Mass Layoffs Will Not Provide Expected Returns
For Amazon, Meta, And Others
As most might be familiar, U.S. Big Tech and startup companies have been going through a setback phase which has led to over 108,000 layoffs as of January 20231. Among these, firms such as Amazon and Meta have ended up cutting the highest number of job positions.
Amazon outstandingly increased its working force 62.66% from 2019 to 20202— fueled by the tremendous pandemic e-commerce demand — and 23.88% from 2020 to 2021. Nevertheless, the company later dismissed over 67,000 employees3 across the U.S. states, caused by a considerable decrease in e-commerce demand post pandemic. Even though Amazon’s executives have apparently been quite moderate towards shareholders’ expectations — by having described the beginning of 2023 as a trimester of slowing growth and tight profit margins4 — such predictions still sound wrongly enthusiastic: in spite of the decrease of the oil price from Q2 to Q4 20225, a gallon of gas is currently 1.31% more expensive than last month6, as well as raw materials — up 4.49% from Q4 2022 to Q1 20237. Thereby, Amazon’s profitability will likely be affected as shipping costs will increase circa 1.3%, not to mention the firm’s problematic organizational performance due to low-income employees’ on-going discomfort given food prices’ inflation.
Meta, as of the first week of November 2022, announced a relevant amount of layoffs — 13% of the entire company’s personnel (11,000 positions).8 Moreover, the firm has had to struggle with a capitalization downfall from $1.07 trillion to $250 billion, from August 2021 to date. As a result, Meta’s CEO Mark Zuckerberg has promised a “year of efficiency”, by boosting the company’s most profitable services — among these, Instagram Ads and the introduction of further business options within the WhatsApp platform.9 Zuckerberg’s predictions, however, are possibly too optimistic. Once again, if oil and food prices keep up the mentioned rising trend — not to mention a year-long sustained increment of the Fed Funds Rate up to 4.5% – 4.75% as of February 202310— small and medium-sized companies which currently use Instagram’s business services will start reducing the utilization of such features— if not changing to a more competitive provider— which will finally jeopardize Meta’s revenue and profit perspectives for 2023.
Consequently, both companies are likely to face a complicated panorama throughout this year despite their massive layoffs adjustment. Cascio et al. (1997) developed a secondary-data study over the S&P 500, where the authors set the employment figures evolution — from 1980 to 1994 — as the independent variable, whereas profitability (return on assets) and total return on common stock (price appreciation plus dividend yield) represented the dependent variables (Cascio et al., 1997). The study revealed that firms which made the decision of solely going through mass workforce layoffs did not manage to increase either their profitability or returns on stocks in a substantial manner.
In addition, the 2001 Layoffs and Job Security Survey, carried out by the Society for Human Resource Management et al. (2001), informed that mass personnel downsizing has not facilitated revenue increments for the firms that took part in the study — namely, Apple and AT&T, among others. As a matter of fact, only 32% reported profit margin boosts after the respective layoffs, and only after years of having dismissed numerous workers (Society for Hyman Resource Management et al., 2001).
More recently, the 2008-2009 financial collapse also drastically pushed up the unemployment rate — from 5.0% on January 2008 to 9.8% on January 2010.11 Once again, companies like Nokia, which particularly pulled off 2,300 layoffs in 2008 12ended up losing €700 million in sales and €100 million in profits within the interval 2008-2010.13 Likewise, Caterpillar dismissed circa 10,000 full-time and 15,000 part-time
employees between Q3 2008 and Q1 2009, which led to a severe sales and revenues setback scenario:
down 22% from $11.796 billion in Q1 2008 to $9.225 billion in Q1 2009.14
Moreover, both Amazon and Meta’s upcoming revenue crises can be anticipated according to another company’s nowadays stock valuation performance: Wayfair. The firm, led by Niraj Shah, had been a pandemic winner but later had to cope with the shutdown and consequent earnings comedown — like Amazon itself. Wayfair decided to go for a productivity recuperation — like Meta’s current decision — by letting go almost 5% of its personnel in August 2022 and announcing further layoffs in January 2023 (nearly 10% of its worldwide staff).15 Although shareholders initially reacted in a positive manner, Wayfair’s stock performance finally crashed down from $72.73 on early February to $37.43 just three weeks later.16
Fortunately, business sciences have improved diverse sorts of strategies and mechanisms for executives to make their way through the current inflationary and incipiently-recessed macroeconomic environment. Rather than taking the old way out, to the detriment of multiple working-class families, CEOs ought to put together the most appropriate diagnosis over the current panorama, by mandatorily considering the management aspects described below.
According to a recent study by the McKinsey Global Institute,17 growth-oriented executives are more likely to resolve short-term adversities in a fruitful manner — by turning such complications into new opportunities to accomplish a more agile and responsive organization. Furthermore, given the current shortage of digital-skilled personnel — including resignation cases by highly qualified professionals — successful C-level executives informed McKinsey’s researchers they have already begun a process of retaining and strengthening their workforces by providing career advancement, upskilling opportunities, mental health benefits, and improvements to the everyday ways of working.
Authored and Researched by Ariel Murdocca
Commissioned and Edited by Hason Greene
Referenced bibliography
Cascio, W. F. (2002). Responsible restructuring: Creative and profitable alternatives to layoffs. Berrett-Koehler Publishers.
Cascio, W. F., Young, C. E., & Morris, J. R. (1997). Financial consequences of employment-change decisions in major US corporations. Academy of management Journal, 40(5), 1175-1189.
Society for Human Resource Management (US), & SHRM Foundation. (2001). Layoffs and job security survey.
Society for Human Resource.
Sources:
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- (2023, February 3). Amazon cut 67,000 jobs in 2022, the first yearly decline in 20 years [Press release]. https://markets.businessinsider.com/news/stocks/–amazon-cut-67-000-jobs-in-2022–the-first-yearly-decline-in-20-years-12131834
- Weise, K. (2023). Amazon reports almost no profit and slowing growth. The New York Times. https://nytimes.com/ 2023/02/02/business/amazon-earnings.html
- https://tradingeconomics.com/commodity/crude-oil
- Tepper, T. (2023, February 16). Why is the price of oil rising? Forbes Advisor. https://forbes.com/advisor/investing/ high-oil-prices/
- https://fred.stlouisfed.org/series/PRAWMINDEXM
- Dixon, S. (2022). Meta platforms – Statistics & facts. Statista. https://statista.com/topics/9038/meta-platforms/ #topicOverview
- Rossolillo, N. (2023). Meta’s next profit-growth pillar isn’t what you might expect. The Motley Fool. https:// com/articles/metas-next-profit-growth-pillar-isnt-what-you-might-expect
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16.https://cnbc.com/2023/01/20/wayfair-stock-climbs-after-online-retailer-lays-off-1750-workers.htmlhttps://
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