December 6, 2022

ASU business professor Hitendra Chaturvedi explains what is behind the year-end layoffs

The holiday season is upon us once again. That means gift purchases, time with family and friends, and good tidings all around.

But thousands of workers are part of a year-end trend that seems to be emerging: mass layoffs.

Major companies such as Amazon, Meta, Salesforce, Twitter, Lyft, DoorDash, CNN and, most recently, H&M, are dumping employees en masse at the harshest time possible. No sector seems to be immune, and workers, who had the upper hand during the pandemic, appear to be losing their grip.

Could this be a shift in momentum or a tilt toward recession? Hitendra Chaturvedi, a professor of practice at Arizona State University’s W. P. Carey School of Business, offered some explanation in a Q&A with ASU News.

An expert in supply chain strategy, global logistics, entrepreneurship, sustainable supply chains and digitizing supply chains, Chaturvedi said the layoffs are pointing toward a hunkering down mentality by companies expecting an economic slowdown.

He also says that we may see layoffs increasing in the first quarter of 2023 as we get over the holiday season. It is a risk mitigation strategy by companies preparing and planning for an uncertain 2023.

Man with gray hair and black shirt

Hitendra Chaturvedi

Question: We’ve been reading in the news about mass layoffs since November. They include several high-profile companies such as Amazon, Salesforce and now H&M, which just announced layoffs for 1,500 workers. This is all during the holiday season, which I would think is when they need workers the most to meet demand. Is this unprecedented?

Answer: Yes, layoffs are happening, but no, it is not unprecedented. Layoffs are not only limited to the above-listed companies, but many sectors are seeing layoffs, including banks. We are not hearing this because it’s happening without big announcements and the news has stayed under the radar. The timing of layoffs is raising questions due to the holiday season, but if you look at the scale, it is nowhere near what we call mass layoffs caused due to economic recession. If we dig deeper into the numbers, there is another interesting factoid — layoffs are selective across roles and not across the board. When we were hearing of labor shortages, it was truly a shortage at the farms, on the factory floor, in our retail outlets, etc. The hiring issue was not that acute in middle management or even senior management. Guess where the layoffs are happening? It is not on the factory floor where people are desperately needed. Hiring is in a full frenzy on the factory floor, but layoffs are happening everywhere else.

Q: In your opinion, what is causing these mass layoffs?  

A: In simple terms, it is just poor forecasting of demand. Just as if we are having a party, and we assume our friends will eat a lot, we order a lot of food. Even with RSVPs, many do not show up, and those who show up do not consume food to your expectations, and you have huge leftovers.  

Similarly, companies hired because they expected the consumer buying pattern to continue. Hiring is a lagging indicator as it takes time to hire people and train them. When companies saw indicators (increasing interest rates, global issues, cooling of the housing market) pointing toward an economic slowdown, they laid off some workforce in anticipation of a slowing economy. In the end, it is all educated guessing/forecasting. Sometimes companies win, and sometimes they lose in this guessing game. In the end, we are all humans and fallible.

Q: I’ve heard some economists say the layoffs are ultimately good for the economy because they will combat inflation. Help me to understand that answer.  

A: What these economists are saying is that if layoffs happen, it will curtail buying. As buying is reduced, demand will cool down. As demand cools down, there will be ample supply. Ample supply and cooling demand will result in reduced inflation.  

The problem with this theory is that, if we are not careful, it can cause a very serious spiral toward recession. Let me explain: As demand slows down, companies will start to produce less, and sell less. If they produce less, they will not need workers, and that will lead to more layoffs. This cycle, if left unchecked, can lead to recession, which we need to be wary of.

Q: Are we on the verge of a recession or can we avoid it, and what actions can help us avoid one?  

A: All signs are indicating a soft(er) landing next year — meaning a mild recession. The Fed just announced a possibility of a much less severe interest rate hike in December as they also anticipate a slowing down of inflation. GDP growth was at 3% this quarter, the highest in many months. If there are no major layoffs, and if we can bring inflation under control, starting with energy and grocery prices, we have this battle won and may prove to be a classic case study for future generations. There are a few wild cards though that we need to keep an eye out for — international disputes leading to the energy crisis in Europe, a slowing economy and a strong dollar that makes our exports expensive.

Q: Will these companies ultimately get back to a point where they can hire those workers back, and would they even want to come back?  

A: If we have a soft landing, then companies will come back with a vengeance to hire people, but the key is to identify where is the need. Some jobs may not be rehired, while others may stay vacant for want of workers. Millennials and Gen Z are moving toward a gig working style so companies will have to adjust to this phenomenon if they want to hire, or even rehire their best candidates. The type of loyalty that employees had in the past toward the company they worked for, is just that … a thing of the past.

Q: How does all this impact graduating ASU students? Should they be worried?  

A: Graduating students should realize they are stepping into a work environment that is in flux and they should be adept at finding their path through this flux. As faculty, we should proactively prepare these students, not only with the business basics, but also how to navigate this changing environment, and prepare them to take advantage of this “opportunity.” The onus is on us to help our students, and if we do a good job, our students should be walking into a world where they will have multiple job offers to choose from.

Top photo courtesy iStock

Reporter , ASU News

480-727-5176