Jeffrey Pfeffer
Sarah Jackson
Sat, March 25, 2023
Stanford professor Jeffrey Pfeffer says copycat behavior is a key factor in the mass layoffs sweeping tech, finance, and other industries.
Nancy Rothstein
Industries like tech, media, and finance have slashed thousands of jobs in the past few months.
Companies have cited an economic downturn and a drop in demand for the job cuts.
A Stanford professor says there's another simpler reason: Companies are blindly copying each other.
This as-told-to essay is based on a conversation with Jeffrey Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior at the Stanford Graduate School of Business. It has been edited for length and clarity.
The idea that human behavior is influenced by what others do is really old. If you're a pedestrian and you see a stop signal, but no cars are coming and somebody steps into the street, you'll probably do it too. It's almost automatic behavior.
We should expect this to also be true in business. A lot of companies were hiring during the pandemic, so everybody decided to hire. Now, companies are laying off, and everybody decided to follow each other and lay people off. A lot of this is just imitation.
Companies don't throw out their capital equipment the minute market turns down. Hiring and firing like this is expensive. First you pay severance, then you go back into the market and pay recruiters and head hunters. You may also pay bonuses to get people to come work for you.
And when the economy turns down, you do this all over again. These are all extra expenses that companies wouldn't incur if they had a long-term idea of how many people they needed instead of hiring and firing with every economic fluctuation. If you think about it, companies are essentially buying high and selling low with their employees, which doesn't make sense.
A lot of companies doing layoffs cite the economic downturn, but many of them aren't going to run out of money if they avoid layoffs. This is a choice.
When people no longer have jobs, their purchasing power and purchasing activity goes down. So these layoffs help create the very economic downturn that they're supposedly protecting against.
The companies also try to justify the layoffs by saying there's been a drop in demand, but you could argue that one of the reasons for that is that all this talk about layoffs has scared everybody. That means fewer companies want to advertise, for example, which affects companies like Meta and Google. So it becomes a self-fulfilling prophecy.
There was a time when companies cut employment only in times of severe economic stringency. But now they've become kind of routine, and there's very little consideration of the harm they cause.
Layoffs have a huge behavioral and physical negative effect on people. So while companies are trying to maintain their margins, they're exacting an enormous human toll.
Layoffs are stressful, and stress leads to a bunch of unhealthy behaviors. People's social identity and friends networks are often tied up with their jobs and where they work. Research has shown layoffs can cause a 15% to 20% increase in death rates for affected workers for the following 20 years, and they can drive the odds of suicide up by two times or more. We as a society will pay for the health consequences of these layoffs.
In many instances, layoffs don't increase stock prices or cut costs. Between things like the cost of severance and the loss of productivity, layoffs have pretty nasty and negative consequences for the company. It's not clear they actually increase profits.
The irony is that these same companies were talking a year ago about people as their most important asset, and now they're treating their employees pretty badly, laying them off via email or by abruptly cutting off their access to the company. These layoffs are a decision that reflects the company's values, and these companies have basically given their employees the middle finger.
Industries like tech, media, and finance have slashed thousands of jobs in the past few months.
Companies have cited an economic downturn and a drop in demand for the job cuts.
A Stanford professor says there's another simpler reason: Companies are blindly copying each other.
This as-told-to essay is based on a conversation with Jeffrey Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior at the Stanford Graduate School of Business. It has been edited for length and clarity.
The idea that human behavior is influenced by what others do is really old. If you're a pedestrian and you see a stop signal, but no cars are coming and somebody steps into the street, you'll probably do it too. It's almost automatic behavior.
We should expect this to also be true in business. A lot of companies were hiring during the pandemic, so everybody decided to hire. Now, companies are laying off, and everybody decided to follow each other and lay people off. A lot of this is just imitation.
Companies don't throw out their capital equipment the minute market turns down. Hiring and firing like this is expensive. First you pay severance, then you go back into the market and pay recruiters and head hunters. You may also pay bonuses to get people to come work for you.
And when the economy turns down, you do this all over again. These are all extra expenses that companies wouldn't incur if they had a long-term idea of how many people they needed instead of hiring and firing with every economic fluctuation. If you think about it, companies are essentially buying high and selling low with their employees, which doesn't make sense.
A lot of companies doing layoffs cite the economic downturn, but many of them aren't going to run out of money if they avoid layoffs. This is a choice.
When people no longer have jobs, their purchasing power and purchasing activity goes down. So these layoffs help create the very economic downturn that they're supposedly protecting against.
The companies also try to justify the layoffs by saying there's been a drop in demand, but you could argue that one of the reasons for that is that all this talk about layoffs has scared everybody. That means fewer companies want to advertise, for example, which affects companies like Meta and Google. So it becomes a self-fulfilling prophecy.
There was a time when companies cut employment only in times of severe economic stringency. But now they've become kind of routine, and there's very little consideration of the harm they cause.
Layoffs have a huge behavioral and physical negative effect on people. So while companies are trying to maintain their margins, they're exacting an enormous human toll.
Layoffs are stressful, and stress leads to a bunch of unhealthy behaviors. People's social identity and friends networks are often tied up with their jobs and where they work. Research has shown layoffs can cause a 15% to 20% increase in death rates for affected workers for the following 20 years, and they can drive the odds of suicide up by two times or more. We as a society will pay for the health consequences of these layoffs.
In many instances, layoffs don't increase stock prices or cut costs. Between things like the cost of severance and the loss of productivity, layoffs have pretty nasty and negative consequences for the company. It's not clear they actually increase profits.
The irony is that these same companies were talking a year ago about people as their most important asset, and now they're treating their employees pretty badly, laying them off via email or by abruptly cutting off their access to the company. These layoffs are a decision that reflects the company's values, and these companies have basically given their employees the middle finger.
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