What explains the recent tech layoffs and why should we worry?

In recent months, tech companies have laid off thousands of workers. It is estimated that in 2022 alone, more than 120,000 people have been laid off from their jobs at some of the biggest companies in tech—Meta, Amazon, Netflix, and soon Google—as well as other companies. smaller companies as well as startups. Cut announcements keep coming.

What explains why so many companies are laying off large numbers of their workforce? According to Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business, the answer is simple: mimicry behavior.

Here, Stanford News talks to Pfeffer about how workforce cuts are happening around the world. tech industry mostly the result of “social contagion“: Behavior that goes viral when companies almost unconsciously copy what others are doing. When some companies lay off employees, others are likely to follow. The most serious problem , it’s murder: For example, research has shown that layoffs can increase suicide rates by two or more times.

Furthermore, dismissal has no effect on improvement company performance, Pfeffer adds. Academic studies have shown that time and time again, cutting the workplace doesn’t do much to cut costs. Severance packages cost money, layoffs increase unemployment insurance rates, and cuts reduce morale and productivity as the rest of employees wonder, “Can I get fired?”

For more than four decades, Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior, has studied hiring and firing practices in companies around the world. He’s met with business leaders at some of the country’s top companies and their employees to learn what makes—and doesn’t—effective, evidence-based management. His recent book, “Dead for pay: Modern management harms employees’ health and morale Corporate Performance–And what we can do about it,” (Harper Business, 2018) examines how management practices, including layoffs, are damaging and in some cases , killing workers.

This interview has been edited for length and clarity.

Why are so many tech companies laying off employees right now?

Layoffs in the tech industry are essentially an example of social contagion in which companies mimic what others are doing. If you look up why companies are laying off employees, it’s because everyone else is doing it. The firing of an employee is the result of imitation and is not particularly evidence-based.

I’ve had people tell me they know layoffs are bad for the health of the company, let alone the health of their employees, and don’t achieve much, but everyone is doing layoffs and boards their admin is asking why they are doing this. Nor do I lay off employees.

Do you think layoffs in the tech sector are a sign that the tech bubble is bursting or that the company is preparing for a recession?

Could there be a technology recession? Right. Is there a bubble in valuation? Sure. Does the meta hire too much? Maybe. But is that why they’re laying people off? Of course not. Meta has a lot of money. These companies all make money. They are doing it because other companies are doing it.

What are some myths or misunderstandings about layoffs?

Layoffs don’t usually cut costs, as there are many cases where laid-off employees are rehired as contractors, with companies paying the contracting company. Layoffs usually don’t increase stock price, in part because layoffs can signal that a company is struggling. Layoffs don’t increase productivity. Laying off employees that don’t solve the underlying problem is often an ineffective strategy, losing market share or too little revenue. Laying off is basically a bad decision.

Companies sometimes fire people they’ve just hired—often with a paid recruitment bonus. When the economy turns around in the next 12, 14 or 18 months, they’ll be back in the market and competing with similar companies for talent. Essentially, they are buying labor power at a high price and selling it low. Not the best decision.

People don’t pay attention to the evidence against firing. The evidence is quite rich, some of which are considered in the book I wrote on Human resources management, The People Equation: Build Profits By Putting People First. If companies pay attention to the evidence, they can get some competitive leverage because they will actually make decisions based on science.

You wrote about the negative health effects of layoffs. Can you talk about some research on this topic by you and others?

Fires murder, literally. They kill people in many ways. Layoffs increase suicide rates by two and a half times. The same is true outside the US, even in countries with better social safety nets than the US, like New Zealand.

Layoffs increase mortality by 15–20% over the next 20 years.

There are also health and attitude consequences for managers who are firing people as well as for employees who stay. It’s no surprise that layoffs increase everyone’s stress. Stress, like many attitudes and emotions, is contagious. Depression is contagious, and layoffs increase stress and depression, which is bad for health.

Unhealthy stress leads to many behaviors such as smoking and drinking more alcohol, taking drugs and overeating. Stress is also linked to addiction, and firing of course increases stress.

What was your reaction to some recent headlines about mass layoffs, like Meta laying off 11,000 employees?

IM worry. Most of my recent research has focused on the impact of the workplace on human health and how harmful economic insecurity is to people. This is a consequence of the COVID pandemic and the social isolation it has caused, which is also not good for everyone.

We should give higher priority to human life.

If layoffs are contagious in one industry, can it spread to other industries, leading to other job cuts?

Of course, it was there. Layoffs are contagious across industries and within industries. The logic behind this, which doesn’t sound very logical because it’s not, is that people say, “Everybody else is doing it, why shouldn’t we?”

Retailers are laying off employees first, even if eventual demand remains uncertain. Clearly, many organizations would trade a worse customer experience for reduced staffing costs, not taking into account the well-proven finding that acquiring new customers is often far more costly than keeping them. Existing customers are satisfied.

Are there any examples of contagious layoffs in the past like the one we’re seeing today, and what are the lessons to be learned?

After the terrorist attacks of September 11, 2001, every airline except Southwest laid off workers. By the end of that year, Southwest, which had not made any layoffs, had gained market share. AG Lafley, former CEO of Procter and Gamble, says the best time to get ahead of the competition is when they pull back – when they cut service, when they cut back on product innovation because They fired employees. James Goodnight, CEO of software company SAS Institute, has never done it either lay off—he actually hired during the last two recessions because he says it’s the best time to attract talent.

Any advice for workers who may have been laid off?

My advice to a laid-off worker is that when they land a job in a company where they say people are their most important asset, they actually check to make sure the company behave consistently with that espoused value in times of trouble.

If layoffs don’t work, what is a better solution for companies that want to minimize the problems they believe layoffs will solve?

One thing Lincoln Electric, the famous manufacturer of arc welding equipment, did very well is that instead of laying off 10% of the workforce, they took a 10% pay cut for everyone except the manager. high level, get more cuts. So instead of inflicting 100% pain on 10% of people, they will inflict 10% pain on 100% of people.

Companies can use economic rigor as an opportunity, as Goodnight at the SAS Institute did during the 2008 recession and the 2000 tech recession. He took advantage of the recession to upskilling the workforce as competitors eliminate jobs, thereby putting talent out on the street. He actually hired during the recession of 2000 and saw it as an opportunity to gain a foothold in the competition and gain market share when people were cutting jobs and stopping innovation. And it is [an opportunity]. Social media is not going away. Artificial intelligence, statistical software, and web services industries—none of which is going away.