Why do companies lay people off and who gets the axe when they do? Knowing that can help determine the better or most qualified applicant.
Companies lay off employees for any number of reasons, but most often it has to do with the cost of employees. Company officials may word it different ways, but layoffs boil down employees costing more than the business is willing to or even able to pay.
We’ll look at the warning signs of imminent layoffs and then what criteria companies use to pick the candidates for layoff.
US News in a February 24, 2023, an article cited a study by LinkedIn and Business Insider of situations that augur layoffs for a company.
One sign, employees who leave don’t get replaced. Using attrition to cut wages is the easiest and least upsetting for a business and its employees. But if attrition doesn’t do the trick, layoffs could follow.
Second, hiring and spending freezes aim to reduce costs through “belt tightening.” That doesn’t necessarily mean layoffs are coming but merits paying attention to. It might only mean that company officials have looked at the books and just decided they are spending too much for salaries.
Third, and more likely to mean imminent layoffs, budgets shrink and new projects get cancelled. More “belt tightening” could be afoot, with belt tightening requiring layoffs.
Fourth, a merger or acquisition is coming. That often means “surplus” people. Mergers and acquisitions mean the merged companies can have redundant employees, two or more people doing the same job. How they decide who goes in a minute.
Fifth, company executives leave. They find out first about cutbacks in the works, what regular employees may not be privy to.
Sixth, the company already has been laying off employees. If those aren’t enough to bring the company back into the black, more layoffs follow.
Seventh, a company restructures. That might have nothing to do with company health but could entail rethinking job descriptions and pay scales. Not surprisingly, one of the first things in a restructure is determining if they can do without some of the people being restructured .
Eighth, research and development gets cut. Not a promising sign for any business.
Ninth, for some time the company hasn’t been doing as well as it had been revenue-wise. Shoring up profits often means layoffs.
Tenth, to save money, the company farms our work to contractors or other companies. They might also hire consultants to figure out what has been adversely affecting the company’s bottom line. Salaries often come in at the top of the adverse effects list.
Eleventh, a WARN Act notice, something required of every company with more than 100 employees, goes out coming 60 days before actual layoffs begin, a sign layoffs likely are on the horizon.
Twelfth, technological advances, such as increased automation and use of artificial intelligence could mean layoffs. That should come as no surprise to employees if they see new software and machinery installed to do the work they had been doing.
Thirteenth, a company might decide to move overseas or to Mexico, to a country with lower wages.
Almost all these situations are news to be reported in business journals.
Once layoffs begin, assuming the company plans to stay in business and in the country, which employees go first?
The year of the worker, 2021, two years past, and the perks and benefits companies enticed workers with have been thought better of and disappeared with the new year 2022. Massive layoffs in the tech industry starting or continuing with Netflix, Google, Microsoft, Meta, Zoom, and Amazon are one sign companies are rethinking what they spent to attract employees. Layoff.fyi reports that as of July 20, for example, 201,860 tech employees have lost their jobs. How did those companies and others who began laying off decide who had to go?
Recent hires come at the top of the list, reported businessinsider.com about an analysis by Revelio Labs. Most layoffs affected employees who had worked for the companies an average of 1.2 years. In the Year of the Employee, amid the Great Resignation, in order to attract top employees, companies had to offer so much in wages and benefits that it created an unacceptable pay gap between people recently hired and longtime employees. The pay gap of new hires over existing employees, the analysis found, amounted to seven percent. In some tech companies, the gap could be as large as 20 percent. When the economy and the competition for employees settled down, those recent hires with outsized paychecks were first to go.
Even if they hadn’t been part of that hiring frenzy, other high earners could find themselves with pink slips. Businessinsider.com reported that the average laid-off engineer for example made $86,000 a year while the going rate for engineers was $75,000. Other administrative, sales, and marketing people earning $10,000 more than their counterparts also got shown the door.
Millennials in general found themselves disproportionately at the top of the layoff list. They had been most likely to find new, higher-paying companies to work for during the Great Resignation. They decided that the pay they had been receiving since the 2008 recession made it not worth staying where they were, and they signed on to higher-paying jobs paying more than the existing employees received. Those who stayed with the current employees such as Gen X and baby boomer employees got spared in the layoffs because they had been loyal, as did Gen Z workers who probably didn’t earn enough to attract cost-cutting attention.
Who definitely wasn’t needed when hiring slowed down? Recruiters. Layoffs came, and they went. They couldn’t look busy if the company they worked for didn’t recruit employees.
Interestingly enough, software engineers and coders also found themselves to be targets. They suffered in the most recent job-cutting spree probably because their salaries rose more than other employees during the Great Resignation even if they hadn’t changed companies. And coders, who once bordered on divinity, had been the last laid off, but in this case they suffered the same fate as software engineers.
Who has been safe? Accountants and project managers. They have been spared the axe suffered by some other occupations.
Knowing who is most likely to be laid off might be a determining factor in deciding which qualified applicant to choose. Long-time employees with average salaries likely will be spared in layoffs if the company will remain in business.
