On Corporate Layoffs

Alan Cai

January 27, 2023

When Elon Musk laid off thousands of employees following his Twitter acquisition, the world was shocked. Questions were floated on whether Twitter could even function for the coming days; a few analysts suggested bankruptcy. Musk’s facetious remarks on the stellar performance of Twitter seem to not have been unfounded. With fewer employees, Twitter is still adequately handling its record-breaking usage and little doubt remains on whether the Social Media Platform would be able to continue its existence(aside from potential financial difficulties incurred from the exodus of advertisers). Now, three months later, large technology companies, and perhaps corporations from industries across the board, are rapidly scaling back their number of employees with the aim of cutting costs.

Starting with Meta, several other leaders in the technology industry such as Microsoft and Amazon have announced major layoffs and structural changes to the company. Following rough earnings reports, safer tech bets such as IBM and SAP have joined the layoff frenzy in releasing employees. Due to financial constraints and dwindling investor confidence, non-technology corporations have also begun to send off employees. Disney is especially important to note as its new head, the previously departed Bob Iger, prepares for his first earnings report as the new CEO.

The labor market is rather interesting at the moment. The tens of thousands of tech layoffs are not significant enough to affect the national labor market as a whole at the moment but it does highlight the precarious unemployment situation at the time. The number of job openings nationwide outstrips the number of unemployed persons nearly by a factor of two. In other words, if all of the unemployed individuals in the nation were to fill the job openings, there would still be a shortage of millions of positions. The major issue that prevents the unemployment ratio from decreasing is the necessity for labor market fluidity as well as the types of jobs. For example, in the aforementioned technology layoffs, employees targeted by the layoffs would have difficulties finding new jobs in the field during a time in which each corporation is slowing hiring. Thus, despite the thousands of new persons leaving the workforce, the numerous labor shortages, for example in the services sector, will be difficult to fill. Additionally, full employment is not necessarily the best for the economy. For small or new businesses, an appreciable unemployment population is necessary for new hires and openings to be filled.

As more earnings reports come in for the first quarter of the fiscal year, corporations can expect more layoffs in order to balance the finance sheets. Investors should keep in mind that layoffs usually are accompanied by severance pay so the balance sheet may take a few months to adjust. Companies laying off individuals may also run the risk of reduced output or productivity but it seems as if most of said corporations are faring quite well. Perhaps only time will tell which companies survive and which do not.