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Tesla, Google, and Microsoft won't stop laying people off. Here's why that could backfire.

Tim Paradis   

Tesla, Google, and Microsoft won't stop laying people off. Here's why that could backfire.
  • Layoffs are hitting workers at some tech giants like like Google, Microsoft, and Tesla.
  • The job cuts can damage morale, decrease productivity, and deter potential new hires.

"We only fire in thousands weekly."

The recent quip on Blind came from a worker at a large tech company commenting on word of more job cuts at Google.

There's little doubt that for some tech workers, this gallows humor feels spot-on after waves of layoffs at some of the industry's biggest names — including Google, Microsoft, and Tesla.

Elon Musk told staff last month that Tesla will lay off 10% of its workers. Then, in early April, it reportedly cut 500 more roles at its Supercharger division. Google cut about 12,000 people in 2023, followed up with more in early 2024, and then circled back last week with plans for a small number of further reductions.

CEO Sundar Pichai recently told Bloomberg that the search giant was being methodical about handling worker cutbacks — "taking the time to do it correctly and well," he said. Pichai has also said that Google's layoffs could slow in the second half of the year.

But while this scalpel-versus-ax approach sounds reasonable, layoffs in general — particularly the drip-drip — come at a cost. Even at marquee companies that are unlikely to ever be hard up for fresh résumés, the cuts can ding morale, crimp productivity, drive away prime workers, and keep at least some top talent from joining the organization, labor market experts told Business Insider.

In short, the effects of layoffs can counter the financial benefits of expenses carved out of a P&L.

"These are still people who work together, and the thought that somehow they can absorb that loss as if it's nothing just shows a lack of understanding of how human psychology works," Sandra Sucher, a professor of management practice at Harvard Business School who's studied layoffs, told BI.

The cost of not doing business

Even when leaders deem layoffs necessary to trim costs, organizations making the cuts take a hit, according to Wayne Cascio, a professor of management emeritus at the University of Colorado Denver, who's researched corporate cutbacks.

"You're wondering when the ax is going to fall again," he told BI. That pushes remaining workers to start looking around, especially if layoffs continue without an all clear from the company. "They spend a lot more time surfing the web, getting their CVs up to date, networking — and that detracts from productivity. There's no way around that," he told BI.

Cascio said that at organizations that shed workers, the share who leave voluntarily typically goes up about 50% in the following year. And often, those departing are the ones who are "most marketable," he said.

Take Tesla, which has lost several high-profile execs recently. One of the most recent, Rich Otto, the former head of product launches, said on Wednesday that he'd decided to resign amid the mass cuts.

"The recent layoffs that are rocking the company and its morale have thrown this harmony out of balance and it's hard to see the long-game," he wrote on LinkedIn.

Many of the cuts at tech firms are coming even as the companies are doing well overall. Yet leaders can feel a need to let go of workers for reasons that include pleasing Wall Street, operating more efficiently, focusing on newer efforts like artificial intelligence, and generally making do in a slower-growth environment brought on, in part, by interest rates that are far higher than just a few years ago, as BI has previously reported.

One reason the cuts don't always come all at once is because companies are trying to address changes where they believe they need them rather than making across-the-board cuts, Harvard's Sucher said.

It's tough to recruit with a reputation

The most prestigious names in Silicon Valley can have an easier time making routine cuts because they have a steady supply of people who'd like to add a high-profile logo to their LinkedIn profiles.

"They think that their brand is bulletproof," Cascio said, referring to big-name tech companies. "To some extent, it is, but that's not true of most employers — by far the majority of employers."

But even for the biggest names in tech, there can still be harm at the margins when it comes to recruiting top talent, he said. Those who might entertain multiple offers will consider where there have been cuts and often will opt for the company that has never had layoffs rather than one that has gone through multiple rounds, Cascio said.

"That's going to be a tiebreaker," he said.

And Gen Zers entering the workforce are prioritizing employment security — knowing that even if their jobs change within an organization, they still have a role there, Cascio said.

Caroline Ogawa, a director in the HR practice at the research firm Gartner, said that even though the job market for white-collar employees might be softening, many workers have yet to let go of the sense of power they developed a couple of years ago during the Great Resignation. That means many are remaining picky about where they work.

"Although candidates may be receiving fewer offers, their expectations have held firm," Ogawa said. "With that level of candidate agency, it's going to be hard to replace those employees."

Dumping on your former employer

Social media makes it easier for spurned workers to sound off on how their former employers handled a layoff, Cascio said. That's a risk that didn't exist years ago and one that even top companies face when it comes to recruiting the next hot job prospects.

"It's so easy to tarnish a company's reputation," he said.

Gartner's Ogawa also told BI that when employers lay off workers, those left behind are often forced to take on the work once done by their former colleagues. That can lead to burnout and even disengagement, prompting some to wonder what their purpose at the organization is.

That makes it important for leaders to communicate about why they're making the reductions and how workers can re-engage with their jobs.

"Fear is managed through transparency," she said.

Harvard's Sucher also said offering workers a rationale for cuts is essential — not just for those who are getting let go but for those who remain.

"'What's the reason?' And, 'How plausible is the reason?'" she said. It matters "when you're communicating externally, but it matters hugely when you're communicating internally."

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