[EPW] Lay-Off Crisis and India

layoff

Context

  • Silicon Valley’s tough times continue with Amazon expected to enforce job cuts that could impact close to 10,000 employees.
  • Amazon’s layoffs come after other major tech companies, such as Meta, Twitter, Snap, and Microsoft, have already implemented such measures.
  • A few days before that Twitter led by its new owner Elon Musk also witnessed mass layoffs.

Lay-off crisis is grappling India too

  • The biggest technology companies are bracing for troubled times ahead as the Covid-19 induced acceleration and growth has not kept pace.
  • With talks of global recession, technology companies, typically seen as big spenders, are now resorting to cost-cutting.
  • Indian Startups have also faced this trouble with media reports saying that approximately ten thousand employees have been laid off by startups in mainly edtech and ecommerce sectors this year.

Forced layoffs and restructuring have become common strategies for companies struggling to compete. So what is the reason for this Lay-Off crisis, its impact and how is it expected to play out in the future.

What one means by Lay-Off?

  • A layoff is the temporary or permanent termination of employment by an employer for reasons unrelated to the employee’s performance.
  • Employees may be laid off when companies aim to cut costs, due to a decline in demand for their products or services, seasonal closure, or during an economic downturn.
  • When laid off, employees lose all wages and company benefits but qualify for unemployment insurance or compensation (typically in USA).

Why do companies resort to layoffs?

  • Cost reduction: One of the main reasons why workers get laid off is because the company decides to cut back on costs in some way. The need can arise from the fact that the company is not making enough profits to cover its expenses or because it needs substantial extra cash to address paying off debt.
  • Staffing redundancies: Layoffs also occur when a company needs to eliminate some positions due to over-staffing, outsourcing, or a modification to the roles.  A company may want to eliminate redundant positions in order to make its operations more efficient.  
  • Relocation: Moving the company’s operations from one area to another can also bring about the need to let go of some workers. Shutting down the initial location will not only affect the workers who get laid off but the surrounding community’s economy as well.
  • Merger or buyout: If a business is bought out or decides to merge with another, the change might lead to a change in the company’s leadership and corporate direction. If there’s new management, the chances are that they’ll come up with new goals and plans, and this can lead to layoffs.  

Immediate triggers of Lay-Off

  • Pandemic Boom: During the pandemic, there was a surge in demand as people were in lockdown and they were spending a lot of time on the internet. The overall consumption saw an upsurge following which the companies went to increase their output to meet the market requirements.
  • Over hiring during pandemic: In order to meet the demands, many tech companies went on a hiring spree anticipating the boom to continue even after the pandemic. However, as the curbs were eased and people started stepping out of their homes, consumption fell, resulting in heavy losses to these big tech companies. Some of these resources were hired at a higher cost because of the sudden upsurge in demand.
  • Fear of recession: As the demand is coming back to pre-Covid levels and seeing the debt bubble almost about to burst and fearing recession, these companies are cutting down their costs by closing down low-performing projects and laying off the excess and high-cost resources they hired to accelerate growth.
  • Russia-Ukraine War: The war has also contributed to these layoffs as it has made the market more volatile. This is clearly visible from stock market volatility.
  • Inflation: Rising inflation has also impacted several world economies severely leading to a crisis in the job market as well. The world is currently hitting a reset button to overcome all these ups and downs.

Lay-Offs scenario in India

  • Among the startups that have laid off people, 10 startups were from the e-commerce industry while 7 startups were from edtech.
  • Of these startups, seven to be specific, were unicorns—Ola, Byju’s, Unacademy, Vedantu, Cars24 and Mobile Premier League (MPL).
  • Another unicorn, Blinkit, which was formerly known as Grofers, fired people when it was a unicorn but lost its unicorn status during acquisition by Zomato.

Impacts of Lay-offs

  • Cut-throat market competition: Layoffs are a painful but expected fact of life in a market economy exposed to competition and trade.
  • Immense loss to the workers: Layoffs can be damaging psychologically as well as financially to the affected workers as well as their families, communities, colleagues, and other businesses.
  • Decreased customer loyalty: When a company lays off its employees it sends out a message to customers that it is undergoing some sort of crisis.  
  • Emotional Distress: The person who is laid off suffers the most distress, but remaining employees suffer emotionally as well. The productivity level of employees who work in fear is likely to go down.

Lessons for India

  • Indian startups grew at a notoriously faster pace than its neighboring regions.
  • But the layoffs are a sobering reminder that the bigger the startups became, the harder they fell.
  • Just because a startup had touched a sky-high valuation did not immediately mean its employees’ jobs were insured.

Way forward

  • Voluntary retirement program: This enables individuals to transition to retirement smoothly.
  • Cut back on the extras: If a company is laying off workers to reduce costs, it can look for other avenues of saving money. For example, the company managers can freeze additional hiring, reduce or remove bonuses.
  • Consider a virtual office: Another way to cut down on costs is to keep only the most important staff onsite and send the rest of the workers home to work remotely.  
  • Offer more unpaid time off: A company owner can also save money by offering more unpaid time off rather than eliminating workers’ positions.  

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