Mar 3, 2023 - Economy

How layoffs can have negative long-term consequences for companies

Data: Layoffs.fyi; Chart: Axios Visuals

Companies say they need to do layoffs, but mass firings can often have a long-lasting negative impact on their business, according to research and workplace experts.

Driving the news: In the first two months of the year, 435 tech companies laid off about 121,000 workers, according to data from Layoffs.fyi.

  • Though the number of companies doing layoffs fell in February, it's still the third-highest month for tech layoffs since 2020.
  • The number of people laid off this year is already more than 75% of the way to 2022's total, noted Layoffs.fyi founder Roger Lee in an email.

The big picture: Post-layoffs, the employees who didn't lose their jobs often see a decline in performance and feel less engaged at work, especially in research-intensive industries, one study found.

  • Layoffs also can lead to more turnover, as folks — typically the top performers — jump from a sinking ship. Lately, there's been talk of people "rage-applying" for other jobs.
  • The atmosphere of anxiety fostered by firings can lead to a souring in the culture, too. "Survivors may react to the layoff by defending their turf or hogging airtime to make themselves seem more knowledgeable," writes Sarah Green Carmichael for Bloomberg.

Yes, but: Sometimes layoffs are necessary, especially if a company can't make payroll or sees less growth ahead.

But highly profitable tech companies might want to think twice before cuts, especially in a tight labor market, says Kevin Delaney, CEO of Charter, a media and research firm that works with companies on talent strategy.

  • "Technology continues to be an area of growth and investment. Will these companies need to hire workers [in the future]? The answer is yes."
  • They'll likely face challenges finding talent, he added, noting that there are alternatives to layoffs — like finding new roles for employees in other divisions — something Zapier is trying.
  • Companies can also simply not replace people who leave. Delaney also mentions the possibility of furloughs or executives taking compensation cuts.

Go deeper: Delaney's firm released a report Thursday with strategies for managing company culture through a downturn, whether or not that includes layoffs.

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