Amid the current wave of mass layoffs, the tight labor market has workers on edge. With a surplus of job openings and recruiters actively pursuing high-earning professionals, layoffs are unsettling but not uncommon. Employees are concerned about the potential impact and what steps to take if they face job loss. While the current U.S. job market is robust, changes in the economy could alter the landscape. As a result, many U.S. companies have initiated mass layoffs in 2023.
In this article, I will discuss how you could be affected as more and more companies cut jobs and what steps to take to protect yourself.
2023 Layoffs in America
In July, U.S. employers reported fewer layoffs compared to the previous year, marking the first year-over-year decline in over a year. That decline, with 23,697 job cuts announced, signified a 42% drop from June and an 8% decrease from July 2022. The report came from employment firm Challenger, Gray & Christmas, revealing the lowest number of layoffs since August 2022. This trend suggests a resilient labor market that may help prevent an economic recession.
The Fed initiated an aggressive interest-rate hike in March 2022, sparking concerns of a looming recession and significant job losses. That sentiment grew in early 2023 as the year began with a wave of layoffs. In the first seven months of 2023, there were over three times as many job cuts announced compared to the same period in 2022, totaling 481,906 layoffs compared to 159,021 last year.
However, the trend seems to be changing. Employers kept adding jobs throughout the year, and the labor market surpassed expectations despite the Fed’s significant interest rate hikes. To cut costs without losing essential staff, companies slowed down hiring, while wages, especially for low-wage workers, continued to rise. Andy Challenger, Senior Vice President of Challenger, Gray & Christmas, stated many companies have taken this approach for the time being.
In 2023, the tech sector led the charge in job cuts, making up nearly a third of all layoffs. Most employers who cited reasons for layoffs in July mentioned business closures, followed closely by market economic conditions. The decline in layoffs aligns with signs of a strong labor market, with ADP estimating 324,000 private-sector jobs added in July — surpassing forecasts.
Reasons Behind These Layoffs
Layoffs occur for various reasons, with cost-cutting being the most common. Companies may downsize during financial challenges to reduce expenses. Mergers, industry changes and economic downturn fears can also trigger job cuts, impacting employees and the economy.
Labor costs typically constitute a significant portion of a company’s expenses. When a business faces financial challenges, cost reduction becomes a priority, with labor expenses often being the first to be cut. Employee layoffs alleviate the burden of payroll costs and enhance the appearance of profitability.
In tough economic times, some companies resort to layoffs for survival. When sales decline during a recession, businesses can experience substantial losses. To mitigate these losses, companies reduce their workforce to save money. This often involves laying off numerous employees simultaneously to cut labor costs and improve profitability in the following quarter. Companies may also implement hiring freezes to maintain higher profits and expect remaining employees to shoulder increased workloads.
Additionally, technological advancements, such as automation and artificial intelligence (AI), have also contributed to job losses. According to a 2022 study by the McKinsey Global Institute, up to 800 million jobs could be replaced globally due to automation and AI by 2030. This shift is expected to disproportionately affect low-wage, less-educated workers.
Impact of Layoffs on Employees
Layoffs primarily affect employees who suffer financial and emotional hardships. Beyond income loss, reemployment can be tough, particularly for those with specialized skills, resulting in long-term joblessness and potential poverty.
In 2020, U.S. Bureau of Labor Statistics surveys revealed widespread employment declines happened in March and April of that year, with nonfarm employment ending down 10 million below February 2020 levels by year-end. The Federal Reserve Bank of St. Louis estimated a 14.7% unemployment rate spike in April 2020 that settled at 6.7% by December of that year. Plus, Indeed reported a 28.5% drop in job postings in January 2021 compared to 2019. This trend was global, impacting many countries due to COVID-19.
Layoffs have severe consequences for employees, affecting their chances of re-employment, causing prolonged periods of unemployment and leading to income loss. During recessions, companies cut jobs, resulting in income loss for those laid off. Studies show the overall lifetime earnings loss for laid-off workers is around 20%.
Prolonged unemployment can also lead to lower wages and job quality. Various factors, including labor market challenges and sector-specific obstacles, contribute to the negative impact of layoffs on employees. These issues tend to be more pronounced during economic downturns.
Impact of Layoffs on the Economy
Layoffs not only affect employees but also have broader economic consequences. Mass job losses can decrease consumer spending, impacting businesses reliant on it. Additionally, they result in reduced tax revenue due to fewer employed individuals paying taxes.
Mostly, during a recession, decreased consumer spending reduces demand for goods and services, prompting companies to cut production and services. That, in turn, leads to layoffs. Job losses result in reduced spending, further diminishing demand and causing more layoffs. The cycle repeats until economic recovery.
How You Could Be Affected?
If you are currently employed, layoffs can significantly impact your career and financial stability. It’s essential to stay informed about your company’s financial health and industry trends. If layoffs seem imminent, consider taking preemptive steps to protect yourself, such as building a strong professional network and updating your resume.
If you face job loss, it’s crucial not to panic but to take control of the situation instead. Contact your HR department for information on severance packages and benefits eligibility. Seek legal advice if you believe your layoff was unjustified or discriminatory. Consider taking on freelance or contract work while searching for a new job to supplement your income.
Final Thoughts
Layoffs harm individual development and erode existing skills, causing morale, health, innovation and work quality to suffer. These effects extend to both employees and organizations. That said, layoffs are sometimes inevitable, and companies may have valid reasons for implementing them.
However, businesses should strive to adopt ethical practices when conducting layoffs and assist affected employees in transitioning to new jobs. Employees can also take proactive measures to protect themselves during unexpected job loss situations.
Overall, it’s crucial for individuals and organizations to prioritize the well-being of their workforce while navigating challenging economic times.
