https://thehustle.co/originals/why-layoffs-dont-work Skip to content * High Contrast * Join Free [HubSpot] # Menu Search... [ ] Menu * News News Catch up on the latest news and original reporting produced by The Hustle team. + [News_Brief] News Briefs Bite-size stories from our daily newsletter + [Hustle_ori] Hustle Originals Original reporting from our Sunday newsletter * Videos Videos Browse our collection of educational shows and videos on YouTube. + [TheHustle_] The Hustle Our unrivaled storytelling, in video format. Subscribe for little revelations across business and tech + [MFM_Podcas] My First Million When it comes to brainstorming business ideas, Sam and Shaan are legends of the game + [MAT] Marketing Against the Grain Watch two cerebral CMOs tackle strategy, tactics, and trends + [HubSpotLog] HubSpot Everything you need to know about building your business on HubSpot + [HubSpotLog] HubSpot Marketing Learn marketing strategies and skills straight from the HubSpot experts See all video content * Podcasts Podcasts HubSpot Podcast Network is the destination for business professionals who seek the best education on how to grow a business. + [DailyShow_] The Hustle Daily Show A daily dose of irreverent, offbeat, and informative takes on business and tech news + [MFM_Podcas] My First Million Each week, hosts Sam Parr and Shaan Puri explore new business ideas based on trends and opportunities in the market + [Goal_Digge] Goal Digger Redefining what success means and how you can find more joy, ease, and peace in the pursuit of your goals + [Another] Another Bite Each week, Another Bite breaks down the latest and greatest pitches from Shark Tank + [Business_M] Business Made Simple Build your business for far and fast success + [MAT] Marketing Against the Grain HubSpot CMO Kipp Bodnar and Zapier CMO Kieran Flanagan share what's happening now in marketing and what's ahead + Online Marketing Made Easy Online Marketing Made Easy + The Product Boss The Product Boss + Nudge Nudge + Side Hustle Pro Side Hustle Pro + Outbound Squad Outbound Squad See all podcast content * Search... * HubSpot Products The HubSpot CRM Platform All of HubSpot's marketing, sales CRM, customer service, CMS, and operations software on one platform. See pricing + Free HubSpot CRM + Overview of all products + Marketing Hub Marketing automation software. Free and premium plans + Sales Hub Sales CRM software. Free and premium plans + Service Hub Customer service software. Free and premium plans + Content Hub Content marketing software. Free and premium plans + Operations Hub Operations software. Free and premium plans + Commerce Hub B2B commerce software. Free and premium plans + About HubSpot + Contact Us + Customer Support Start free or get a demo Contact Sales + About HubSpot + Contact Us + Customer Support * Join Free * High Contrast [ ] * (*) The Hustle Loading Oh no! We couldn't find anything like that. Try another search, and we'll give it our best shot. Load More Results * Home * Originals * Why layoffs don't work Why layoffs don't work Mark Dent Mark Dent Published: March 07, 2025 Yet companies keep using them over and over. Man in suit with 'CEO' lapel pin, gesturing with raised right hand; background features vertical lines resembling a pleated curtain. In 2001, after the 9/11 terrorist attack on the World Trade Center upended American travel, layoffs rippled through the airline industry. By late September, ~81k jobs had been cut industry-wide. Nearly everyone made cuts, from bargain carriers like Frontier and Spirit to heavyweights like American, US Airways, and United, which each laid off between 15%-23% of their workers. The lone holdout was Southwest Airlines. It delayed purchases of new planes and nixed a renovation of its corporate headquarters, but it didn't enact layoffs. Co-founder and former CEO Herb Kelleher saw them as anathema for a successful company. "Nothing kills your company's culture like layoffs," Kelleher once said. If that's true, then company culture has experienced an economy-wide massacre in recent years: * In 2023, more than 1k tech companies laid off 264k employees, according to layoffs.fyi. * The federal government has cut ~110k jobs this year through layoffs, firings, and deferred resignations, including 30k+ jobs as part of Elon Musk's Department of Governmental Efficiency. * BP, BlackRock, IBM, Meta, Starbucks, Workday, and many other big firms have announced layoffs so far in 2025. Even Southwest joined the club, announcing mass layoffs for the first time in over 50 years in February. Kelleher wasn't around to see them. He died in 2019. Southwest airlines counter Herb Kelleher addresses stockholders. (David Woo/Corbis via Getty Images) Research has consistently shown he was right about layoffs: They're damaging to companies -- especially when done for cost-cutting purposes; they're damaging to laid off employees, who've seen higher rates of suicide in the aftermath of layoffs; and they're damaging to the employees who keep their jobs. So why do companies keep doing them? Neutron Jack and Chainsaw Al Once upon a time, US businesses had far more people who thought like Herb Kelleher. In the middle of the 20th century, as America entered an era of unprecedented prosperity, influential companies practiced a form of capitalism that balanced profits with employee welfare and the public good. Seasonal employees got axed at times, but mass layoffs were relatively rare, as workers routinely stayed at a single company for much of their career. Things changed starting around the 1980s. As companies sought to rebound from a nationwide economic funk, they began practicing a more rough-and-tumble capitalism that prized shareholder value and ushered in a "free agent" model of employment. Celebrity CEOs like "Neutron" Jack Welch and "Chainsaw" Al Dunlap popularized a style of management predicated on reducing costs to produce short-term profits. Composite image: Left, painting of a lion's face; top right, Elon Musk holding a chainsaw on a stage; bottom right, man with pinching fingers. Clockwise from left: Chainsaw Al Dunlap, Elon Musk with chainsaw, Neutron Jack Welch. (John Pineda/Hulton Archive via Getty Images, Valerie Plesch/Washington Post via Getty Images, Thomas Lohne/DDP/AFP via Getty Images) One of their favorite tools was mass layoffs. Welch, who ran General Electric, laid off more than 100k employees during his 20-year tenure. Every fiscal year, he'd rank workers and slash the bottom 10%. Dunlap's strategy was to cut quickly and deeply -- and ask questions later. "My philosophy is to err on the side of too much," Dunlap wrote in his memoir, Mean Business. "Too many asset sales. Too many layoffs." Plenty of corporations followed their example: * In 1979, roughly 5% of Fortune 100 companies had layoffs, according to McMaster University professor Art Budros. * By 1994, that number had increased to 45%. Illustration titled 'The rise of layoffs': Depicts a man holding a box standing at an open door. Text shows Fortune 100 layoffs rose from 5% in 1979 to 45% in 1994; source: Harvard Business Review. Olivia Heller/The Hustle "All of a sudden," David Gelles, author of the Welch biography The Man Who Broke Capitalism, told NPR, "other CEOs saw that...if we rapidly wind down the cost of our labor, we could potentially see a meaningful increase in earnings per share for the next quarter and Wall Street sure liked that." That ethos remains today. Data from the Bureau of Labor Statistics shows that 1.5m-2m Americans are typically laid off or discharged every month, a number that increases during recessions. But the belief that company earnings and stock prices increase through layoffs typically doesn't match reality. Layoffs equal dwindling stock prices and bankruptcy risks At best, research indicates that companies that lay off employees, on average, don't see a better financial payoff in the long term compared to companies with a stable employment base. And they often fare worse. There are findings that suggest layoffs lead to both short-term and long term issues, including: * Neutral or negative immediate returns in stock prices. * Declines in profitability that last for up to three years. * A 2x as likely chance of bankruptcy compared to companies that haven't done layoffs. Even during bad economies, when layoffs are rampant and often more justified, the results are similar -- and that's according to Bain & Company, which, ironically, consults for firms that make cuts. After the early-2000s dotcom bust, Bain researchers found that stock prices for S&P 500 companies that had no layoffs or laid off less than 3% of their workforce increased an average of 9% in the next year. Meanwhile, stock prices were flat in companies that laid off between 3%-10% of their workers, and prices plummeted 38% for companies that laid off more than 10%. Group of people at a busy indoor event, engaging with documents and each other under dim, colorful lighting; some attendees wear earth-themed hats. Laid off tech workers network at a "Pink Slip Party" in San Francisco after the dotcom bust in 2001. (David McNew/Newsmakers via Getty Images) Some of these issues stem from the fact that a company that does layoffs is typically in distressed shape already. But experts have found several other reasons for why layoffs lead to negative results: * Mass layoffs are often symptoms of unsound business strategies and don't do anything to cure the larger problem. * Absent significant strategy changes, productivity declines with fewer employees. * Companies routinely replace laid off employees (who often receive severance) with expensive consultants or hire contractors for similar wages, reducing the cost savings. * Companies must invest to train current workers to pick up new tasks -- and invest to recruit replacement employees after the economy improves or the company's financial troubles clear up. As they recruit, these companies often find their reputation has been damaged among potential applicants, says Wayne Cascio, a professor emeritus at the University of Colorado Denver who's researched layoffs for decades. "If they have two offers and one is with a company that just had layoffs last year and another one is with a company that hasn't had layoffs, which one are you going to pick?" Plus, the employees who survive layoffs grow discontent with the company and burn out faster as they handle more tasks, Cascio adds, leading to expensive voluntary worker exits. Layoffs don't always portend future problems: Companies who enact them as part of a broader change in strategy, Cascio says, fare better than those who enact them simply to cut costs. It's also true that recent layoffs among some tech brands have been accompanied by positive reactions from investors: * Spotify's stock went up by 7.5% immediately after layoffs in 2023. * Meta's stock increased 23% when Mark Zuckerberg announced his "year of efficiency" in early 2023, and its stock has soared by ~4x since then (although layoff news in 2024 and earlier this year led to brief drops.) Some tech layoffs fit into a category that Cascio describes as proactive downsizing. The companies were relatively healthy but realized they'd hired too much during the pandemic or saw signs of struggles down the road that they believed they could avoid with restructuring. Illustration titled 'Who says layoffs are only for struggling companies?': Displays a cluttered desk with a computer labeled 'OUT OF SERVICE' and tech layoff numbers by year--165,269 (2022), 264,220 (2023), 152,472 (2024); source: layoffs.fyi. Olivia Heller/The Hustle Still, says Jeffrey Pfeffer, a Stanford University Graduate School of Business professor and expert on organizational behavior, "the tech layoffs make no sense to me." He attributes some of them to a contagion effect that led to companies enacting layoffs simply because everyone else did it. And if overhiring or underperformance was the true problem, Pfeffer says the companies should question their leaders, who green-lit the overhiring and may have failed to develop productive roles for their employees. "You could blame the workforce," he says, "or the managers and leaders who are leading that workforce." Some companies clearly trust management over the workforce. After a layoffs announcement last month, Meta doubled the potential amount of bonuses its executives can receive this year. Cutting hours instead of workers So, what are the best alternatives to layoffs? As Southwest Airlines showed in 2001, companies can reduce expenses by delaying purchases and investments, cutting in places that don't lead to job losses. If that's not enough, Wayne Cascio says companies should attempt to reduce hours or initiate furloughs (a temporary unpaid leave of absence) rather than layoffs. His research has shown that, even if layoffs occur, companies that try these alternatives perform better than those who instantly lay off employees when faced with financial problems. At least during the pandemic, many companies showed a willingness to delay or resist layoffs. Cascio says that a survey from the Society for Human Resources Management found that a majority of firms enacted furloughs or cut travel and employee perks before laying off workers. Cartoon illustrating US layoffs and discharges (2005-2024), highlighting recession years (2005, 2010, 2020); features office items like a clipboard, scissors, pen, notepad, calculator, cup, books, pencil holder, and plant on a desk; source: FRED. Olivia Heller/The Hustle Still, as the last few years have shown, layoffs are happening -- and often without any signs that they're indicative of larger strategic moves. The problem, Cascio says, is that there are only two ways to make money in business: growing revenues or cutting costs. Slashing costs is a far more predictable way to ensure future growth than finding new ways to generate revenue. And, too often, companies do the predictable thing. Pfeffer was reminded of this impulse on a recent flight when he got upgraded to first class and ended up next to an airline executive. The industry had used buyouts and layoffs to shrink staff sizes during the pandemic and faced difficulties in refilling positions when demand picked up. Pfeffer told the executive the layoffs had been a terrible idea. Then he asked him if his airline had gotten rid of any airplanes when business was down. The executive said it had not. "So why," Pfeffer says, "get rid of employees?" New call-to-action Topics: Layoffs Follow us on social media Get Smarter on Business and Tech Thanks for subscribing! Close Get the 5-minute newsletter keeping 2M+ innovators in the loop. Want even more business resources? Checkout Trends.co to access exclusive research and connect with business builders from around the globe. Close HubSpot Logo Not using HubSpot yet? Subscribe to The Hustle Daily Newsletter Subscribe to The Hustle Daily Newsletter Get the 5-minute news brief keeping 2.5M+ innovators in the loop. Always free. 100% fresh. No bullsh*t. JOIN FREE 100% Free CRM Nurture and grow your business with customer relationship management software. Signup for a free account Close modal BACK Popular Features * All Products and Features * Free Meeting Scheduler App * Breeze AI Tools * Email Tracking Software * AI Content Writer * AI Website Generator * Email Marketing Software * Lead Management Software * AI Email Writer * Free Website Builder * Sales Email Templates * Free Online Form Builder * Free Chatbot Builder * Free Live Chat Software * Marketing Analytics * Free Landing Page Builder * Free Web Hosting Free Tools * See All Free Business Tools * AI Search Grader * Clip Creator * Website Grader * Make My Persona * Email Signature Generator * Brand Kit Generator * Blog Ideas Generator * Invoice Generator * Free Business Templates * Guide Creator * Software Comparisons Library * Template Marketplace * Campaign Assistant * Landing Page Creator Company * About Us * Careers * Management Team * Board of Directors * Investor Relations * Blog * Contact Us Customers * Customer Support * Join a Local User Group Partners * All Partner Programs * Solutions Partner Program * App Partner Program * HubSpot for Startups * Affiliate Program * Facebook * Instagram * Youtube * Twitter * Linkedin * Medium * Tiktok Download on the App Store Get it on Google Play HubSpot Copyright (c) 2025 HubSpot, Inc. * Legal Stuff * Privacy Policy * Security * Website Accessibility *