“Bank of America will layoff 35,000″ “Almost 250,000 Layoffs in January Alone” “Macy’s to Cut 7,000″ “Circuit City Bankruptcy Will Eliminate 40,000″

Every day we see headlines like these coming from newspapers, news networks, radio coverage, magazines, and even us bloggers.  Sometimes they are broad and cover the entire country, other times it’s only a half-dozen layoffs from a local small business.  One way or another though, almost everyone is making cuts, and no industry is safe.

The boards of directors and CEOs at every company are not as dumb as we make them out to be.  They read the news, they see their sales projections, they know what the economy has been up to.  If companies you do business with are losing sales and cutting people, or your customers are buying less and your sales force is twiddling thumbs, you’re forced to assume you will need to cut people too.

In many circumstances, companies believe it is absolutely necessary for them to make these cuts.  The intriguing element is management operating under the assumption they are being proactive. They expect their business to decline, so they make the cuts early to minimize costs.  Makes sense right?

In actuality, the leaders of America’s companies are laying off people in a reactive manner. We’re all human here.  An analsys of my traffic shows that many of you are reading my blog from work.  This means you make money.  There is a decent chance you are making the same amount or more than you were this time last year, when our problems were limited to some weird thing called a sub-prime mortgages.  So even though most of your personal economy is fine, you’ve been making cuts haven’t you?  Grabbing the groceries from Wal-Mart now?  Scaling back the text messaging?  Cutting back on electricity usage?  So even though your income is the same, you’re still cutting back.  Think you’re preparing to get laid off?  Nope, you’re reacting to everything else going on around you, just like the business folks of America.

Your methods of cutting costs, even though income is similar, are the same as a large company’s.  You probably started with your most expensive bills to see what you could cut.  The most expensive bill for any company is always people; so the people get cut.  The folks they want to cut first are the ones not directly associated with making money for the company.  Just like you’d cut that $15 a month HBO contract before the $15 a month hosting fees you pay for your website.  Why?  Because the website can still make you money, HBO won’t.

Since everyone is cutting back, as the leader of a company you’ll get that layoff bug and feel the need to cut people too.  The reactive nature of humans is very predictable. The funny thing is that even the best of companies will make cuts even when they don’t have to.  If they didn’t, investors and the public will think they’re in denial of state of the economy and the stock would hit a selloff.  If you have your quarterly earnings call and don’t even allude to making cuts, you’re biggest investors will drop you like a trophy wife that learns her inheritense was invested with Madoff.  If you don’t beleive me, then you should know that even big oil, with its record profits of 2008, is doing some layoffs:

“Service company Schlumberger has said it will cut 5,000 jobs worldwide in the first half of 2009, and more could follow. ConocoPhillips plans to eliminate 1,300 jobs, and Halliburton has said it will trim head count too.”

The contagiousness of layoffs is part of the domino effect of a recession.  We’ll see how long this continues.

NPR on Layoffs Being Contagious

By The Weakonomist

The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics.

categories: economics, jobs, media