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Massive Company Layoffs… Why?

On Monday, February 6th, Dell announced they are cutting 5% of its workforce (6,650 employees). Dell is one of many large-cap companies reducing their workforces due to macroeconomic factors.

Why? Rising interest rates are the main reason why so many companies have decided to move forward with layoffs. With interest rate hikes brought about by the Federal Reserve, many growth-centered companies are under pressure to maintain their profits. Unfortunately, that isn’t happening. Just recently, Amazon closed out 2022 with its slowest growth in a quarter of a century. For a growth company to save its bottom line, the only way to maintain profitability is to cut costs. Unfortunately for the American worker, all the cushy tech jobs built up in late 2020 are currently being dissolved.

Put simply by Marc Benioff, CEO of Salesforce, “we hired too many people”. After the quick economic recovery in late 2020, companies scrambled to meet demand through over hiring. This led to the rise of remote work which allowed companies to meet labor needs quickly, but inefficiently. Remote workers are some of the most targeted groups in the layoffs as they have been proven to be much more unproductive than in-person workers.

However, it’s not all bad news. Many of these companies are provided generous severance packages, allowing employees to transition into their next job easier. For example, Salesforce is giving employees 5 months of full pay and benefits.

As rates continue to rise and companies begin to recognize their overhiring, expect more layoffs to come. Layoffs are a symptom of a contractionary economy and will continue as the cost of borrowing money increases.

Thomas Anglim