It just seems counterproductive, removing your workforce because you want to grow more
In: Economics
Having employees puts a minus on your forecast. Just fire them right before you print out next month’s estimates to impress your shareholders and investors.
During good times, many are employed. The efficiency per person drops when good times gets a bit worse. Lay off people to increase efficiency per person.
Public companies have to answer to shareholders. Shareholders have bought stock in the company in hopes that the value of the company’s stock goes up.
The value of the stock is usually measured by profit.
Let’s say a company made 1 million dollars less in profit in the year 2024. Their stock will be valued less.
So if they fire 10 workers who each made 100k, now they have made up for the 1 million deficit. They fire 20? They’re profitable again. Shareholders happy and stock might not fall as low as it would have otherwise.
Yes it is counterproductive and if companies continually do this their workforce will pretty much be a skeleton crew but that’s capitalism.
The stock market emphasizes short term gains. This means big companies must be profitable every quarter (three months.). You are right: this can be counterproductive. But ultimately, the only thing that matters is those quarterly earnings reports.
Employees are a significant expense that you can quickly reduce with layoffs. Simply put, not many of your expenses can be dramatically tuned down. So if they have to reduce short term expenses, the layoff handle is easy and effective.
Edit: spelling
Green line must go up. If green line doesn’t go up from sales, corporate is going to make green line go up by cutting expenses. Welcome to late stage capitalism where the only thing that matters is the green line going up so the executive suite can get more money.
ok, we hired 10 people to make 100 widgets. When we sell them all, we’ll be a profitable company!
OH NOES! widgets don’t sells that well and we should have only hired 8 people to make 80 widgets? Fire 2 people so that we’re not over producing for a market that can’t sustain this size of a company.
They want to meet PROFIT goals. Not growth.
You don’t ley off people randomly, you get rid of the least efficient ones who are dragging the entire operation down. Hiring new people is like a box of chocolates, you never really know what you are going to get. Layoffs are a way to correct for that.
Of course there is a bit of a difference if the layoffs are a case of periodic house cleaning, or if they are done because of financial stress. If a company doesn’t have enough orders coming in and the employees don’t have work to do, they have to get axed because the payroll is no1 cost item for almost any company.
Because accountants see employees as an ongoing monthly cost to be minimised rather than a valuable asset to hold onto.
Widget and gadget inc is using 10 people to make 10 widgets a year and 10 people to make 10 gadgets.
A new machine is bought that means 1 person can now make 2 gadgets. Also last year they only sold 5 widgets and our market research indicates there is demand for 24 gadgets
. We take two people working on the widgets, re-train them on the gadgets and lay three of them off. We now have three fewer employees but are making more stuff than ever before. We could also used the money saved from firing those employees to hire a researcher who will work on inventing an even more efficient machine letting us possibly grow more in the future.
You have 10 people working to create 1000shoes per month, you sell 1000
You hire another 40 people thinking you can create 5000 shoes and sell 5000
In reality you only sold 2500.
What do you do with the other 2500 shoes or the 25 workers producing them?
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