For years, slick profiles have assured us that tech giants like Elon Musk, Jeff Bezos, and Mark Zuckerberg are 21st-century inspirations, not old-school corporate hackers—which is exactly why news of mass layoffs on Twitter and Amazon made the news Meta platforms are very annoying.
Far from the latest in fashion, these layoffs represent a revival of long-discredited corporate strategies. If this trend continues, history suggests that these tech leaders will leave their companies crippled, at best.
Mass layoffs began in the 19th century, when major industrial firms dealt with financial downturns or minor seasonal fluctuations by cutting salaries – although they often hired workers again when things improved.
By the late 19th century, heavy industries such as the steel industry, anxious to reduce their dependence on workers, began installing labor-saving machinery in the factory. These moves successfully boosted profits and productivity while reducing the skilled and organized labor force.
But something interesting happened along the way. The middle managers who increasingly dominated these complex organizations realized that hiring and firing huge numbers of workers imposed large transaction costs on their firms. Dropping thousands of workers only to try to lure them back in a few months or years later was not effective.
Increasingly, managers sought to avoid huge fluctuations in the size of their workforce. Decisions about hiring and firing, once in the hands of powerful foremen, have become bureaucratic. New “personnel departments” appeared for the first time, reducing employee turnover and creating clear pathways for promotion.
As a result, job stability—and a lifelong attachment to a single company—gradually became the norm for white-collar and blue-collar workers alike. This system reached its peak in the 1950s and 1960s, thanks in part to a strong labor movement and political commitment to full employment.
Then things fell apart. American companies, unable to deal with foreign competition, are increasingly being left behind. By the 1970s, companies began to downsize their workforce in hopes of regaining their competitive advantage. These layoffs, in industry giants such as Boeing and General Motors, have caused outrage across the country, especially after white-collar workers and middle managers also become targets.
Painful stories of employees being sacked just before retirement after a lifetime of work are commonplace. However, most executives have persuaded shareholders of these headcount cuts as a necessity. For the most part, stock markets have welcomed the mass layoffs as a sign that corporate leaders are taking the “necessary steps” to get their companies back on track.
But, by the late 1980’s, dissenting voices began pointing to an uncomfortable truth: despite mass layoffs, downsizing was not delivering the expected benefits of lower overheads, reduced bureaucracy, and increased productivity.
In 1991, a survey of executives who sought mass layoffs found that less than a third of respondents reported that profits had increased as expected. Even stock prices, which initially rose on the downsizing news, usually fell in subsequent months. Another survey found that more than half of companies experienced a decline in productivity after downsizing.
Part of the problem is the surviving employees. An academic article published in 1993 noted: “Study after study shows that after downsizing, surviving employees become narrow-minded, selfish and risk-averse”—the opposite was intended.
More rigorous studies of corporate profitability have confirmed these findings. A 1994 study found that companies that downsized experienced a decline in profitability for several years. A study published in 1997 examining S&P 500 companies between 1981 and 1992 confirmed that mass layoffs had little effect on profitability. Another study concluded, “There is no evidence of a widespread increase in productivity yet detected among restructuring firms.”
And yet downsizing continued to prevail, even as they conceded that cutting half your workforce at once, for example, might not be the best approach. The idea that trimming the payroll could restore a company’s profitability was too tempting to get rid of it overnight.
Gradually, a new consensus is emerging within managerial circles that mass layoffs is a very risky, though sometimes necessary, strategy.
(Emirati Union)
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