The short but destructive history of mass layoffs

Until the 1970s, mass layoffs were both rare and perceived as a sign of failure on the part of corporations.
Until the 1970s, mass layoffs were both rare and perceived as a sign of failure on the part of corporations.
Image: Reuters/Andrew Caballero-Reynolds
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On July 8, Deutsche Bank began laying off 18,000 workers across its international offices as it retreats from the equities business, reducing the size of its workforce by roughly a fifth. The layoffs, which are expected to be concentrated in New York and London, are striking in scope. But the German bank is by no means an outlier.

It’s fairly standard for large corporations to axe tens of thousands of workers at a time, especially in the United States. Even in the context of a tight American labor market and a historic economic expansion, major US-based organizations have continued to make sweeping job cuts. Last year alone, Verizon Wireless laid off 44,000 workers, while Toys R Us shed 30,000. Wells Fargo let go of 26,500 over the course of three years, and General Motors laid off 14,700.

Mass layoffs like these tend to disappear fairly quickly from the mainstream news cycle, grabbing headlines for just a few days. And even then, as with Deutsche Bank, the layoffs are often discussed more as an indicator of a company’s struggles and strategic turns than as a life-changing disaster for huge numbers of human beings.

Of course, for the people who actually lose their jobs, it’s a very different story. Losing your job ranks among the 10 most stressful life events on the Holmes-Rahe Stress Inventory, a scale used to estimate people’s vulnerability to major health breakdowns.

It should be no surprise that layoffs can cause deep harm to the people who experience them. It’s not just because of the financial hardships that are involved with losing one’s job, although 78% of Americans live paycheck to paycheck. It’s not just because of the difficulty of finding a new job, although research shows it’s significantly harder to get hired when you’re unemployed, and only becomes more difficult the longer you’re out of work. It’s also because, in a society that teaches us to base much of our identity and self-worth on our jobs, a layoff—which usually has little to do with one’s performance at work—can destroy an individual’s self-confidence for years to come, with devastating effects on their mental health and the long-term course of their careers.

From the company’s perspective, the psychological toll of layoffs might seem sad but inevitable. Sometimes companies need to cut costs. Sometimes, as with Deutsche Bank, they need to change strategies. They always need to survive, lest they go under entirely.

But as New York Times journalist and author Louis Uchitelle argues in his 2007 book The Disposable American, the working world doesn’t need to be so cruel. He suggests that layoffs, like cigarettes, should come with a warning label, designed to shift the stigma surrounding job loss from the workers who are victims of it to the executives who see human suffering as the unfortunate cost of doing business.

Job security was the norm in the US for much of the 20th century, and it still is in many European countries. Mass layoffs are in fact a fairly recent phenomenon, emerging for the first time in the late 1970s. In the span of just a few decades, Americans came to accept frequent, large-scale layoffs as the price they have to pay in a dynamic global economy, a mindset that impacts blue-collar and white-collar workers alike.

There’s no question that the bankers affected by the Deutsche layoffs are in a far better position than, say, the factory workers at GM. While automation on Wall Street and reduced demand for investment bankers means that some of them will have trouble finding new jobs, they are nonetheless extremely well-paid, well-educated people with presumably a fair amount of social capital and, hopefully, some savings.

But the news of the Deutsche Bank cuts offers a timely opportunity to ask whether the pain that mass layoffs inflict upon workers of all stripes is, in fact, necessary, and to discuss how American workers resigned themselves to the idea that the employers to whom they dedicate one-third of their waking lives have a right to quickly dispose of them the moment their continued employment becomes inconvenient. As Sandra Sucher, a professor of management practice at Harvard Business School, sums up the culture of layoffs: “There’s this funny disconnect. People are valuable until they’re not.”

A brief history of mass layoffs

As Uchitelle explains in The Disposable American, from the 1890s through the 1970s, mass layoffs were rare, perceived as “a sign of corporate failure and a violation of acceptable business behavior.” This was the era of the company man, in which workers could reasonably expect to remain employed by the same organization for the bulk of their careers.

The prevailing view in the US through the mid-20th century held that government had a responsibility to ensure full employment, with federal spending on infrastructure as a way to fill in gaps when the job opportunities in the private sector were insufficient. Though this expectation began to fade in the aftermath of World War II, Uchitelle explains, the economic boom of the next few decades nonetheless served to ensure that workers remained in popular demand, while unions and the regulation of the airline, banking, trucking, telephone, railroad, and utilities industries served as further backstops for workers.

But the deregulation of those industries under the administration of former US president Jimmy Carter, championed by free-market advocates who sought to bring about greater competition and lower consumer prices, created an environment in which thousands of jobs could disappear in an instant. As Uchitelle writes, the “pattern of using mergers and acquisitions to chase higher and higher profits while closing or shrinking or selling less promising operations spread widely in corporate America, and layoffs greased the way.” The labor movement simultaneously weakened, and with it the job protections that unions had afforded to workers, cemented by the union-busting tactics employed by the Reagan administration during the 1981 air traffic controllers’ strike.

By the early 1980s, General Electric chairman Jack Welch was popularizing the idea of layoffs as a sign of corporate competitiveness. The man nicknamed “Neutron Jack” was responsible for eliminating the jobs of one out of every four GE employees between 1980 and 1985, with 118,000 casualties, according to Uchitelle. Welch in turn paved the way for executives like Robert Allen, the CEO of AT&T who made headlines in the 1990s for getting a substantial raise, from $6.7 million to a salary package worth $16 million, shortly after laying off nearly 50,000 employees. (“I feel no pain in accepting the compensation,” he said at AT&T’s annual meeting.)

Another notorious CEO was Al Dunlap, known as “Chainsaw Al,” who posed with pistols and made his name with “slash-em-and-trash-em” tactics at Scott Paper Company and the home-appliance company Sunbeam. Dunlap “positively gloats about putting people on the street,” Newsweek declared. His last big move involved firing half of Sunbeam’s 12,000 employees in 1996—only to be ousted 23 months later with Sunbeam’s finances in tatters.

By that point, layoffs were no longer considered quite so boast-worthy. The New York Times series “The Downsizing of America” and a Newsweek cover story called “Corporate Killers,” published within a week of each other in 1996, had apparently convinced CEOs that actively bragging about putting people out of work might be in poor taste.

But while the language executives used to talk about layoffs became more muted, executives continued to defend job cuts as unavoidable, given the pressures on business in the global marketplace, and emphasized that layoffs were ultimately for the greater good. “Downsizing and layoffs are part of the price of becoming more competitive,” Robert Eaton, then-CEO of the Chrysler Corporation, told the New York Times in 1996, the same year Dunlap told Newsweek, “If I don’t fire some of the people, the whole company will go under, and no one will have a job.”

Then-president Bill Clinton seemingly endorsed the idea that layoffs were an integral part of a competitive US economy, arguing, as Uchitelle summarizes, that “layoffs were acceptable … as long as there was support for the victims, through retraining and education, so they could qualify for the next job.” Meanwhile, more and more jobs were disappearing as companies moved their factories abroad under newly formed free-trade agreements. The question of whether companies really had to lay off workers wasn’t up for debate; those concerned about the plight of workers instead dedicated their efforts to pushing for both companies and the government to invest in education and training to help ousted people find new jobs.

The workers themselves generally found that the stigma attached to layoffs was so great, and the experience of being let go was so fundamentally demoralizing, that they had little will to organize or otherwise push back against their plight. “Their self-esteem was too damaged to be activists,” Uchitelle says. And young people who came of age during the layoffs of the ‘80s, ‘90s, and 2000s—including the massive cuts that accompanied the Great Recession, in which an estimated 8.7 million Americans lost their jobs between December 2007 and early 2010—grew up with the understanding that they had little power to resist such a fate themselves.

“It’s taken for granted that people will lose their jobs,” Uchitelle says. “Layoffs take place in this country today without anyone taking notice of them.”

The misguided logic of job cuts

Mass layoffs remain routine at many US companies, even when business is good. As Suzanne McGee wrote for The Guardian in 2014, “Being lean and mean is clearly the way corporate America wants to present itself to the world”—in no small part because companies’ stock often rises on news of layoffs, which investors perceive as evidence that management is serious about keeping costs down and profit margins high.

But as John Gapper observed in the Financial Times in the wake of the Deutsche Bank layoffs, “it is difficult to see how any business can achieve long-term success when there is evidently so little bond between it and its employees.”

Mass layoffs may save companies money in the short-term. But in the long run, businesses often pay a big price after they dismiss workers en masse. Certainly this was the case at Sunbeam, which was plagued by quality-control problems, among other issues, after Dunlap’s cuts.

The lost contributions of laid-off workers play a role, as does the fact that the workers who remain are—quite reasonably—demoralized by the experience of seeing their colleagues let go, affecting their engagement and productivity. Sucher, with Harvard Business School research associate Shalene Gupta, delves into some of the research on this in a 2018 article for the Harvard Business Review, which notes:

Companies that shed workers lose the time invested in training them as well as their networks of relationships and knowledge about how to get work done. Even more significant are the blighting effects on survivors. Charlie Trevor of University of Wisconsin–Madison and Anthony Nyberg of University of South Carolina found that downsizing a workforce by 1% leads to a 31% increase in voluntary turnover the next year. Meanwhile, low morale weakens engagement. Layoffs can cause employees to feel they’ve lost control: The fate of their peers sends a message that hard work and good performance do not guarantee their jobs. A 2002 study by Magnus Sverke and Johnny Hellgren of Stockholm University and Katharina Näswall of University of Canterbury found that after a layoff, survivors experienced a 41% decline in job satisfaction, a 36% decline in organizational commitment, and a 20% decline in job performance.

Other research suggests that people who are laid off often struggle to find new jobs, and those who do often wind up taking roles at a lower salary. “The effects follow people throughout their lives,” Sucher and Gupta write, pointing to a 2009 study from Columbia University which showed, alarmingly, that “employees who had been laid off during the 1982 recession showed that 20 years later they were still earning 20% less than peers who had kept their jobs.”

Both Sucher and Uchitelle say that the psychological and financial distress commonly experienced by workers who lose their jobs must also be taken into account in any discussion of the benefits and drawbacks of mass layoffs. Uchitelle’s interviews with mental-health professionals and people who had lost their jobs suggest that layoffs often triggered deep feelings of failure and blows to self-esteem from which people never fully recovered.

Even those who find another full-time role can remain permanently shaken by the experience of having a job in which they have invested their time, energy, and emotions suddenly disappear for reasons beyond their control. One 2015 study of 7,000 UK workers who had been laid off, for example, found that people who had lost their jobs between the ages of 33 and 50 were 4.5% less likely than their peers to say that they trusted others.

The long-term effects of layoffs extend to physical health as well; a 2018 study, for example, found that people who had involuntarily lost their jobs in the first 10 years of their careers were about six percentage points more likely to report having health issues later in life.

Is there such a thing as a good layoff?

Sucher acknowledges there really are times when companies have valid reasons to cut large numbers of jobs. But even in such cases, too many companies continue to go about layoffs in a dehumanizing way. She objects, for example, to the “thinking that people are suddenly lepers and have to be removed from the environment”—yet ordering workers to leave the office immediately, for fear of retaliation or outbursts, is common practice.

Though it may be prudent to cut off employees’ access to sensitive documents, Sucher says, there’s often no need to demand that they physically leave the premises on the spot. “From a risk management standpoint, it’s right to raise this issue about access,” she says. “But there’s lots of businesses for which that kind of risk is overplayed. There’s risk in not trusting people, too.”

Rather than springing the news on workers the day that they’re being laid off, Sucher is an advocate for planning ahead. “There’s a lot that can be done even if you’re going to do this kind of strategic restructuring to explain why you’re doing it, give advance notice, and make [affected employees], to the degree you can, partners in the process,” says Sucher. She points to Michelin and Nokia as examples of companies that have taken active steps in recent years to change the way they go about managing impending layoffs, including providing as much advance notice as possible.

“In one case with Nokia, it was almost 18 months before factories would be closed down,” Sucher says. “The fact that you’re going to make this change doesn’t mean that people can’t necessarily be trusted with information about their future.”

Sucher also argues that companies have an ethical obligation to play an active role in helping laid-off workers gain new employment. “If you liked the person well enough to keep them employed, you should care enough about them to hope you can help them with some dedicated effort to get them reemployed,” she says. When Nokia, for example, decided in 2011 to lay off 18,000 workers in 13 countries, the company invested €50 million in an extensive program, called Bridge, that helped the affected workers in planning the next steps for their careers, from job-search assistance to grants that helped people who wanted to go back to school or launch their own businesses.

Uchitelle, meanwhile, is skeptical about the party line that the solution to layoffs involves getting workers more education so that they will have the proper skills for in-demand jobs. “It’s a cruelty beyond imagination to tell people they have to go to college in order to work,” he says. While he doesn’t deny that automation is eliminating certain categories of jobs, he says there are alternatives to sending workers back to school—for example, government-funded infrastructure programs as the ones employed under the administrations of Harry Truman and Dwight Eisenhower, or embracing the apprenticeship model of employment, in acknowledgment of the reality that with the exception of certain roles, like doctors and engineers, “most people learn the job on the job.”

What we owe to each other

Both Sucher and Uchitelle agree that corporate culture is badly in need of a paradigm shift when it comes to mass layoffs, which are too easily passed off as a necessary evil when the necessity may not, in fact, exist at all. Companies that need to trim costs should strongly consider alternatives to layoffs, such as buy-outs, furloughs, and salary cuts, for the sake of their own self-interest as well as the lives of their employees, Sucher says.

Some solutions could also lie at the government level. Germany, for example, along with most countries in the EU, reserves seats on company boards for workers, who are less likely to endorse scorched-earth layoff plans. Finland requires companies with more than 20 employees to go through a formal consultation procedure (pdf) considering alternatives to layoffs. That said, some European countries are moving to weaken job security; France, for example, recently got rid of a law that required a judge to determine whether companies’ global financial health justified layoffs.

In the US, employers have announced 330,987 job cuts so far this year—the most in the first half of any year since 2009, according to Challenger, Grey, & Christmas. For those affected by layoffs, or workers dealing with the well-documented anxiety about potential cuts, it’s particularly difficult when we experience the fallout in isolation from one another, wrestling alone in self-doubt, growing secretly convinced that our professional misfortune is evidence of some intrinsic flaw or that we simply lack the skills to succeed in a rapidly changing economy.

To think this way is to see oneself through a company’s eyes—as a piece of data on a balance sheet. In connecting with others who have experienced layoffs, perhaps workers can learn to perceive their own essential value when their companies won’t.