Why Do Profitable Companies Layoff Employees?

As the fears of recession impend, the corporate sector of the globe is already shivering to its spine. The glooming appearance of the world economy in 2023 has already started pushing several tech giants to lay off their employees. The string of tech companies that are already in the grasp of the lay-off wave includes Microsoft, Twitter, Meta, Google, etc. A point worth noting is all layoffs do not occur due to the fault of employees. Often profitable companies downsize their manpower permanently due to various reasons.

Thus, in this article, you will get a thorough understanding of “Why do profitable companies lay off employees?

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Possible reasons for companies to do layoffs

There are innumerable reasons why companies fire off their employees. Even though normally, a company fires its employees if they do not function properly (up to the mark). But it is not always the fault of an employee when the companies execute the firing of workers at a mass level. Following are some of the key reasons for companies’ layoffs-

  • Cost Cutting– The foremost reason for layoffs in the recession period is cost reduction. Situation of cost-cutting arises when the company does not make enough profits to cover all of its expenses or to pay off its debt. However, there are chances that the company may fall into a deeper financial crisis whenever it decides to lay off its employees mainly through cost-cutting. Because they need to pay the lawsuit costs and severance packages. A few recent examples are Google and Verily. Google made a series of cost-cutting moves after canceling the Pixel book laptop. It is looking for permanent closing its cloud gaming service known as “Stadia.” Verily (a biotech unit of Alphabet Company) also reduced its staff by up to 15%. 
  • Post Covid Reality & Staff Redundancies– Another important reason for laying off employees is to eliminate certain positions in the company. It takes place due to modification of roles, outsourcing, or overstaffing. To make operations more efficient, a company usually eliminates its redundant positions. During the Covid pandemic, the company hired a fat bunch of people. They hired more workers than they thought to maintain a sustained level of performance. After the pandemic, everything is normalizing, due to why those companies are firing employees to cut off the redundancies.
  • Recession Fears– Amidst the global tension, IT firms are reanalyzing their spending to brace up for the upcoming potential recession. Also, the World Bank and IMF (International Monetary Fund) have given cautions regarding the slowdown of economic growth. A recession leads to lower consumer spending. So, this automatically leads to poor advertising revenues. If people do not have enough money to spend then there is no use in marketing or advertising the products that they couldn’t afford.
  • Weak Consumer Demand– You must have heard that ever since the pandemic, the world is facing severe challenges. Out of these, the high inflation and weak demands of consumers are soaring high in every major economy of the world. For example- the US, UK, Japan, EU, India, etc. Economists got a slight ray of hope when the global economy began to revive after Covid. But unfortunately, the Ukraine-Russia war has worsened the situation by deranging significant trade routes.
  • Rapid Rate Hike– Due to the rise of consumer prices consistently, the central banks are left with no choice other than to tighten the monetary policy. After a long suspension, the central banks began to raise the rate of interest. The first one to play this move was the US Federal Reserve. It raises the interest rates from sub-zero levels and does not intend to stop for the time being. Following the tradition, Central banks of other economies are also hiking the interest rates rapidly to tame the rising inflation.  

What happens when someone is laid off?

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Before laying off the employees the companies need to follow a series of protocols-

  • Notification Meeting– Preparing for the notification meeting in a respectful manner that includes the employees, their managers, and an HR representative. The company must explain thoroughly the reasons for terminating the employees.
  • Providing necessary resources to the employees– While terminating the employment of its workforce, the company must provide all the necessary resources to the employees like severance pay, healthcare coverage, and outplacement resources.
  • Address the tough questions and emotional reactions of the terminated employee– This is the most essential aspect of the laying-off protocol. Being terminated from a despite of giving full dedication is a heart-rending and traumatic feeling. The employers or the company owners must anticipate the emotionally distressed situation of the employee.

Layoffs in 2023

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The major employment terminations are occurring in most successful tech companies. Some of the big names among many who have laid off include the following:- 

  • Microsoft– At the beginning of the year 2023, Microsoft eliminated around 10,000 workers i.e., 4.5% of its 220.000 personnel global workforce. The CEO of the company, Satya Nadella informed that the tech giant worth $1.78 trillion was severely affected by the global economic crisis. The company is willing to take a billion-dollar charge of severance costs, healthcare coverage, and stock vesting for the upcoming six months.
  • Google– Google is planning to lay off 6% of its workforce i.e., 12,000 employees. CEO Sundar Pichai took the whole responsibility for this layoff event and deeply apologized for it. Even though the company stated that the key reasons were to sharpen the focus of the company, re-engineer the cost based and direct the capital to their highest priorities. But the company faced huge criticism for mass firing from netizens. However, the company will pay severance for 16 weeks, health benefits for 6 months, remaining vacations, and bonuses based on local laws and practices.
  • Amazon– In the initial days of this year, Amazon announced the cutting of 18,000 jobs. It included the mass firings of November 2022. Even though the job cuts account for less than 1% of its global workforce it accounts for nearly 6% of jobs in the corporate sector. According to the reports of the New York Times and the Wall Street Journey, Amazon is planning to eliminate 10,000 posts.
  • Spotify– The Swedish tech company “Spotify” is going to cut 6% of its global workforce. It includes around 400 employees as a part of the reshuffling of the management. The key reason is the higher operating costs as compared to the revenue earned in the last year. 
  • Salesforce– Salesforce is also planning to lay off 10% of its employees i.e. 8000 personnel from their workforce.
  • Meta– Facebook’s upstream Meta laid off 13% of its staff i.e., 11,000 employees in November last year.

Final Thoughts

Even though it is difficult to tell the reasons why companies are downsizing their staff. Whether it is a part of the normal business cycle and they going through severe fundamental challenges in their business. But with the above discussion, we can see that the world is facing an acute economic crisis. Due to this companies are left with no choice but to lay off their workers. However, this is not the end. Because instead of terminating the employees, companies seek alternatives. These are freezing additional hiring, offering more unpaid time off, considering virtual offices to facilitate work from remote areas, etc. 

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Published By: Supti Nandi
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