It has already been a tough year for US tech companies and the estimated 95,000 workers who have been laid off in the last month and a half. The hiring boom that came along with low interest rates, an uptick in online shopping and generous ad spending lost steam as the pandemic eased, advertisers pulled back, and the Fed cranked up interest rates.
Sometimes Wall Street applauds these types of cost-cutting measures and sometimes stock prices suffer. What’s much clearer is that, over the long term, layoffs do more harm than good.
“Layoffs are so embedded in business as a short-term solution for lowering costs that managers ignore the fact that they create more problems than they solve,” the Harvard Business Review reported in 2018. HBR compiled a mountain of evidence to support its hypothesis, detailing the damage that layoffs do to long-term productivity, employee morale, and corporate profits, along with alarming statistics about their toll on the financial security and physical health of laid-off employees.
HBR pointed to a study of employees who lost their jobs during the 1982 recession. It showed that 20 years after being laid off these workers were still earning 20% less than peers who had kept their jobs. Another study showed that “laid off employees have an 83% higher chance of developing a new health condition in the year after their termination and are six times more likely to commit a violent act.”
Of course, some companies handle workforce reductions much more gracefully than others, which should be reflected in their ESG scores.
Apple appears to have generated some goodwill by avoiding layoffs, earning headlines like this one from Bloomberg: “Apple Avoids Job Cuts Because It Didn’t Overhire Like Google and Amazon.” In the publishing business this type of positive coverage is called “earned media,” and it is usually more effective at building brand loyalty than paid media (advertising).
On the other hand, some tech companies are demonstrating how downsizing creates reputational risk.
The online mortgage company Better.com handled its layoffs so callously (by email) last year that the company’s CEO was suspended, and several executives were fired, according to TechCrunch.
Last November, Twitter sent an unsigned memo announcing sweeping layoffs and office closures, reportedly locking some employees out of their email accounts before notifying them that they were being terminated. Performance bonuses were not paid and employees were required to sign nondisclosure agreements to receive one month’s salary as severance payments, according to FORTUNE.
Amazon announced in January that it was laying off 18,000 workers. Although the company did not release details about its severance packages, it reportedly offered staffers one week of pay for every six months of tenure and three months of healthcare coverage in exchange for leaving the company. That works out to roughly nine months of pay for a 20-year Amazon veteran.
Other tech giants appear to have handled layoffs a bit more delicately. Google and Facebook announced severance packages starting at 16 weeks of salary plus two weeks for every additional year at the company. So, someone with 20 years at the company would receive roughly a year’s worth of pay. Both companies pledged to pay 2022 bonuses, compensate workers for remaining PTO and vacation time, and extend healthcare coverage for six months.
These severance packages offered by Google and Facebook might seem generous by American standards. But it’s worth noting that the European Union and other major countries around the world have much stricter worker protection policies in place (which Twitter is discovering the hard way). Employers are required to justify layoffs or find alternative cost-cutting measures.
These policies recognize a fundamental truth that seems to have escaped the captains of industry in the US. It is unethical to penalize workers for economic factors that are beyond their control.
“Employees have lost the belief in a just world where good work naturally brings safety,” wrote Fast Company in December. “That’s what makes layoffs traumatic.”
Let’s not normalize layoffs. They should be a last resort—not standard operating procedure.