Laying People Off – Small Companies & Large Companies

An article over at highlights some employment stats that a couple of researchers put together. The studies were conducted by the Society for Human Resource Management and Giuseppe Moscarini, an economist at Yale University, with Fabien Postel-Vinay of the University of Bristol. The findings? Large companies are laying off people at a faster pace than smaller companies. Here are the numbers:

October – December 2008

  • 27% of small firms (less than 100 employees) were reducing staffing levels
  • 45% of large firms (more than 500 employees) were reducing staffing levels

Plans for January – March 2009

  • 11% of small firms were planning on reducing staffing levels
  • 34% of large firms were planning on reducing staffing levels

The article provides the argument that the stats look like this because large companies tend to lag in hiring/firing during changing business cycles. So when things are getting bad, the large companies are slow to recognize it and the same can be said for when times start to pick back up.

Another argument posted is the idea that large companies have to please shareholders and do so through cuts. This is true to a point, but the proportion is very small.

I propose a hybrid answer. Large companies, because of their scale and diversification, tend to reflect the economy as a whole. They mirror the general ups and downs of the business cycle with some winning more often and some losing more substantially. Small companies tend to live from project to project. This includes product launches and the unveiling of innovative services. Flexibility is the competitive advantage for small companies, so they often identify needs and niches that large companies are neglecting. Small companies can’t afford to ignore these opportunities whereas large companies don’t pay for these missteps until a down cycle develops.

Ultimately, it’s an apples and oranges comparison because of the issue of scale. Small companies lay people off because they can’t survive as is. Large companies lay people off because their overhead costs are too high. Small companies probably just don’t have revenues to pay these people. Large companies need to improve inefficiencies.

Job security sure is weird.

Working Thoughts 03/03/08
Running Out of Fuel


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