Leaders, your mass layoffs may have an unintended side effect that hurts the company’s bottom line


By Michael Grothaus

Over the past several months, the tech industry has been hit by mass layoffs at nearly every major company, including Meta, Google, Microsoft, and Amazon, to name a few. And just in the last week alone, Dropbox and Lyft joined the fray with significant staff reductions.


But while layoffs are usually done because companies believe that staff overhead is eating into company profits, a new study shows that layoffs may result in companies losing workers they want to keep around, too.

In the study, from the University of British Columbia Sauder School of Business, researchers looked at employment data for nearly a million workers across 1,620 stores. The stores belonged to a major retailer that was experiencing high turnover—or what the researchers call “human capital outflow.” 

Specifically, the researchers looked at how three types of purposeful staff reductions affected the remaining employees. Those purposeful staff reductions included dismissals (firings), voluntary turnover (people who quit), and layoffs. Their findings showed that layoffs “had the strongest and most immediate effects” on human capital outflow—the choice by the employees who survived the layoffs to leave the company, too.


To put that into hard numbers, the data showed that when employees are fired, an average of 0.17 remaining employees also quit. When employees voluntarily leave a company, an average of 0.23 remaining employees also leave. But when employees are laid off, an average of 2.2 employees also quit.

“It’s very bad news for organizations, especially if they are laying off high performers, because if those positions get eliminated, both high and low performers start quitting,” said UBC Sauder assistant professor and coauthor of the study Dr. Sima Sajjadiani in a statement. “It’s a signal that people’s jobs aren’t secure, and the organization doesn’t care about them, no matter how hard they work. So they think, ‘I should leave as soon as possible.’”

What does this suggest for all those tech giants that recently reduced their headcount? Well, they may actually find themselves under their ideal staffing level and in a worse-off position than they anticipated. Or to put it another way, layoffs can make remaining employees think they are on a sinking ship. That may lead staffers who are vital to the future of the company to search out other vessels with more perceived stability.

Leaders, your mass layoffs may have an unintended side effect that hurts the company’s bottom line


The full study was recently published in the Academy of Management Journal.

Fast Company