If the Economy Is Doing So Great, Why Are There So Many Layoffs?

Resignation concept.Businesswoman packing personal company belongings when she deciding resignation change of job or fired from the company.

The U.S. economy is in a pretty good place. The jobs market is robust, and panic around a looming recession is starting to die down. But something feels a bit off. Although things have been going relatively well, major layoffs just keep happening. Across industries, we’re seeing jobs slashed. Large companies that have recently announced layoffs include Tesla, Expedia, Sony and Nike, to name but a few.

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If the economy — specifically the labor market — is doing so well, why are all these layoffs happening?

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Compensating For Past Hiring Sprees

Sometimes companies go on ambitious hiring sprees, and then, not long after they jump the gun on bringing in tons of new talent, they realize they have to backpedal and cut down.

“One of the principal reasons for the recent workforce reductions is to trim back the pace of robust hiring that had occurred, particularly by targeting less essential or core business areas to implement the type of cost-reduction and restructuring measures that can enhance profitability and impress stock analysts,” said Alan Kosan, senior vice president and the head of Alpha Research at Segal Marco Advisors.

The Desire To Cut Costs 

One of the simplest and most fundamental reasons companies conduct layoffs is cutting costs. Frankly, employees are expensive, and with the pressures of inflation and the lingering impacts of the pandemic, covering their costs has become cumbersome for many companies.

“While payroll expenses vary by industry, they are often one of, if not the highest expense a company pays out annually, ideally on average equating to 15% to 30% of gross revenue,” said Lauren Winans, CEO and principal HR consultant at Next Level Benefits. “With the last four years of unexpected and unusually high expenses due to the pandemic, inflation and legislative changes, many companies are forced into making drastic changes.”

There’s also additional ambiguity due to it being an election year, and companies are looking to make more strategic changes to position themselves well for 2024 and beyond.

Companies are looking to cut costs, eliminate staff redundancies, combat poor business performance and prepare for the unknown, and, unfortunately, the easiest way to improve the outcome of all those factors is to reduce big expenses like payroll.

Workforce Planning 

Winans pointed to a more strategic trend emerging among more companies across a variety of sectors: workforce planning.

“Many industries haven’t had to heavily rely on the intricacies of strategically designing a workforce to meet business demands, but as technology advances and the costs for literally everything continue to increase, companies are realizing that they can no longer operate reactively,” Winans said. “Best-in-class strategic workforce planning involves a myriad of components, but focuses on the idea of identifying the right mix of staff to get the job done today while regularly evolving the workforce plan to respond to external factors.”

The Dreaded Rise of AI 

We are on the brink of yet another major evolution in the workforce, as AI continues to gain swift traction. And just as labor market experts and employees feared, AI is rapidly stealing jobs.

“Technology is replacing many tasks, not the least of which is AI,” said Matt Willer, managing director of capital markets and partner at Phoenix Capital Group.

Outsourcing 

“Finally, outsourcing trends frequently defer certain tasks to an outside vendor, overseas or domestically, making that expense line item variable rather than fixed,” Willer said.

These Layoffs Give Companies a Bad Look and Encourage Job-Hopping

Companies need to grasp that even if layoffs seem appropriate, or even necessary, these morale-slashing moves are damaging to their reputations. Laying off staff may only encourage members of younger generations — who have already been criticized for job-hopping — to be disloyal to their employers both in the present and in the future.

“The downside to that is that people have long memories,” said Bill Catlette, managing partner at Contented Cow Partners. “We wonder today why Gen Zers don’t seem as invested in the employment relationship as their predecessors. Having watched how their forebears were put out like yesterday’s garbage, they are simply playing the cards they were dealt. My father had one job across a forty-year career. I’ve had seven. My grandchildren will likely have seven at one time.”

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This article originally appeared on GOBankingRates.com: If the Economy Is Doing So Great, Why Are There So Many Layoffs?