Layoffs: The New Normal

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“Here’s your next project: you’ll be eliminating 10,000 jobs in Europe,” my boss said, handing me a fat folder replete with financial data. Less than a year since graduating business school, I’d be leading the charge in this downsizing. In my role as a financial analyst, I’d have to deal with lawyers, accountants, actuaries, and many other functionaries at my employer, a multinational industrial company. Soon enough, my final report would go to the CEO and his team, presenting a plan costing hundreds of millions of dollars. And all along, my gut reaction never changed: ugh.

No one, of course, loves the prospect of eliminating jobs. Today, however, it remains an unfortunate fact of corporate life and will likely become more so as the economy begins to sputter. According to the US Bureau of Labor Statistics, monthly layoffs and discharges averaged nearly 1.8 million through the first half of 2019, which is about where it has averaged for almost two decades despite the strong economy, reflecting the new order of things. “Global companies, rightly or wrongly, think of employees as a fungible resource,” says Joan Adams, founder of New York–based Pierian Consulting. “If I have too many then some of them have to go.”

Part of the reason for the near-constant churn in the labor force is a combination of changes in corporate culture, technology, and a reduction in the role of unions. As recently as the 1980s, IBM was famous for saying that it never had a forced layoff. More broadly, almost all major corporations would abstain from mass firings between Thanksgiving and New Year’s. Holiday-season layoffs were “bad form.” That cultural resistance is less of a factor as corporate leaders increasingly become inured to layoffs.

Another part of the phenomenon is the speed of technological development. Companies now evaluate their labor needs on a quarter-by-quarter basis. New technological developments constantly squeeze profit margins. To stay ahead, companies invest more in capital than in workers. “Technology is substituted for labor,” says Joe Brusuelas, chief economist at the professional services company RSM. “It’s the new normal in the new economy.”

Separately, the rise of lean manufacturing has ultimately played a role in the changed landscape for workers. Holding minimal or just-in-time inventories helps companies work far more profitably, says Robert Wright, professor of political economy at Augustana University in Sioux Falls, South Dakota. “We have this wonderful supply chain that works pretty efficiently,” he says. “There’s a lot more flexibility.”

But that flexibility comes hand-in-glove with more frequent layoffs. When customers buy fewer goods, then a manufacturing company will stop ordering parts and immediately its suppliers will lay off workers, Wright explains. He says that’s more possible now that the influence of organized labor has fallen and worker protections have been clawed back. “It’s certainly not a perfect world, but it is more efficient,” he says. “We allow people to buy goods when they want to and not when they don’t.”

Obviously, none of this is great news for workers, but recent evidence suggests that both they and companies have made one critical adjustment: increased on-the-job training. Indeed, to attract talent, more companies are allowing employees to gain marketable skills. “The thinking is, ‘One day, if I get let go, I’ll still have the skill set to get another job or even a better job,’” says Mark Sirkin of the New York–based consultancy Sirkin Advisors. In other words, creating transferable job-market skills becomes a sort of quid pro quo to attract high-quality workers.
But of course, that still means that sooner or later many workers and managers will be faced with organizing a layoff, just like I was. “They never feel good, but I don’t think we can avoid it,” Sirkin says.