The economics of mass layoffs: It’s about power

Ever since Margaret Thatcher famously claimed, “There is No Alternative,” mass layoffs have ripped through Western democracies. In good times and bad, employees are discarded en masse. In the United States during the early 1980s, the axe first fell harshly on industrial workers as manufacturing collapsed.

Now mass layoffs are crushing workers at tech companies with a fury. More than 159,000 tech workers lost their jobs in 2022, and 78,000 more just in January 2023 alone. Since 1996, more than 30 million workers have suffered through mass layoffs, accounting for nearly a fifth of the US labour force.

What is causing this epidemic?

Shareholder capitalism

Mass layoffs, we are told, grow directly from the two irreversible drivers of prosperous economies: globalisation and technology. Every corporation now competes in world markets that constantly create pressures to lower costs as lower-wage workforces in developing nations successfully compete.  

These markets, we are warned, are woven together by a vast array of technologies that allow for swift and precise coordination. And of course, robotics and AI, are making millions of jobs obsolete - even those that require college degrees. This is the march of the global economy, and mass layoffs, no matter how much human damage they cause, cannot be stopped.

It’s a compelling and fatalistic story, but it’s far from the truth. Mass layoffs are not inevitable. They are the result of human decisions, driven by policies also made by humans, not robots.  While that process differs country-to-country, the American example is instructive.

When Ronald Reagan became president, in 1980, he brought with him a Thatcherite belief that government regulations over private enterprises should be eliminated.

One of the first rules to go was the ban on stock repurchases, which prevented corporations from buying back their own stocks in the open market in order to raise their price. That law came in the aftermath of the 1929 stock market crash, at which point stock buybacks were considered illegal stock manipulation. Permitted once again, in 1982 Wall Street proceeded to pressure corporations to finance stock buybacks and enrich shareholders.

Mass layoffs became the quickest and simplest way to create the cash flow needed for stock buybacks. Before deregulation, the law allowed no more than two percent of corporate profits to be used for stock buybacks. Today, nearly 70 percent of all corporate profits go to stock buybacks.

Virtually every mass layoff has stock buybacks lurking somewhere in the background. That’s the case right now at Google, Facebook, and Microsoft, as these tech giants cast aside tens of thousands of workers and at the same time reward their major investors with tens of billions of dollars in stock buybacks.

Similarly destructive, there is nothing inevitable about permitting debt-driven mergers and acquisitions. That’s a policy choice, not an economic imperative. Those consolidations inevitably lead to more corporate debt that, in turn, leads to more mass layoffs.

Take Twitter, for example. Elon Musk borrowed approximately $12 billion to purchase Twitter and then placed that debt onto the company’s books. Twitter’s debt payments jumped from $50 million per year to over $1 billion. To make ends meet, Musk slashed the Twitter workforce by half.

There is another alternative

But isn’t this just the law of the corporate jungle? Is it really possible for a global corporation to successfully compete without resorting to mass layoffs?

An example from Germany shows that it is.

Siemens Energy, with more than 90,000 employees, rescinded its 2020 plan to terminate 3,000 German workers during a global workforce reduction of 7,800. Instead, after negotiations with the union IG Metall, it agreed to reduce its German workforce only through buyouts and attrition. No employee would be forced to leave, and no facility in Germany would be shuttered.  

This no-forced layoffs agreement, ironically, was made possible by the co-determination system imposed on German industry by the Americans after WWII. The US wanted to tame the fascistic impulses of those industrial giants while also outcompeting Soviet socialism for worker allegiances. Half the seats on the corporate boards of German companies are filled with workers and their union representatives.

While these empowered workers do not fully control their corporations, they do have a great deal of input and access to information. And yet, as we all know, German corporations compete very successfully in global markets.

The economics of mass layoffs is really about power. When the balance is tilted heavily towards capital, as it is in the US, mass layoffs take place without a second thought. These days they are mostly done with mass emails, sometimes accompanied by crocodile tears from billionaire executives who take “full responsibility.” In Germany, unions still have enough power to force global corporations to think twice before dismantling their workforces.

The impact of mass layoffs goes far beyond economics. The failure to provide job stability in the Western world has led to a growing rejection of elite liberal corporatism. In the US, there is a very high correlation between areas with the highest mass layoff rates and the abandonment of the more liberal Democratic Party.

A telling example is Mingo County, West Virginia, deep in the heart of coal country. In 1996, Bill Clinton received 69.7 percent of its presidential vote. After the number of coal jobs over the next quarter century dropped from 3,300 to 300, Joe Biden received only 13.9 percent of its vote in 2020.

More disturbing still, mass layoffs are a clear and present danger to democracy. Our modern democratic societies rest, in large part, on faith that an open economy will provide stable employment opportunities for the vast majority of us.

Mass layoffs undermine that legitimacy. There is no economic event more damaging to the health and well-being of adult workers and their families than suffering through a mass layoff.  

When working people believe that the entire political and corporate establishment is unable to provide job stability a dangerous thought can come to those who are left behind: Why not give authoritarians a chance if they can help secure your job?

There better be alternatives, and soon.