The misconceptions of layoffs: what leaders can learn

From the “Great Resignation” to the “Great Reshuffle,” to what some are calling the “Great Layoffs”, the past few years have seen their share of economic twists and turns. Like falling dominos, it seems that one trend only causes more changes to occur.

Many are taking precautions to avoid potential loss as a possible recession looms. And despite the rapid pandemic-era growth, many tech industries have caught media attention for their decisions to significantly cut their workforces. Amazon layoffs, Microsoft layoffs, and Meta layoffs have amounted to over 70,000 cuts in the past year. And according to the BBC, Yahoo plans to follow suit and slash more than 20% by the end of 2023.

But are these job cuts really necessary? And are widespread layoffs coming for other types of businesses and industries as well?

In this article, we’ll look deeper into some of the truths behind layoffs, and their possible effects. Then, we’ll go into the leading causes behind layoffs in 2023, advice for employers and employees, and possible alternative solutions.

The truth about layoffs

With inflation, rising production costs, and interest rates, it’s no surprise that many businesses are looking for ways to cut costs and stay afloat. Although layoffs might provide companies with an immediate solution to some of their expense-related problems, they can prove to be counterproductive in the long run and might not be the wisest strategic move.

Layoffs can have a particularly adverse effect on workplace morale, employee psychological safety, and productivity levels. They often trigger widespread feelings of distrust and many employees end up leaving the company out of concern for job security.

Layoff misconceptions

The biggest misconception that employers tend to have is that layoffs can reduce expenses and will protect them from future economic downturns. With the recent increase in layoffs in leading tech companies, it might feel intuitively correct for smaller tech businesses to do the same in order to prepare for impending problems. 

However, employers should remember that the reasons behind these job cuts were not completely clear and justifiable. Some say that they were due to previous overhiring, and others say that it is a measure to counteract raising interest rates. 

One thing is clear, many of these tech giants have the resources to maintain their staff. The reason behind these job cuts might very well be due to imitative decision-making practices. When one business decides to cut jobs, others might follow in their footsteps out of fear.

Although this copycat mentality might initially feel more secure, it often does not yield better results. In fact, layoffs often backfire for employers and can stunt any progress and growth from occurring.

But what kinds of effects do layoffs have for companies exactly?

Effects of layoffs

As previously mentioned, layoffs decrease motivation levels, and productivity levels, and can have a disastrous impact on your company culture. But those aren’t the only effects to be concerned about. 

There is also a correlation between layoffs and heightened levels of suicide, stress, depression, and other health problems among workers. The National Bureau of Economic Research’s data suggests that job displacement leads to a 15-20% increase in death rates during the following years.

Here are some additional consequences that can occur as a result of job cuts:

• Increased absenteeism
• Increased severance and hiring costs
• Widespread discontentment
• Heightened turnover rates
• Increased unconscious bias and adverse impact
• Reduced organizational commitment
• Bad employer branding
• Inconsistency and lack of stability

Layoffs in 2023

We are more connected than ever before so when there are layoffs, word gets around fast. Not to mention, it has become commonplace for employees to publicly announce that they have been laid off on LinkedIn or other social media platforms. Employers can almost guarantee that layoffs will circulate externally in one way or another.

As a result, layoffs can have an even more detrimental impact on workplace culture and employer branding. And a poor reputation can make it hard for employers to attract top talent and might even make them less appealing to customers. 

Additionally, much more widespread public attention is being given to company missteps and poor communication practices. This is especially the case when companies behave hypocritically and act contrary to their values when times get tough. For example, many tech companies have been cutting DEI teams significantly. Twitter recently cut their diversity, equity, and inclusion team from 30 down to just 2 employees. This comes on the heels of previous actions that have led to widespread resignations among employees, as well as mistrust of the company’s leadership.

What leaders can learn

Rather than take a jump on the bandwagon approach to layoffs, leaders should first consider the possible consequences and first evaluate whether or not they are 100% necessary. Layoffs should be thought of as a last resort, rather than as a way to save money. Often, they end up costing companies more in the long run.

In certain situations, it might be necessary to make structural changes to better match the company’s objectives. For example, let’s say there is a need to change in the company’s product pipeline and there are certain positions that are no longer needed. 

If there is no way around layoffs and they are 100% necessary for the company to move forward, leaders should think about how they handle layoffs and make sure that communications are empathetic and supportive. Here are some key guidelines for leaders to stick to while communicating layoffs with their employees:

Practice active listening

Receiving the news of a layoff can be a traumatic experience for many. Employees might feel confused, overwhelmed, and unsure of what to do. Be sure to listen to these concerns while having these difficult conversations.

Provide transparency and reassurance

Employees should be made aware that the layoff did not occur due to poor performance. Make sure that you communicate the company’s strategic goals and reasons why jobs were cut. 

Show more than just financial support

While meeting with employees, you should inform them of company procedures and what kinds of provisions that they will receive. You should include a written termination letter and go over details about severance pay, and/or COBRA insurance while meeting with employees. Additionally, look for ways to go beyond extra pay. Consider offering coaching sessions and resume revisions to help employees find new positions quickly.

Although it’s not always clear how many jobs should be cut, leaders should do everything possible to avoid having more than one round of layoffs. If structural changes have to occur and there’s no way to avoid layoffs from taking place, do it swiftly and all at once. Be sure to communicate with existing staff that the changes were necessary and a one-time event. Additionally, provide managers with extra training so that they can reassure remaining employees, and alleviate their fears of losing their positions.

Advice to workers

Layoffs can raise insecurities and take a toll on even the most skilled and talented professionals. If you are an employee who has recently received notice that your position was cut, remember the following:

• Mental health comes first- As you deal with the layoff and navigate your future professional path, remember to be kind to yourself and take care of your mental and physical well-being. Layoffs can happen to anyone; staying grounded and calm while moving forward is most important.
• Careful planning will help- Even if you can’t control your work situation, you can control your expenses. Having a detailed financial plan will help you to budget for monthly bills and feel less worried.
• Reskilling might be the right choice- If your position was cut because of widespread changes taking place in your field of work, look at ways that your existing skill sets and experiences can be transferred to a more in-demand position.
• You can take what you’ve learned elsewhere- Even if the situation did not work out long-term, you gained experience and new skills, which can serve you in future roles. Remember that there are other opportunities out there and that you can rest assured that your layoff was not tied to poor performance or a bad work ethic.

Alternatives

It can’t be emphasized enough that layoffs should only take place if they are absolutely necessary. There are several alternative options for employers so that they can avoid layoffs altogether, including:

• Re-skilling and training programs to help employees learn the skills necessary to fit your company’s goals.
• Hiring freezes as a preventative measure.
• Horizontal promotions to fill more in-demand positions.
• Make wage cuts across the board.
• Offer voluntary leaves of absence.
• Furlough employees rather than terminate positions.
• Cut salaries for executives.

Lastly, rather than resorting to layoffs, employers can increase productivity and cut down on expenses with HR software. By making your processes more efficient with Factorial, you can save time spent on administrative tasks and invest more in your employees.