My neighbor’s company recently laid off 200 employees to “reduce costs.”
Three months later, they’d spent more on consultants than they saved all year.
Sound familiar? It should. Across industries, layoffs are the go-to reflex when companies hit turbulence. But the data tells a different story: layoffs often fail to deliver lasting savings, and can quietly erode a company’s financial and operational health.
On paper, layoffs look like quick savings: fewer salaries, smaller payroll. But look closer, and the hidden costs start adding up fast.
Between severance packages, unused vacation payouts, and COBRA health benefits, companies often spend millions up front just to make people go away.
The work doesn’t disappear when the workers do. Companies turn to consultants—who charge premium rates and lack institutional knowledge—to fill the gap. The result: higher costs, lower efficiency.
Remaining employees pick up extra work, often at overtime rates. Burnout rises, productivity falls, and the real cost per hour of output climbs.
When business rebounds (and it always does), companies must rehire. Recruiting and onboarding new talent can cost 50–200% of an employee’s annual salary. That “cost reduction” suddenly looks more like a loan.
After a layoff, the people left behind often experience what psychologists call survivor syndrome—a mix of guilt, anxiety, and mistrust.
Morale plummets. Employees see layoffs as betrayal.
Trust erodes. Risk-taking and creativity decline.
Turnover spikes. The most talented survivors—the ones with options—often leave first.
According to research by Wayne Cascio (University of Colorado), Jeffrey Pfeffer (Stanford University) and Peter Cappelli (Wharton School, University of Pennsylvania), companies that rely on layoffs don’t outperform their peers. In fact, their stock prices often lag behind competitors for years.
Academic research overwhelmingly confirms that layoffs are an ineffective long-term strategy:
Wayne F. Cascio (University of Colorado): Professor Cascio is arguably the leading researcher on the financial and human consequences of downsizing.
Their conclusion?
Layoffs are a blunt instrument that often inflict more damage than they prevent.
Forward-thinking CFOs and CHROs know the real trick isn’t cutting people—it’s cutting smarter. Here’s how the best do it:
Because as my neighbor’s story shows, if your “cost savings” strategy ends with higher consulting bills, it’s not strategy—it’s expensive denial.
Watch Susanna explain how CFOs are cutting costs without cutting muscle.
Learn how organizations are blending automation, AI, and contingent talent to stay agile without sacrificing people or performance.
In rare cases—like total restructuring or bankruptcy—they can. But for most profitable or stable companies, layoffs offer short-term relief at the cost of long-term competitiveness, morale, and innovation.
Studies show a 20–40% drop in productivity after major layoffs. Morale issues lead to absenteeism, disengagement, and turnover, which can quietly drain millions from your bottom line.
Options include hiring freezes, reduced workweeks, voluntary exits, redeployment, and cutting operational waste. Partnering with an Employer of Record (EOR) or contingent workforce provider like TCWGlobal can also flex staffing without permanent headcount cuts.
Because they’re visible, fast, and look decisive to shareholders. Unfortunately, they’re also a form of short-term theater—appealing on earnings calls, but damaging in the quarters that follow.
Modern CFOs are blending AI-driven efficiency, contingent workforce models, and EOR partnerships to stay lean, flexible, and compliant—without the human and financial fallout of layoffs.
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Layoffs might look like discipline on a balance sheet, but in reality, they often signal panic. The best CFOs know that resilience isn’t built by cutting muscle, it’s built by rethinking how work gets done.
In short: smart companies don’t just survive downturns, they redesign intelligently, without breaking what makes them strong.
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