You may have seen the headlines. According to TrueUp, tech companies laid off 674 people a day in 2025—a total of 245,953. So far this year, these companies have laid off an additional 131,504 people.
Layoffs often follow increases in economic uncertainty. Executives and consultants pitch “reducing headcount” as necessary, and sometimes even responsible, steps to “protecting the business.” Cutting payroll costs appears, at least in theory, to improve efficiency and restore profitability.
While the term “reducing headcount” does seem to strip away the human reality of layoffs, what if the basic financial evidence behind the effectiveness of layoffs is flawed? What if it is an antiquated assumption that offers short-lived gains that ultimately cost more than they save?
A growing body of peer-reviewed research suggests that layoffs may not deliver the benefits leaders assume—and may, in fact, undermine both organizational health and long-term performance.
Do layoffs achieve their financial aims?
At first glance, the typical reasons for layoffs over the last 30 years seem to make sense.
Companies may need to adjust their operations and cut costs as technology and competition shifts. In the current landscape of layoffs, layoffs are usually justified by the rise of artificial intelligence. But many experts warn of “AI Washing,” the convenient blaming of AI for layoffs that may be driven by other factors—including simple imitative behavior.
“Tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing,” writes Jeffrey Pfeffer, author of the 1998 book The Human Equation and a professor of organizational behavior at the Stanford Graduate School of Business. “If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it. Layoffs are the result of imitative behavior.”
In other words, the introduction of AI may be triggering a fad of layoffs that isn’t necessarily linked to financial performance. In fact, across decades of management research, one finding shows up again and again: layoffs rarely deliver sustained financial gains.
Some studies report short-term gains. For example, one 1998 study by Fayez Elayan and colleagues analyzed 349 layoff announcements and found that layoffs were followed by increases in profit margins and labor productivity. However, improved post-layoff profitability may partly reflect recovery from a low point, regression toward the mean, or accounting effects, rather than layoffs themselves creating long-term organizational strength.
In a series of longitudinal studies, Wayne Cascio and colleagues compared large corporations that engaged in significant workforce reductions with those that did not. Their findings show that firms with large layoffs often underperformed their peers in profitability and stock price over subsequent years.
Similarly, a broader synthesis of downsizing research by Susan L. McKinley and colleagues concluded that performance effects are inconsistent at best, with many firms experiencing declines in long-term outcomes.
In a 2012 review of 20 studies on corporate layoffs, Deepak Datta of the University of Texas at Arlington found that layoffs tended to have either neutral or negative effects on stock prices immediately after they were announced. He also found that most companies experienced declines in profitability following layoffs—and related research suggested those financial setbacks often persisted for as long as three years.
“Layoffs often do not cut costs, as there are many instances of laid-off employees being hired back as contractors, with companies paying the contracting firm,” says Pfeffer in a 2022 interview. “Layoffs often do not increase stock prices, in part because layoffs can signal that a company is having difficulty…. Layoffs do not solve what is often the underlying problem, which is often an ineffective strategy, a loss of market share, or too little revenue.”
How do humans experience layoffs?
Beyond measurable financial impact, layoffs are often very detrimental to organizational performance. According to results from a 2002 study by Magnus Sverke, Johnny Hellgren, and Katharina Näswall, employees who remained after layoffs experienced steep declines in morale and effectiveness, including a 41% drop in job satisfaction, a 36% decline in organizational commitment, and a 20% decrease in job performance.
Layoffs can also weaken the innovation, inventions, and relationships companies depend on to thrive. In one study of a Fortune 500 technology company, Teresa Amabile found that after reducing its workforce by 15%, new inventions fell by nearly a quarter.
And the damage can extend to customers, as well. Research by Paul Williams, M. Sajid Khan, and Earl Naumann found that customers are more likely to turn away from products or services after layoffs—suggesting that workforce reductions can erode not only internal trust, but brand loyalty, too.
While cutthroat employers might claim, “It’s not personal, it’s just business,” Pfeffer is unequivocal on the impact of layoffs, “Layoffs kill people, literally. They kill people in a number of ways. Layoffs increase the odds of suicide by two and a half times…. Layoffs increase mortality by 15-20% over the following 20 years.”
In addition, the effects of layoffs can persist for years. A 2009 Columbia University study found that workers who lost their jobs during the 1982 recession were still earning 20% less than peers who remained employed two decades later.
The harmful consequences extend far beyond income. Research by Kate Strully at the State University of New York found that laid-off employees were 83% more likely to develop a new health condition in the year following job loss and significantly more likely to engage in violent behavior.
Together, these studies suggest that layoffs aren’t just short-term episodes—they have lasting effects for people’s health, financial futures, personal well-being, and relationships.
What are the alternatives?
As Pfeffer cautions, “People don’t pay attention to the evidence against layoffs.” Perhaps it’s time that they do—and so consider the alternatives.
In a now-legendary story about the early days of Southwest Airlines in the 1970s, the leadership had a serious decision to make during a time of extreme financial pressure for the company. With only three planes in its fleet during the crisis, the choice for cost savings ultimately came down to two options: layoff employees, or sell an airplane.
To align with their values of trust, loyalty, and operational continuity, Southwest surprised the industry by deciding to sell an airplane, rather than lay off any of its workforce. What followed was an intense but uplifting period where people pulled together and figured out how to shrink the turnaround time between flights in order to fly more flights each day with only two airplanes. This turned into a sizable competitive advantage for Southwest for years to come, helping it become one of the most profitable airlines in the U.S.
Southwest continued its long “no layoffs” streak for over 50 years, even after most airlines chose to institute layoffs after major shocks like the 9/11 tragedy and the COVID pandemic. (Note: In 2025, Southwest did finally succumb to pressure from investors and layoff employees in combination with other service changes that made their brand less unique, like assigned seats and fees for checked luggage.)
During the 2008 financial crisis, industrial manufacturer Barry-Wehmiller faced severe declines in their revenue. Rather than laying people off, CEO Bob Chapman chose a combination of temporary furloughs, shared unpaid leave, and executive sacrifices (like temporarily cutting his own salary from $875,000 to $10,500). Employees came together and shared the downturn-related losses so that no one person had to lose their job. This path of coming together and sharing sacrifices for the good of the company may, in fact, have enhanced employees’ sense of purpose and organizational commitment. Barry-Wehmiller recovered successfully, became internationally known for its human-centered leadership model, and is now a multi-billion dollar company.
As these examples illustrate, forward-thinking companies and organizations often have more options than they originally believed—and they can consider alternatives to layoffs when times get tough:
- redeployment (moving people into more needed positions in the company);
- reskilling (teaching new skills that the company needs);
- temporary furloughs (having everyone take a bit of time off to save on payroll);
- reduced hours/pay sharing;
- hiring freezes; and
- natural attrition.
One example of reskilling had very positive effects. In 2008, AT&T had one of the world’s largest workforces—and the company realized it was facing a massive technological transition that would require new skills. Internal research showed that only about half of its 250,000 employees had the science, technology, engineering, and math capabilities the company would need going forward. At the same time, roughly 100,000 employees were working in hardware-related roles that leaders believed would likely disappear within the next decade as the company shifted toward software and digital services.
Instead of laying off people and paying high labor prices for tech-focused workers, AT&T created a massive reskilling campaign, with thousands earning “learning badges” for their newfound skills, thereby helping the company make a digital transformation. Perhaps a similar program could work in the age of AI?
Overall, these layoff-avoidant approaches preserve the human ingenuity and energy that powers organizational success, while maintaining trust between employees and their employer—and allowing companies to bounce back faster from future challenges.