Yet companies keep using them over and over.
In 2001, after the 9/11 terrorist attack on the World Trade Center upended American travel, layoffs rippled through the airline industry.
By late September, ~81k jobs had been cut industry-wide. Nearly everyone made cuts, from bargain carriers like Frontier and Spirit to heavyweights like American, US Airways, and United, which each laid off between 15%-23% of their workers.
The lone holdout was Southwest Airlines.
It delayed purchases of new planes and nixed a renovation of its corporate headquarters, but it didn’t enact layoffs. Co-founder and former CEO Herb Kelleher saw them as anathema for a successful company.
“Nothing kills your company’s culture like layoffs,” Kelleher once said.
If that’s true, then company culture has experienced an economy-wide massacre in recent years:
- In 2023, more than 1k tech companies laid off 264k employees, according to layoffs.fyi.
- The federal government has cut ~110k jobs this year through layoffs, firings, and deferred resignations, including 30k+ jobs as part of Elon Musk’s Department of Governmental Efficiency.
- BP, BlackRock, IBM, Meta, Starbucks, Workday, and many other big firms have announced layoffs so far in 2025.
Even Southwest joined the club, announcing mass layoffs for the first time in over 50 years in February. Kelleher wasn’t around to see them. He died in 2019.
Herb Kelleher addresses stockholders. (David Woo/Corbis via Getty Images)
Research has consistently shown he was right about layoffs: They’re damaging to companies — especially when done for cost-cutting purposes; they’re damaging to laid off employees, who’ve seen higher rates of suicide in the aftermath of layoffs; and they’re damaging to the employees who keep their jobs.
So why do companies keep doing them?
Neutron Jack and Chainsaw Al
Once upon a time, US businesses had far more people who thought like Herb Kelleher.
In the middle of the 20th century, as America entered an era of unprecedented prosperity, influential companies practiced a form of capitalism that balanced profits with employee welfare and the public good. Seasonal employees got axed at times, but mass layoffs were relatively rare, as workers routinely stayed at a single company for much of their career.
Things changed starting around the 1980s. As companies sought to rebound from a nationwide economic funk, they began practicing a more rough-and-tumble capitalism that prized shareholder value and ushered in a “free agent” model of employment. Celebrity CEOs like “Neutron” Jack Welch and “Chainsaw” Al Dunlap popularized a style of management predicated on reducing costs to produce short-term profits.
Clockwise from left: Chainsaw Al Dunlap, Elon Musk with chainsaw, Neutron Jack Welch. (John Pineda/Hulton Archive via Getty Images, Valerie Plesch/Washington Post via Getty Images, Thomas Lohne/DDP/AFP via Getty Images)
One of their favorite tools was mass layoffs.
Welch, who ran General Electric, laid off more than 100k employees during his 20-year tenure. Every fiscal year, he’d rank workers and slash the bottom 10%. Dunlap’s strategy was to cut quickly and deeply — and ask questions later.
“My philosophy is to err on the side of too much,” Dunlap wrote in his memoir, Mean Business. “Too many asset sales. Too many layoffs.”
Plenty of corporations followed their example:
- In 1979, roughly 5% of Fortune 100 companies had layoffs, according to McMaster University professor Art Budros.
- By 1994, that number had increased to 45%.
Olivia Heller/The Hustle
“All of a sudden,” David Gelles, author of the Welch biography The Man Who Broke Capitalism, told NPR, “other CEOs saw that…if we rapidly wind down the cost of our labor, we could potentially see a meaningful increase in earnings per share for the next quarter and Wall Street sure liked that.”
That ethos remains today. Data from the Bureau of Labor Statistics shows that 1.5m-2m Americans are typically laid off or discharged every month, a number that increases during recessions.
But the belief that company earnings and stock prices increase through layoffs typically doesn’t match reality.
Layoffs equal dwindling stock prices and bankruptcy risks
At best, research in
24 Comments
throwiop
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RicoElectrico
The other question is why C-suite does even need to tell the respective division management to lay off employees if the actual goal is cost reduction. Shouldn't they impose a budget reduction target instead and trust them to allocate the savings between capex, opex and salary budget according to specific situation at hand?
DebtDeflation
They used to be a once a decade "save the company during a recession" move. Now they seem to be a quarterly "manage earnings per share" move.
fdsas
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brianbest101
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fdfdsafa
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roenxi
> Research has consistently shown he was right about layoffs: They’re damaging to companies…
The research is probably misleading. The damage was done to companies when the over-hired people who couldn't add enough value to justify keeping them employed. The layoffs are just when the damage is recognised.
It is like borrowing a huge amount of money, using 90% of it it to buy prawns and leaving them out to rot for a few days. The damage is now done, the borrowed money is lost. It won't be recognised for a while though. There is even enough left over to pay an interest payment or two to string everything along. But the damage is done.
A lot of people treat economics as though damage didn't happen unless someone acknowledges it. That isn't how it works. Not acknowledging that something is value-destructive just means more value is destroyed by the time people are forced by market forces to confront the truth.
bell-cot
Layoff are like hammers: When needed, in the hands of someone skilled, they work perfectly well. But such situations are sadly rare, compared to frustrated idiots grabbing hammers to get their quick "Hulk Smash!" dopamine hits.
csomar
The layoffs are not the issue. It is the decision makers who took the two decisions to both over-hire and then mass-fire shortly after. GM is a great example. The company was the largest and one of the most innovative car manufacturers in the world. It doesn't stand a chance against BYD today and it is not by a lack of money (though maybe with a C-suite change).
So my opinion is, yes, the damage is done (or being done) but like GM, it'll probably take 10-15 years until we are in the visible territory. Maybe a bit shorter because this is tech.
lukashoff
Because layoffs are not done to make company great but to make sure shareholders and execs preserve their wealth. It's never about company or people or technology – it's always about money, power and wealth.
pclmulqdq
I remember hearing a take on layoffs that I think is pretty true: When you fire the bottom 10%, you lose another 10% who are from the top performers. The destruction of psychological safety for everyone at the company is irreparable, and you start to bleed your most productive talent, too.
andrenotgiant
> After the early-2000s dotcom bust, Bain researchers found that stock prices for S&P 500 companies that had no layoffs or laid off less than 3% of their workforce increased an average of 9% in the next year. Meanwhile, stock prices were flat in companies that laid off between 3%-10% of their workers, and prices plummeted 38% for companies that laid off more than 10%.
Failing companies go through layoffs. Companies like Sun Microsystems, Kodak, Sears, Circuit City, Kmart all went through lots of layoffs. But everyone knows that's not what killed them.
ashoeafoot
I wish those departments tasked with busywork would be able to build skunkworks inside these dysfunctional molochs and be able to keep what they create. Fired into becoming a startup.. a man can dream.
wiradikusuma
The article lists down why layoffs don't work, but companies keep doing it, so it must be working for them.
I hate layoffs (from both perspectives), but the article sounds like whining "we shouldn't break up".
The alternative of furlough only works if everyone else is doing it. If everyone else fires left right and center, the people being furloughed will still have low morale.
I think it's better to avoid it in the first place, by not over hiring, as others have pointed out.
mattmaroon
"After the early-2000s dotcom bust, Bain researchers found that stock prices for S&P 500 companies that had no layoffs or laid off less than 3% of their workforce increased an average of 9% in the next year."
Do non-science journalists just not know about correlation vs causation? Does it really not occur to them that maybe the companies that didn't do layoffs were healthier and that's why they overperformed? Wouldn't a 10 year old know that?
sleight42
The top comments read like HN of a decade or two ago when armchair exporting was rampant.
Paraphrasing: "I, an engineer, am smarter than an economist therefore the article is wrong."
Nothing of value to be found at the top of the comments.
JadoJodo
Having lived in the Boise (Idaho) area, I saw this happen over and over with Micron and HP. I knew dozens of people who had worked for one or the other (and sometimes both) and were then let go in those companies frequent mass layoffs. One person I knew had been laid off → rehired by Micron 3x in the span of 10-years.
I think the biggest issue is that it is far too often the _first_ tool that companies reach for, instead of the last. Oh, the market feels unstable? Better cut 5% "just to be safe". There's a national event that might impact our business? We're going to drop 10% of our employees before we know anything.
While it certainly doesn't apply to every company, I wonder what it might look like for executive leadership to make a pledge that it always comes from the top first: The leadership team agrees that it will take a (public) $X financial cut for N months in the event of a layoff-level event/period to help guide the ship through the storm (with compensation on the other side). If it works, you have the loyalty/respect of your employees. If it doesn't, you do the layoffs anyway and those who remain know that you tried.
karparov
The article doesn't actually explain why. It claims that they don't work and supplies statistical evidence. But why don't they work? I've only really seen speculation…
alphazard
There is a theory about large complex systems which seems to be true in biology and maybe applies here. Intentional downsizing during times of stress works when it preferentially targets defective or dysfunctional components of the larger system. The system improves because the worst parts were removed.
Layoffs don't help companies unless they can reliably remove the worst parts. At most large public companies, the cancerous bureaucracy protects itself and the parts removed are closer to median performers, or even above-median performers. The system gets smaller and less efficient.
Layoffs can be necessary to get the company to fit through a certain sized hole (in the form of cash flow constraints), but it won't be better at what it does on the other side of the hole, it will just continue to exist.
Layoffs work when there is an accurate discriminating mechanism for who stays and goes. The best example of this (outside of private equity turn-arounds that are not widely known) is Twitter. Outside engineering talent was brought in as an oracle, immune to Twitter's bureaucracy. It reliably discriminated between value-adding and not. As a result, the company became incredibly lean and even consistently profitable.
EasyMark
They work to get quarterly profits up/losses down, and that's really all the matters to stockholders who want to decide to hodl or sail.
Delomomonl
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snozolli
I've been through several layoffs, on both sides of the coin. The one consistent factor I've seen is managerial incompetence. Management will fail to provide any leadership or guidance to employees, then blame them for not being productive enough. They can't see their own incompetence, so they blame hiring practices and keep ratcheting up interview difficulty. It's like corporate America has evolved to protect the ego of the managerial class.
mathattack
I’ve been through several waves of corporate layoffs across many industries.
Some observations:
1 – It’s rarely one round.
2 – Companies tend to be the most thoughtful on the first round. Then it looks easy and the precision (and severance) of future cuts goes down. That’s why it’s smart to take a voluntary offer.
3 – Cuts that are broad based (“Every department cuts 15%”) are a sign the company doesn’t know what’s going on or prefers harmony over hard choices.
4 – Layoffs can be a crutch for firms that don’t do performance management. (Less work to do a layoff than have managers counsel bad performers out)
5 – Managers should never promise “No layoffs”
yalogin
Layoffs are a blunt instrument. I don’t know if al layoffs should be seen through the same lens. I see layoffs as signals from the companies. They see the future as unsure and so they want to reduce costs. That should be an immediate layoff for the ceo and his team