3 ms·

The case against layoffs: they often backfire

57 points by j_baker 17y ago

paul9290 17y 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 17y 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/economy/unemployment-lines.html http://www.nytimes.com/interactive/2009/11/06/business/econo...
  - _delirium 17y 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_user 17y 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.
- _delirium 17y 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 17y 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.
    - joe_the_user 17y ago
      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. Uh, suppose that when you originally fired the person, you simply didn't have the money to pay their salary? At that point, there is no thinking involved, just a decision that's forced on you. And like a lot of desperation cost-cutting, it might indeed cost you more money in the long run. But saving that long-run money won't help if you can't pay rent and buy food next month. 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. That is if a company is in a niche producing items which haven't simply become commodities.
sabat 17y 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 17y ago
  Those people shouldn't be laid off. They should be fired. There's a big difference.
  - sabat 17y 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.
    - sokoloff 17y ago
      Because the "identify your deadwood" request is often only used when planning layoffs, managers who don't want to appear uncooperative may warehouse deadwood in good times to have something to sacrifice in bad times. "Why does so-and-so still work here?" can sometimes truthfully be answered "So we'll have someone to lay off when the company calls for 10% cuts."
- aminuit 17y ago
Tiktaalik 17y 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 17y ago
  SAP was founded by former IBM employees who weren't allowed to do the project inside of IBM.
- sabat 17y 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 17y 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 17y 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 17y 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 17y ago
On one page: http://www.newsweek.com/id/233131/output/print http://www.newsweek.com/id/233131/output/print

57 points by j_baker 17y 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 17y 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/economy/unemployment-lines.html http://www.nytimes.com/interactive/2009/11/06/business/econo...
- _delirium 17y 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_user 17y 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.

_delirium 17y 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 17y 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.
  - joe_the_user 17y ago
    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. Uh, suppose that when you originally fired the person, you simply didn't have the money to pay their salary? At that point, there is no thinking involved, just a decision that's forced on you. And like a lot of desperation cost-cutting, it might indeed cost you more money in the long run. But saving that long-run money won't help if you can't pay rent and buy food next month. 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. That is if a company is in a niche producing items which haven't simply become commodities.

sabat 17y 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 17y ago
Those people shouldn't be laid off. They should be fired. There's a big difference.
- sabat 17y 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.
  - sokoloff 17y ago
    Because the "identify your deadwood" request is often only used when planning layoffs, managers who don't want to appear uncooperative may warehouse deadwood in good times to have something to sacrifice in bad times. "Why does so-and-so still work here?" can sometimes truthfully be answered "So we'll have someone to lay off when the company calls for 10% cuts."
aminuit 17y ago

Tiktaalik 17y 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 17y ago
SAP was founded by former IBM employees who weren't allowed to do the project inside of IBM.
sabat 17y 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 17y 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 17y 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 17y 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 17y ago

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