As the tech industry continues to shed jobs by the thousands, a business professor is sounding the alarm on the dangerous consequences of following the herd.
Companies like Amazon.com, Inc AMZN, Google’s parent Alphabet Inc GOOG GOOGL, and Meta Platforms Inc META are engaging in a disturbing trend of “social contagion,” said Stanford Graduate School of Business professor Jeffrey Pfeffer. He explained that the layoffs are made not based on actual need, but because others are doing so.
These layoffs aren't just bad for the bottom line, according to Pfeffer, they're a matter of life and death.
“Layoffs increase the odds of suicide by two and a half times,” the professor said in an interview with Stanford. “This is also true outside of the United States, even in countries with better social safety nets than the U.S., like New Zealand.”
Pfeffer argues that these “social contagion” layoffs not only kills people, as research has shown that they can increase the mortality rate by as much as 20% over 20 years, but they also don't improve a company's performance.
“Severance packages cost money, layoffs increase unemployment insurance rates, and cuts reduce workplace morale and productivity,” he said.
For example, Google, which laid off 12,000 employees this week, gave laid-off employees six months of health insurance, paid vacations, 2022 bonuses and 16 weeks of salary, and two weeks of pay for every additional year of employment at Google.
The professor said that companies that have not announced layoffs in tandem with their peers could end up gaining market share over time. Pfeffer cited the layoffs in the aftermath of the terrorist attacks on Sept. 11, 2001, in which every airline except Southwest Airlines Co LUV saw sweeping layoffs.
“By the end of [2001], Southwest, which did not do any layoffs, gained market share,” Pfeffer said. “A.G. Lafley, who was the former CEO of Procter and Gamble, said the best time to gain ground on your competition is when they are in retreat – when they are cutting their services, when they are cutting their product innovation because they have laid people off.
Read also: Apple Defies Tech Industry-Wide Massive Layoffs
The tech industry layoffs are not an indication of a tech bubble bursting or a recession, but rather a bad decision based on imitative behavior, he argued.
Pfeffer also said that layoffs often fail at cutting costs, increase share prices, increase productivity, or solve underlying problems.
As an example, Microsoft Corp MSFT recently announced that it will lay off roughly 10,000 employees — while recent reports indicate the tech giant is investing $10 billion in OpenAI’s ChatGPT.
Pfeffer argues that if companies paid attention to the extensive evidence against layoffs, they could gain competitive leverage by basing their decisions on science.
Originally published Jan. 24, 2023.
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