. It all revolves around Assets = Liabilities + Owner’s Equity. If you think otherwise, take a &quot;Cost Accounting&quot; course. This is a pure numbers game. Everyone wants to wrap a psycho analysis into something that has ZERO relevancy.<p>If a company is bleeding revenue, it cannot sustain the overhead of employees. They have to go. Cutting hours does nothing for those on a salary, and those that are hourly, benefit costs are far more expensive than their wage. If a company has stagnant growth, that means leadership has made bad decisions, and things have to change.<p>Employees feelings don&#x27;t matter on a Balance Sheet, Income Statement and Cash Flow Statement. There is not a &quot;Employee&#x27;s Feelings&quot; column on the ledger. Everyone can be replaced. No one is special, unless you&#x27;re a majority shareholder.

&gt; Research has consistently shown he was right about layoffs: They’re damaging to companies...<p>The research is probably misleading. The damage was done to companies when the over-hired people who couldn&#x27;t add enough value to justify keeping them employed. The layoffs are just when the damage is recognised.<p>It is like borrowing a huge amount of money, using 90% of it it to buy prawns and leaving them out to rot for a few days. The damage is now done, the borrowed money is lost. It won&#x27;t be recognised for a while though. There is even enough left over to pay an interest payment or two to string everything along. But the damage is done.<p>A lot of people treat economics as though damage didn&#x27;t happen unless someone acknowledges it. That isn&#x27;t how it works. Not acknowledging that something is value-destructive just means more value is destroyed by the time people are forced by market forces to confront the truth.

Had been advocating slower hiring &amp; targeted reductions in a mid-sized tech firm for years after COVID, but it happened much faster under a newly appointed CEO.<p>Under new leadership, we executed 1&#x2F;3 layoffs framed as a &quot;culture refresh&quot; and to briefly lift the stock. It wasn&#x27;t about survival, we had plenty of cash, okayish growth and fantastic ARR - more about a new corp-backed CEO adopting a &quot;do-it-like-Elon&quot; approach.<p>Being mostly Europe-based but US-led, it turned into a massive and costly process (Americans don&#x27;t exactly dig EU&#x2F;UK workers rights - Spain was the biggest shock), stalling most productive activity for half a year. Internal trust and brand perception tanked. Since it began with ousting old execs, it quickly devolved into a blunt-force exercise with no internal knowledge, led by scared managers with percentage targets - many good people were cut. Managers hesitated to shield talent, given the &quot;culture reboot&quot; framing. I ended up personally cutting entire offices.<p>When the CEO&#x27;s broader strategy failed (for reasons beyond layoffs), high performers started eyeing the exit. Ironically, many first saw the layoffs positively - COVID overhires had left uneven team dynamics, and some dead weight was on high salaries. But when it became clear there was no coherent plan, people began leaving.<p>That triggered a chain reaction. Senior hiring pipelines dried up (reputation matters, esp. when your top-talent is on the way out and is loud about it), and panic set in. Eventually, it turned into survival mode. The CEO didn&#x27;t last long after that.

I remember hearing a take on layoffs that I think is pretty true: When you fire the bottom 10%, you lose another 10% who are from the top performers. The destruction of psychological safety for everyone at the company is irreparable, and you start to bleed your most productive talent, too.

Real talk here, and I&#x27;m sorry for being &quot;that guy&quot;<p>Why do tech workers get so wrapped around the axle of layoffs when most people are in a chronic state of tech job hopping? I know multiple people who have worked their entire career thus far without ever staying at a place for more than 3 or 4 years. Some no more than two. Tech job culture is practically a mono culture with &quot;hop jobs&quot; being a hallmark.<p>From an employers perspective it&#x27;s not laying off a bunch of family members (Southwest has an average tenure of 11.5 years), it&#x27;s laying off a bunch of people who were gonna dip in 6 months to a year anyway.<p>I know this is controversial take, but recognize that the tech industry is an outlier industry, with outlier amounts of money and outlier amounts of volatility.

I’ve been through several waves of corporate layoffs across many industries.<p>Some observations:<p>1 - It’s rarely one round.<p>2 - Companies tend to be the most thoughtful on the first round. Then it looks easy and the precision (and severance) of future cuts goes down. That’s why it’s smart to take a voluntary offer.<p>3 - Cuts that are broad based (“Every department cuts 15%”) are a sign the company doesn’t know what’s going on or prefers harmony over hard choices.<p>4 - Layoffs can be a crutch for firms that don’t do performance management. (Less work to do a layoff than have managers counsel bad performers out)<p>5 - Managers should never promise “No layoffs”

They used to be a once a decade &quot;save the company during a recession&quot; move. Now they seem to be a quarterly &quot;manage earnings per share&quot; move.

Former Nintendo CEO Iwata said something similar:<p>“If we reduce the number of employees for better short-term financial results, employee morale will decrease,” he said. “I sincerely doubt employees who fear that they may be laid off will be able to develop software titles that could impress people around the world.”

Having lived in the Boise (Idaho) area, I saw this happen over and over with Micron and HP. I knew dozens of people who had worked for one or the other (and sometimes both) and were then let go in those companies frequent mass layoffs. One person I knew had been laid off → rehired by Micron 3x in the span of 10-years.<p>I think the biggest issue is that it is far too often the _first_ tool that companies reach for, instead of the last. Oh, the market feels unstable? Better cut 5% &quot;just to be safe&quot;. There&#x27;s a national event that might impact our business? We&#x27;re going to drop 10% of our employees before we know anything.<p>While it certainly doesn&#x27;t apply to every company, I wonder what it might look like for executive leadership to make a pledge that it always comes from the top first: The leadership team agrees that it will take a (public) $X financial cut for N months in the event of a layoff-level event&#x2F;period to help guide the ship through the storm (with compensation on the other side). If it works, you have the loyalty&#x2F;respect of your employees. If it doesn&#x27;t, you do the layoffs anyway and those who remain know that you tried.

&gt; Companies must invest to train current workers to pick up new tasks — and invest to recruit replacement employees after the economy improves or the company’s financial troubles clear up.<p>It always baffled me how could a businessman fail to understand that loosing a reliably working employee (even of mediocre productivity) is like shooting your own leg - resulting in having to look for a replacement, train them and hope (certainty is value worth money as well) they are going to be as good. To me it seems it is always better to increase the wage to avoid losing people already working for you so you save yourself from the hassle.

The layoffs are not the issue. It is the decision makers who took the two decisions to both over-hire and then mass-fire shortly after. GM is a great example. The company was the largest and one of the most innovative car manufacturers in the world. It doesn&#x27;t stand a chance against BYD today and it is not by a lack of money (though maybe with a C-suite change).<p>So my opinion is, yes, the damage is done (or being done) but like GM, it&#x27;ll probably take 10-15 years until we are in the visible territory. Maybe a bit shorter because this is tech.

Does anyone here understand the &quot;The consistency of layoffs&quot; graphic?<p>The best guess I have is that the number of layoffs in each year is indicated by some sort of measure of the &quot;overall height&quot; of that slice of the image, so e.g. somewhere around 2020 the number is very large. But it&#x27;s not at all clear, and it&#x27;s especially not clear which if any of the various small-scale ups and downs we are supposed to take seriously if this is how it works.<p>It&#x27;s a good candidate for the worst statistical graphic I&#x27;ve seen this year. (The opening-door one earlier in the article is another.)

I&#x27;ve been through several layoffs, on both sides of the coin. The one consistent factor I&#x27;ve seen is managerial incompetence. Management will fail to provide any leadership or guidance to employees, then blame them for not being productive enough. They can&#x27;t see their own incompetence, so they blame hiring practices and keep ratcheting up interview difficulty. It&#x27;s like corporate America has evolved to protect the ego of the managerial class.

Don&#x27;t work to do what? If you think layoffs are about efficiency or saving the company, at least in tech you couldn&#x27;t be more wrong. Companies like Meta and Google have done multiple rounds of layoffs despite being insanely profitable and never taking a loss.<p>The real purpose of layoffs is to get people to do more work for the same or less money (by firing people and distributing their responsibilities to those who remain) and to suppress wages because nobody is asking for raises when they fear for their jobs.<p>Big Tech is really out of ways to grow their business. The only way they can keep growing profits is by cutting costs and the biggest cost is labor. It&#x27;s really that simple.

&quot;Kelleher wasn’t around to see them. He died in 2019.&quot;<p>That&#x27;s how it works. You have someone who is a great leader who started a company and treated their employees well, then the behemoth corporation waits for them to die to start gutting their values. It happened at my company. It&#x27;s basically just a lite version of a private equity takeover.

The other question is why C-suite does even need to tell the respective division management to lay off employees if the actual goal is cost reduction. Shouldn&#x27;t they impose a budget reduction target instead and trust them to allocate the savings between capex, opex and salary budget according to specific situation at hand?

Layoff are like hammers: When needed, in the hands of someone skilled, they work perfectly well. But such situations are sadly rare, compared to frustrated idiots grabbing hammers to get their quick &quot;Hulk Smash!&quot; dopamine hits.

&quot;After the early-2000s dotcom bust, Bain researchers found that stock prices for S&amp;P 500 companies that had no layoffs or laid off less than 3% of their workforce increased an average of 9% in the next year.&quot;<p>Do non-science journalists just not know about correlation vs causation? Does it really not occur to them that maybe the companies that didn&#x27;t do layoffs were healthier and that&#x27;s why they overperformed? Wouldn&#x27;t a 10 year old know that?

This whole article is selection bias:<p>&gt; There are findings that suggest layoffs lead to both short-term and long term issues, including: &gt; - A 2x as likely chance of bankruptcy compared to companies that haven’t done layoffs.<p>Obviously! Because a huge number of the companies undergoing layoffs are about to go under and are using layoffs as a last ditch survival effort.<p>The author may be right, but every fact and figure presented in this article fails to distinguish between healthy companies in healthy industries using layoffs as a lever to increase stock prices, and layoffs happening in industries&#x2F;companies that are collapsing.

Because layoffs are not done to make company great but to make sure shareholders and execs preserve their wealth. It&#x27;s never about company or people or technology - it&#x27;s always about money, power and wealth.

The article doesn&#x27;t actually explain <i>why</i>. It claims <i>that</i> they don&#x27;t work and supplies statistical evidence. But <i>why</i> don&#x27;t they work? I&#x27;ve only really seen speculation...

&gt; Nothing kills your company’s culture like layoffs,” Kelleher once said.<p>Or maybe the culture is already rotten before the layoff. I&#x27;ve seen so many companies in the bay area have become so bloated and bureaucratic. Directors and VPs have very senior engineers who exclusively go to meetings to &quot;align&quot;. Directors who report to directors who report to directors who report to VPs who report to VPs who report to VPs. PMs and engineers and managers are all gatekeepers who focus exclusively on ensuring that a project will not fail before it is even conceptualized. Distinguished engineers draw bigger boxes and pass them to Principal Engineers who draw smaller boxes and pass them to Senior Staff Engineers to draw even smaller boxes until a poor E5 or E4 engineers implement the whole thing. We have so many professional box drawers, expert meeting goers, seasoned report writers, fierce gatekeepers, anything but engineers who can implement systems end to end. As a result, a 6-month one-person project gets finished half assed by a team of 60 with 5 layers of report chain. A 3-week project requires 3 months of approval and another three months of PoC.<p>In such case, what can a company possibly do to at least survive a little longer, even in hope of improving its culture? I guess layoff is not a bad answer.

People are overthinking this.<p>It&#x27;s about power, and inculcating fear.<p>The CEO who &quot;cuts&quot; people at a company is like the Aztec priest who plunges the knife in atop the pyramid. The bloody spectacle is the point. It&#x27;s as much about everyone who&#x27;s watching as it is about the specific victim. It says, &quot;I can do this to you. I can inflict pain without reprisal. Behold my power.&quot;<p>That&#x27;s the whole point. Who is afraid of whom?<p>These people have the money. We depend on that money in order to live. They are reminding us of that fact. Now they demand obedience and harder work. 40 hours? Not enough. Elon sleeps at the office, why don&#x27;t you? You have to be &quot;super hardcore&quot;.<p>Partly, this is punishment for the challenge that was raised to CEO power from around 2016 to 2022. CEOs have been furious that they have felt fear of their workers. Now they want those workers to feel fear. In interviews, Andreesen has said almost exactly this, if not in quite so many words.<p>A similar theory is at the root of Fed policy, which hinges on the idea of a &quot;wage price spiral&quot;. In their view, inflation is caused not by the accumulation of capital within a price-insensitive upper quantile, or by the constriction of economic chokepoints by consolidation, but by workers&#x27; ability to bargain for higher wages. The solution to inflation, they essentially come out and say, is to put workers in their place.<p>There is a united front here. It is about who fears whom, the end. It is about your emotional state. In a literal sense, it is terrorism.<p>So in that sense, yes, layoffs work. Are you financially independent? No? Are you afraid? Yes? Then they&#x27;re working.

A couple weeks ago Google announced more layoffs in their HR and cloud divisions. They have $100 billion cash on hand, literally more than any other tech company, and much more in longer term investments.<p>In round numbers, that&#x27;s enough money to cover roughly 10,000 employees for 25 to 50 years (depending on how much you think the salary averages out to).<p>Regardless, the CFO said one of her priorities this year was more cost cutting.

A large airline like southwest is one thing but I’m always so surprised at how much over hiring we do in software companies.<p>Every problem&#x2F;opportunity seems to just need a few more headcount.<p>Lots of managers are actively trying to increase their headcount for self promotional reasons.<p>The whole thing seems really counterproductive.

Layoffs are a blunt instrument. I don’t know if al layoffs should be seen through the same lens. I see layoffs as signals from the companies. They see the future as unsure and so they want to reduce costs. That should be an immediate layoff for the ceo and his team

I can&#x27;t believe no one here is talking about how horrible these charts are.

IMO its both ends. Overhiring and layoffs are both indicators that managers need a strategy change. Unfortunately Wall Street boys don&#x27;t understand that employee productivity is directly correlated with stability. People don&#x27;t actively try to improve how they work if they expect to be switching a job or getting laid off. You need employees to build a sort of nest where they want to be most productive in. Both overhiring and laying off is extremely destructive to the company because you increase volatility in social dynamics.

The more fundamental question is: If mass layoffs are so necessary, then who’s responsible for the unnecessary mass hiring? In any mass layoff, fire that person first. Get to the root of the problem.

The most direct way that the U.S. government can control inflation is via layoffs of federal workers. Private companies are jumping on the bandwagon to get rid of hires made during more booming times. The fact is that higher interest rates have cooled down investments, which factors into the decisions made by companies to fire staff. Note though that companies which actually build stuff, like Apple, are adding jobs, instead.

I feel that companies just repeat discredited strategies because they are conventional wisdom, and no amount of explaining why layoffs don&#x27;t make sense will stop them from laying off.<p>It&#x27;s mostly about conformity. They heard that all the serious companies are laying off. So they&#x27;ve got to lay off too. Can&#x27;t be seen breaking convention.<p>With big tech, a few years back when over-hiring was the conventional wisdom they were for that too.

I find layoffs very context sensitive.<p>Atleast 2 of the fast growing companies I have been a part of have had serious layoffs that were very successful in cutting dead weight that had accumulated because of fast and loose hiring and poor middle management. So it can be done well.<p>By and large though they are a sign to jump from the soon to be sinking ship... so it&#x27;s very important to know what kind it is and act accordingly.

Unfortunate click bait title for such an important topic. The various metrics quoted of why companies without layoffs appear to do better do not address the idea of underlying causes such as companies doing better do need mass layoffs while companies not doing as well likely to reduce expenses with actions to include layoffs.

This article’s main point is that companies who do layoffs subsequently have poor financial performance relative to companies who don’t.<p>Well obviously.<p>It’s like saying surgery doesn’t work, because people who have recently undergone surgery are more likely to be experiencing health issues.

the key phrase of the article is &quot;Nothing kills your company&#x27;s culture like layoffs&quot;<p>I think that company culture stands for a framework that enables internal cooperation within the company. Now i am not sure if cooperation is currently valued over internal competition in the tech industry, but my impression is that the opposite is the case for most shops. So the question is: how did we get here? what are the factors that have led to the prevailing choice of priorities?<p>The article says its the stock market that values short term gains over anything else. Now maybe its really because running fast and breaking things is the only way we know how to do things in tech?

The premise that CEOs are stewards of companies is flawed. Their pay exploded over the period covered in this analysis. Hurting companies doesn&#x27;t matter to them.

I wish those departments tasked with busywork would be able to build skunkworks inside these dysfunctional molochs and be able to keep what they create. Fired into becoming a startup.. a man can dream.

The tech layoffs are the results of couple of years of exuberance that happened right after 2020. Companies are laying off and we are getting back to trendline. Nothing to see here.

They work to get quarterly profits up&#x2F;losses down, and that&#x27;s really all the matters to stockholders who want to decide to hodl or sail.

Nothing kills your culture like layoffs, but what if the culture has been overtaken by a whole lot of getting nothing done while collecting pay?

Layoffs are not about cost, they are about power. The economic result is just confirmation.<p>A large company in actual financial distress will sell off a division.

Most places I&#x27;ve seen could cut 50-80% of people and maintain or even grow output.<p>Will they cut the right 50-80%? Chances are close to nill.<p>And the article is right that layoffs curb morale. Then again, what hurts morale even more, especialy for your true performers, is <i>not</i> laying of the incompetent, the 0 net contribution carreer ladder climbers or the pfiepdom pyramid seat fillers and the bloated &#x27;management support&#x27; departments.

Hmm Goldman has been trimming 5% or so every year, and looks they have been doing fine so far.

what about layoffs that balance hiring elsewhere - laying off in NA hiring in India.

&quot;Companies who enact them as part of a broader change in strategy, Cascio says, fare better than those who enact them simply to cut costs.&quot;<p>Ah, the old strategic realignment PR BS. &quot;Its not cost cutting because our C levels are clowns and screwed up. Its a strategic realignment for AI investment &quot;. Lol. Didn&#x27;t Salesfarce and Fakebook both use that one?<p>When will AI replace upper management? It can&#x27;t do any worse.

This blog post is wrong, it also just doesn&#x27;t matter in practice. Nobody who is making this sort of decision is going to give this kind of obviously false argument a second thought. When you&#x27;re the one that actually has to make decisions that matter you&#x27;re going to be better at ignoring bullshit. The audience for this is just people wanting something to upvote that sounds good to them - driven by motivated reasoning.<p>&gt; “You could blame the workforce,” he says, “or the managers and leaders who are leading that workforce.”<p>They often do fire large swaths of middle managers - when Musk bought Twitter cutting out the middle of the hierarchy and the orgs that didn&#x27;t need to exist was a big part of it. It&#x27;s the same with DOGE. After the twitter layoffs they&#x27;ve shipped more features, faster, with better margins (and he fired the CEO). Meta and Coinbase over hired during the covid &#x27;zero interest rate phenomena&#x27; and had to fix it. Reducing hours instead is a joke - I find it hard to believe anyone being honest takes that seriously.

Seems like a clear case of correlation != causation.<p>Of course layoffs are correlated with bad company performance. I dont know if they help, but i would expect the pattern either way.

Americans perplex me (and I am one) we live in the most capitalist focused economy in the world and yet everyone acts that they are guaranteed a job. Sorry, but even in &quot;socialist countries&quot; in Europe &#x2F; rest of world this is not even the case. Then the country turns around and elects someone like trump - thinking collectively someone like that will improve this situation?<p>Especially the FAANG folks - they get pissed when getting fired from there like DUDE you are literally in the top 0.01 of earners on the planet get over yourself. Poor financial planning and overleveraging yourself are not excuses when you get laid off &#x2F; fired!!!<p>Just go read stuff on Blind for more of what I am talking about... i.e &quot;got laid off... nervous to retire with 7 million?!?&quot; like hey, some of us here will probably never see that kind of money in our entire lives

The top comments read like HN of a decade or two ago when armchair exporting was rampant.<p>Paraphrasing: &quot;I, an engineer, am smarter than an economist therefore the article is wrong.&quot;<p>Nothing of value to be found at the top of the comments.

The article lists down why layoffs don&#x27;t work, but companies keep doing it, so it must be working for them.<p>I hate layoffs (from both perspectives), but the article sounds like whining &quot;we shouldn&#x27;t break up&quot;.<p>The alternative of furlough only works if everyone else is doing it. If everyone else fires left right and center, the people being furloughed will still have low morale.<p>I think it&#x27;s better to avoid it in the first place, by not over hiring, as others have pointed out.

There is a theory about large complex systems which seems to be true in biology and maybe applies here. Intentional downsizing during times of stress works when it preferentially targets defective or dysfunctional components of the larger system. The system improves because the worst parts were removed.<p>Layoffs don&#x27;t help companies unless they can reliably remove the worst parts. At most large public companies, the cancerous bureaucracy protects itself and the parts removed are closer to median performers, or even above-median performers. The system gets smaller and <i>less</i> efficient.<p>Layoffs can be necessary to get the company to fit through a certain sized hole (in the form of cash flow constraints), but it won&#x27;t be better at what it does on the other side of the hole, it will just continue to exist.<p>Layoffs work when there is an <i>accurate</i> discriminating mechanism for who stays and goes. The best example of this (outside of private equity turn-arounds that are not widely known) is Twitter. Outside engineering talent was brought in as an oracle, immune to Twitter&#x27;s bureaucracy. It reliably discriminated between value-adding and not. As a result, the company became incredibly lean and even consistently profitable.