Retirement

Who benefits from layoffs?

It looks like 2024 will be another tough year for workers in the United States. Last year, technology companies laid off thousands of workers. This year, layoffs have spread to other sectors. UPS, Amazon, Nike, Microsoft, Google, Mattel, American Airlines, and many other companies have recently announced layoffs. Managements expect a decline in consumer spending and are trying to cut costs.

As CEO of Meta Mark Zuckerberg explainedThe layoff was in 2023 due to Covid adjustment. Meta had hired too many new workers during the recovery and needed to downsize. It worked so well that they continued to lay off workers this year to become “leaner.”

Smaller and meaner

Man this brings back memories I went through many rounds of layoffs when I was an engineer. Companies laid off huge numbers of workers during the dot-com explosion of 2000 and the Great Recession of 2008. Management always wants to be leaner and more aggressive. But it is difficult for the workers. After a few rounds, the remaining people not only became smaller and more ferocious. They’re “thin and angry,” as Dan puts it. (Dan was an old veteran in the semiconductor industry when I was just a young guy.)

Many workers are probably at this point today. Clearly, layoffs are not good for the rank and file. It’s hard to find a job when many companies are downsizing. The remaining workers are frustrated and need to work harder than ever to cover the costs of their old colleagues. Layoffs are terrible for workers.

Do shareholders benefit?

But layoffs are good for shareholders, right? Meta’s stock price doubled in 2023 and continues to rise this year. This is where many laid off workers place the blame. However, this is not necessarily true. Studies have shown that laying off workers does not improve long-term profitability. Companies that conduct mass layoffs tend to underperform their competitors for about 3 years.

Layoffs create a lot of drag. Companies need to pay for severance pay and ongoing health benefits. Business groups have to reorganize themselves with fewer employees and deal with a demoralized workforce. Employees who survive a layoff may experience anxiety, insecurity, low morale, and guilt. This leads to disengagement and will reduce productivity. Also, businesses may need to hire contractors to help and this can be expensive.

Meta has performed very well over the past 12 months, but we will have to wait a few years to see how they perform in the long term.

Is layoff good for anyone?

Is layoff good for anyone? Well, it’s great for people who have ordered layoffs. Last year, Google’s CEO earned $226 million. The Microsoft CEO earned $55 million, which is less than usual for him in a year. Zuckerberg sold more than 1 million shares of Meta stock over the past few months and made nearly $500 million. Clearly the CEOs acted like bandits from all these layoffs.

As a shareholder in these companies, I liked the big surprise last year, but I think they should cool it off with layoffs. The workforce has become extremely lean. Performance will suffer if they continue to lay off workers at this pace. Also I only own 200 shares of Meta. The big pop was nice, but it didn’t make millions for me. Maybe I should take profits and trim my position a bit like Zuckerberg.

Anyway, I want to complain about the heartless executives. They are the main beneficiaries of layoffs. Workers need to know this. I don’t blame the shareholders. If it were up to me, I would reduce working hours instead of laying off a lot of people. If the studies are correct, laying off workers doesn’t improve profitability anyway. It’s just smoke and mirrors to hide poor performance.

Workers must also learn that they are just a cog in the machine that can be replaced. Anyone can be replaced. Those were the main takeaways I learned from all the layoffs I went through. You should save and invest as much as you can. Once you achieve financial independence, you can be free from the stress and anxiety of layoffs.

Good luck to all the workers out there! It will be a difficult year. Have you faced layoffs at your workplace?

When you get completely bored with the corporate world, don’t quit your job. Instead, design your layoff and receive severance pay. Here’s Sam’s book to help guide you through the process – How to Engineer a Layoff. (Use code “saveten” at checkout to save $10.) You can check out my book review here.

Image credit: Ilte Michau

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Joe started Retire by 40 In 2010 to learn how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38 years old.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects all over the USA so check them out!

Joe also highly recommends Personal Capital to DIY investors. They have many useful tools that will help you reach financial independence.

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