The case against layoffs: they often backfire
newsweek.com
newsweek.com
I agree with everything in this article. It just really nails it.
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.
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.
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.
http://www.nytimes.com/interactive/2009/11/06/business/econo...
(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.)
The simpler explanation is that companies in the worst straits are likely to make the deepest cuts when performing layoffs.
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.
(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.)
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.
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.
In other words, layoffs are often an indicator of a failing company, so it's no wonder that layoffs do not lead to an increasing stock price.
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.
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.
"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."
I think the only other time that layoffs are a good idea is if you're closing an entire business unit/department to retreat from a market and focus on your strengths.
Or even better, never hired in the first place.
Frequent layoffs are evidence of incompetent management, as they keep hiring people they don't actually need and then must let them go again. Better to just go slow on hiring, adding people only when absolutely necessary. Then layoffs are unnecessary.