A Stanford professor of organizational behavior makes an interesting observation about certain employer lay off practices. He believes when certain industries start laying off employees in anticipation or reaction to a perceived business downturn that in many are just copying off one another rather than reducing their workforce by necessity.
Dr. Jeffrey Pfeffer at Stanford University’s Graduate School of Business posits rather than having a solid basis to reduce employment as recently seen in the tech or finance industries employers are just blindly following other employers’ behavior in those industries.
This observation arises from a basic human behavior that says we are influenced by what others do. It is not a new idea. Imagine being a pedestrian stopping at a street signal. No cars are coming and another person steps into the street. Some people will follow that behavior and jaywalk too.
The professor argues this also happens in business. During the pandemic organizations began to hire. So everybody began to hire. Now organizations are laying off, and businesses within certain industries such as media and technology have been following one another. Everyone is citing an impending economic turndown or drop in demand. The underlying question is – does it make sense to let otherwise productive workers go just because other companies are doing it?
Professor Pfeffer points out that during an impending downturn in business employers do not necessarily throw out their capital equipment. Yet businesses forget that hiring and firing their people is expensive. Often employers have paid out severance to employees being laid off, not to mention the previously invested time and effort that went into bringing them up to speed on how to perform the job. Then eventually, as with all turnover, the employer has to go back to the market and perhaps pay recruiters to find new talent to develop again. An employer may even pay bonuses to get people to come work for the employer again.
Besides the interesting point about the comparison of how employers treat their people versus their equipment, the professor states that by discarding employees in this way the business is essentially buying high and selling low with their workers. The professor also points out that mass layoffs feed into the very recession fear that the business sees itself reacting to. When people are not working (or witnessing others being let go) their purchasing power and activity goes down and in turn business experiences loss of demand – kind of a self-fulfilling prophesy. The fear of recession causes employers to justify layoffs because there is a drop in demand. Just the talk of layoffs arguably causes the reduction in demand that in turn leads the economy into a recession.
Bringing this idea into what we see the Federal Reserve doing today, beyond its raising of interest rates, the “Fed” speaks of soft economic landings versus hard economic landings. Businesspeople hear this and start planning for the economic downturn by implementing reductions in force. In turn workers change their behavior out of fear they will be losing their jobs.
The professor points out that in the past, employers didn’t cut employment until severe economic times actually occurred. Now it’s considered prudent to let go people in anticipation of a downturn. Does this really make much sense if within months or a year the business sees an upturn in business? And what does this show the survivors about how the company views them? Just check out websites like Glassdoor.
The article makes some interesting points as we move forward into the next post COVID economic phase. As HR professionals, we taut the value of our people. Saying that workers are an organization’s “most important asset”, then in short order laying them off by email is not a very good demonstration of an organization’s values. (Disney is not a happiest place on earth this week if you caught that news.) No wonder workers look to unions as one possible lifeline in these times.
As we face another possible economic downturn, the article asks; should we blindly follow what other employers are doing or alternatively, look at layoffs as a choice rather, and not necessarily a necessity. Can the investment into our workers be conserved through the downturn to be better prepared for the next upturn phase in the economy?
Please consider, should employers copycat one another into layoffs or perhaps consider other options before implementing a reduction in force?
Source: I’m a Stanford Professor Who’s Studied Organizational Behavior for Decades. Business Insider. (3/25/2023)