Layoffs were widely used during the first COVID wave, which occurred primarily in April and May 2020. They haven’t been seen in a long time. However, they returned in 2022, particularly in the second quarter.
What caused companies to need to lay off workers?
In general, companies that are deferring layoffs are those that have experienced an unsustainable growth trend in recent months. However, business growth is currently slowing while labour costs are rising, and these companies are unable to support them.
However, some positions (primarily those in information technology) have seen an increase in demand since the pandemic and will continue to have a competitive advantage. Job postings for software development fell 8.9% in the six weeks leading up to June 2022, but they are still 114% higher than they were before the pandemic. Employer demand for software development workers is decreasing, but it remains extremely high.
When every employee is well-integrated and adds value to the business, a company has reached its optimal size. Once the new recruits cause inefficiency, the team must be reduced in size.
YC Founders received an email concerning about the current situation. The economy is not looking good right now, and the best way to prepare for a downturn is to cut costs.
What industries are using layoffs?
Real estate, transportation, and finance-related businesses are among the industries that must make these cuts.
Having said that, Getir, a Turkish food company, was the company that laid off the most people in 2022. Nonetheless, it accounts for only 14 percent of its workforce, which is nowhere near the highest rates this year.
Peloton is another company that has laid off 20% of its workforce, or 2,800 people. This is explained by the fact that it is a home-fitness company that saw a significant increase in popularity in 2020 as a result of the pandemic. Gyms’ value has declined since they reopened. The company’s market value was $50 billion in 2021. Unfortunately, it is only worth $4.4 billion in June 2022.
All of the real estate companies with layoffs are from the United States. The fear of a housing crash is most prevalent in the United States. That is why businesses in the United States are suffering the most. In fact, mortgage applications have dropped at a 52 percent annualized rate compared to the previous period.
Better.com has laid off 33% of its workforce, or 3,000 employees, making it the largest layoff in real estate in 2022 in absolute terms. Other American real estate firms, such as Redfin and Compass, cut 8% and 10% of their workforces, respectively.
Caravana is the company with the most employees laid off in absolute numbers in the transportation industry, having cut 2,500 employees from its fleet. Again, it represents only 12% of the total workforce, so the layoff does not represent a significant reduction in the company’s size.
Tesla is a large company that, while it has not yet gone through a massive layoff, is in a risky position and may need to do so in the future. Rumours have been circulating recently as a result of emails sent by its CEO, Elon Musk, at the start of June 2022.
Musk stated that the economy gives him a “super bad feeling.” His message was muddled because he stated that the company was “overstaffed in many areas” and that a 10% reduction in salary headcount would be required. He did, however, state that “hourly headcount will increase.”
The first practice put in place was a hiring freeze. It was followed by the layoff of nearly 200 employees in early July 2022. They have closed the San Mateo office: only 81 of the 276 employees from that location will continue to work for Tesla and will be relocated.
200 employees compared to the total of 100,000 workers Tesla has is still not remarkable, however, it is the first step to bigger actions that may come in the following weeks.
The CEO of Coinbase, a cryptocurrency platform, argued the reasons for their layoff in a blog post. In this publication, he acknowledged that the company had grown too quickly: they were massively hiring to keep up with all of the opportunities, and Coinbase ended up being over-hired.
Coinbase experienced such a large layoff that its CEO was forced to defend it. It impacted 18% of its employees, directly affecting 1,100 people.
Klarna is a Swedish company, and Bybit is a Singaporean company. Both businesses are involved in finance. The first laid off 10% of its fleet, while the second laid off 30%. It demonstrates that the financial crisis does not only affect the United States, but also other countries.
Will layoffs affect pay?
Typically, layoffs have no effect on salaries. In reality, they are used instead of pay cuts. The ultimate goal is for the company to reduce expenses. This can be accomplished by having fewer employees while maintaining their salaries, or by paying less to each employee while keeping the entire workforce. Layoffs are concerned with the first.
Even if it seems counterintuitive, because layoffs cause workers to lose confidence in the company, the company will occasionally raise wages to keep their highly skilled employees from leaving for better jobs. However, being completely transparent is critical to retaining your employees’ trust. All layoffs are unpleasant and unexpected, but being open and honest about the situation will lend credibility to your actions.
Another layoff consequence could be that the average wage actually decreases. This occurs when companies lay off senior employees with the highest salaries. If they do so solely for salary purposes while continuing to hire new junior employees at lower wages, the company’s reputation will suffer. Hiring while on layoff is only understandable if the two processes are from different departments.
Another common practice is to highlight which other costs have been cut. It will demonstrate that the recession not only affects employees. Moreover, if wages are not cut, it will add more value to this effort.
Some of these insights were gleaned from Hung Lee’s Brainfood podcast “Employer Branding…When Making Layoffs,” which featured guest speakers from ProActive Talent, GoDaddy, and Valor Hospitality Partners.