When scrolling through the news these days, layoffs seem to be popping up left and right. It's like a game of ‘who's firing who’ with JPMorgan Chase letting go of 500 employees, Disney slashing thousands of staff, and Meta giving the boot to a whopping 10,000 people. But they're not the only ones; Redfin (13%), Lyft (13%), Stripe (14%), Snap (20%), Opendoor (18%), Twitter (50%), and countless other companies are also joining the layoff party.
It's gotten so intense that tech and HR entrepreneurs have gone as far as creating trackers like TrueUp Tech and Layoffs.fyi solely dedicated to keeping tabs on job cuts in the tech industry. It's like layoffs have become the latest hot trend, and everyone wants a piece of the action!
So, why are companies all of a sudden lining up their employees like dominoes and giving them the boot? Well, it seems like they're catching a case of the copycat bug! At least that's what Jeffrey Pfeffer, the professor of organisational behaviour at the Stanford Graduate School of Business, thinks. It's like one company started the layoff trend, and the rest just couldn’t resist joining in on the chaos. Who knew job cuts could be so contagious?
How social contagion has been driving workforce reductions?
Stanford News recently interviewed Pfeffer to discuss the prevalent workforce reductions occurring across industries, attributing them primarily to a phenomenon known as social contagion.
The professor of organisational behaviour explained that behaviours spread rapidly within networks as companies mindlessly imitate one another. When a few firms initiate staff layoffs, others tend to follow suit. However, this behaviour has severe consequences, as research indicates that layoffs significantly elevate the risk of suicide, more than doubling the odds and posing a grave concern.
Furthermore, according to Pfeffer, layoffs are ineffective when it comes to enhancing company performance. According to him, numerous academic studies have consistently demonstrated that workforce reductions do not significantly reduce costs. In fact, implementing layoffs incurs expenses through severance packages, while also leading to higher rates of unemployment insurance.
Additionally, such cuts have adverse effects on workplace morale and productivity, as remaining employees become apprehensive about their own job security, causing them to question, "Am I at risk of being terminated as well?"
Debunking layoff myths
According to the organisational behaviour expert:
- Layoffs frequently fail to achieve cost reductions, as many instances exist where laid-off employees are rehired as contractors, with the company paying the contracting firm.
- Downsizing does not typically lead to increased stock prices, as they can indicate underlying difficulties within a company.
- Job cuts do not result in improved productivity.
Ultimately, layoffs do not address the core issues that often lie beneath, such as ineffective strategies, loss of market share, or insufficient revenue. In essence, the expert concluded that layoffs are essentially a poor decision.
Why layoffs of recently recruited employees can backfire?
Jeffrey Pfeffer believes that in some cases, companies make the counterproductive decision to lay off employees whom they had recently recruited, often after providing recruitment bonuses. However, when the economy rebounds within the next 12, 14, or 18 months, these companies will find themselves competing with the same organisations to rehire top talent. Essentially, they are purchasing labour at a high cost and selling it at a lower value, which is not a wise move.
Overlooking substantial evidence that argues against layoffs is a common mistake made by many employers. This evidence, extensively examined in my book on human resource management titled "The Human Equation," sheds light on the harmful consequences associated with workforce reductions. By heeding this evidence, companies have the potential to gain a competitive edge by basing their decisions on scientific knowledge, ultimately enhancing their overall performance.
Are layoffs contagious?
Layoffs have indeed spread across industries, driven by a rather illogical reasoning: the mentality of ‘if everyone else is doing it, why aren't we?’ This line of thinking lacks sensibility said Pfeffer and added that such decision is not based on sound logic. Retailers, for instance, are resorting to preemptive staff layoffs despite the uncertain final demand.
It appears that many organisations are willing to sacrifice a satisfactory customer experience in favour of cutting staffing costs. Unfortunately, they overlook the well-established fact that attracting new customers is typically much more expensive than maintaining the satisfaction of existing ones.