A wave of corporate layoffs is rolling through the labor market, with Southwest Airlines, Starbucks, UPS, and JPMorgan Chase among the firms taking a hatchet to their operations in recent months.
While the sudden loss of thousands of white-collar jobs may seem unsettling, it’s not uncommon, said Wharton management professor Matthew Bidwell. Rarely used before the 1980s, corporate layoffs are now wielded as a “regular tool” to downsize specific functions, meet financial goals, and cut administrative bloat.
“It’s kind of like somebody who’s not very good at dieting. They go on a crash diet — we’ve got to trim all the excess and really get ourselves back on track — and then they start hiring again.” he said during an interview with Wharton Business Daily. (Listen to the podcast.)
Corporate Layoffs Are Cyclical
Corporate layoffs are cyclical and an inherent part of doing business, Bidwell said. As companies grow services or try new things, they need managers to oversee those efforts, and those managers need to hire more employees to do the work. Layoffs are an inevitable part of realignments and reorganizations, and corporate layoffs are more palatable to investors than the reduction of frontline workers.
“If you’re doing layoffs of frontline workers, then you’ve got to start explaining why we’re cutting stores. If I’m an investor, that worries me. That means less revenue coming in,” Bidwell said. “You say we’re laying off corporate, then we have the sense of ‘it’s overhead, it’s bloat.'”
“There’s a real risk that when you lay off, you do a lot of damage.”— Matthew Bidwell
Of course, Bidwell said, all white-collar jobs are not bloat.
“There’s a real risk that when you lay off, you do a lot of damage,” he said. “But it’s certainly a more comforting message to external stakeholders that we’re not cutting into the core business.”
Why So Many Layoffs Now?
The recent layoff announcements have been rapid-fire, yet Bidwell said a look at the long-term data reveals no sharp rise in layoffs. However, the labor market has definitely softened in the post-COVID era. With office occupancy rates at or below 50%, it’s possible that the physical location of corporate workers plays a role in layoff strategies. “I’m not sure that it should, but it may,” Bidwell said.
Timing is also a factor. Most of the layoff announcements have come in the last few months because breaking bad news during the holiday season “doesn’t lead to fantastic headlines,” Bidwell said. The fourth quarter is also a last push for profit for the year, especially for retail or consumer-facing companies, so it makes sense that those firms waited until the first quarter to announce layoffs.
“If I’m going to do big reorgs, big layoffs, I probably want to be doing it around now, when generally there’s less pressure to deliver revenue instantly,” Bidwell said.
The professor emphasized that there are good and bad business aspects to layoffs, although they are destructive to the people involved. He said the research on the effects of layoffs is “deeply depressing,” and he wishes companies would be more thoughtful about the process.
“They’re not something you want to do lightly. But, on the other hand, the world changes and what businesses need changes,” he said. Layoffs, it seems, are unlikely to go away any time soon.
