Stanford Professor Argues Layoffs in Economic Downturns Are a Trend, Not an Effective Strategy
14 April 2025 · Uncategorized ·
Source: · https://finance.technews.tw/2025/04/11/layoff-is-the-worst-decision/
The recent announcement by US President Trump of a 90-day suspension of reciprocal tariffs provided some relief to investors. However, economists caution that the risks associated with an economic recession remain significant due to ongoing Sino-US trade tensions. Recessions often inflict more hardship through unemployment than inflation for ordinary people; research from Stanford University indicates layoffs are frequently detrimental decisions made by companies during downturns.
Since the pandemic's end, American tech and startup firms have been implementing workforce reductions—over 100,000 employees were laid off in 2022 alone under the banner of restructuring efforts targeting mid-level managers and lower performers. Jeffrey Pfeffer, a Stanford Graduate School of Business professor specializing in organizational behavior for four decades, explored how management practices like layoffs harm workers in his book "Dying For A Paycheck," published two years ago.
Pfeffer argues that companies often resort to layoffs due to imitation rather than genuine necessity. Through interviews with business owners who recognized the negative impact on both company performance and employee morale, he found they felt pressured by boards questioning why their firms weren't implementing similar cuts when other businesses were doing so.
While acknowledging a downturn in the tech industry, Pfeffer contends that layoffs are not warranted for profitable companies; instead, they represent an adherence to trends. Academic research demonstrates that layoffs do not typically save money or improve business outcomes—they often incur severance costs and maintain payments to contractors who previously held full-time positions. Furthermore, layoffs fail to boost stock prices as they signal company instability and do not increase productivity.
Moreover, when the economy recovers in 12–18 months, companies face increased competition for talent at higher wages than before—a suboptimal strategy. Layoffs also erode morale and reduce productivity among remaining employees who fear future job losses; studies have shown that layoffs can triple suicide rates and elevate mortality risk by up to 20% within two decades.
Pfeffer proposes alternative strategies for companies during economic downturns, citing Lincoln Electric Company’s decision to implement across-the-board salary reductions rather than workforce cuts. He also recommends viewing recessions as opportunities—to enhance employee skills and capture market share from competitors who are curtailing innovation and investment.
Since the pandemic's end, American tech and startup firms have been implementing workforce reductions—over 100,000 employees were laid off in 2022 alone under the banner of restructuring efforts targeting mid-level managers and lower performers. Jeffrey Pfeffer, a Stanford Graduate School of Business professor specializing in organizational behavior for four decades, explored how management practices like layoffs harm workers in his book "Dying For A Paycheck," published two years ago.
Pfeffer argues that companies often resort to layoffs due to imitation rather than genuine necessity. Through interviews with business owners who recognized the negative impact on both company performance and employee morale, he found they felt pressured by boards questioning why their firms weren't implementing similar cuts when other businesses were doing so.
While acknowledging a downturn in the tech industry, Pfeffer contends that layoffs are not warranted for profitable companies; instead, they represent an adherence to trends. Academic research demonstrates that layoffs do not typically save money or improve business outcomes—they often incur severance costs and maintain payments to contractors who previously held full-time positions. Furthermore, layoffs fail to boost stock prices as they signal company instability and do not increase productivity.
Moreover, when the economy recovers in 12–18 months, companies face increased competition for talent at higher wages than before—a suboptimal strategy. Layoffs also erode morale and reduce productivity among remaining employees who fear future job losses; studies have shown that layoffs can triple suicide rates and elevate mortality risk by up to 20% within two decades.
Pfeffer proposes alternative strategies for companies during economic downturns, citing Lincoln Electric Company’s decision to implement across-the-board salary reductions rather than workforce cuts. He also recommends viewing recessions as opportunities—to enhance employee skills and capture market share from competitors who are curtailing innovation and investment.