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Explained: Why there are layoffs or job-cuts everywhere?

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New Delhi, Nov 10: Just when the world was limping back to normalcy after the devastating affect of COVID-19, the fear of recession has loomed large with several MNCs initiating cost-cutting measures. In the last two months, many companies have fired their employees and restructured their workforce.

Data is clearly indicating that the global economy is already in a moderate slowdown and there's now a 98 per cent chance of a global recession, according to a report published by Ned Davis Research in September, and this has left workers worried about their future in their workplace.

Explained: Why there are layoffs or job-cuts everywhere?

Companies opt for costing cutting measures
Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, on Wednesday announced that it is laying off 11,000 workers as part of its cost-cutting strategy. In a letter to employees, Mark Zuckerberg, founder and CEO of the company, said the company has decided to reduce the size of the team by about 13 per cent and is letting 11,000 employees go.

Blood bath at another social media house as Meta fires 11,000 employeesBlood bath at another social media house as Meta fires 11,000 employees

Just days after Twitter takeover, its new boss Elon Musk fired over 3,000 out of 7,000+ employees. Microsoft (1,000), Snap (over 1000), Lyft (about 7000), Stripe (around 1,100), Coinbase (1,100), Shopify (1,000) and Netflix (450) have also taken measures to reduce the cost by sacking its employees.

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According to the data compiled by Crunchbase, over 32,000 workers in the US tech sector have been shown the door in mass job cuts, as of late July. "We've included both startups and publicly traded companies that are based in the US. We've also included companies based elsewhere that have a sizable team in the United States, such as Klarna," the analysis stated.

The same report claims that over 11,500 people have lost their jobs in India in 2022 alone. Recently, Byju's has announced plans to lay off 2,500 employees. Similarly, Unacademy (1,150 employees), Vedantu (624), Ola (nearly 500) and healthcare startup MFine (600) are some of the companies that have reduced their workforce.

Apart from layoffs, major IT companies, Infosys, Wipro and Tech Mahindra have reportedly opted for hiring freeze and have revoked offer letters given to students.

Why is there a layoff?
Many are wondering why there is a layoff. People are forgetting the fact that we live in an era of globalisation and a small impact in one part of the world could possibly impact everyone. It is because companies do not get funds from just one specific region alone or do not make business within the country. So, there will be a chain reaction.

Ukraine War
The Russia's invasion of Ukraine is triggering the recession. The war comes as a major blow to the economies as the entire world is feeling the effects of slower growth and faster inflation.

The layoffs at Twitter and an explanation by Elon MuskThe layoffs at Twitter and an explanation by Elon Musk

It is because the warring nations are major commodities producers, and disruptions caused global prices to soar, especially for oil and natural gas.

"Impacts will flow through three main channels. One, higher prices for commodities like food and energy will push up inflation further, in turn eroding the value of incomes and weighing on demand. Two, neighboring economies in particular will grapple with disrupted trade, supply chains, and remittances as well as an historic surge in refugee flows.

And three, reduced business confidence and higher investor uncertainty will weigh on asset prices, tightening financial conditions and potentially spurring capital outflows from emerging markets," the International Monetary Fund (IMF) said in a report earlier this year.

Companies playing safe
The inflation and the fear of recession followed by the under-performance in the first quarter have made companies to play safe and take steps to reduce the expenditure. It has to be noted that the top 30 companies lost $4.3 trillion in the market capitalisation between January 1 and June 30 this year.

It also made companies freeze the hiring. "Profitability is under pressure... When there is uncertainty on demand, we have to take these steps (a freeze on hiring and approvals for expenses more than $10,000). We believe... all firms are becoming pragmatic on controlling costs," an executive from Wipro was quoted as saying by Livemint.

Many IT companies went on a hiring spree due to the lockdown-induced online shift of businesses during the pandemic and now cutting the cost as it impacted their growth.

"At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments.

Unfortunately, this did not play out the way I expected. Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I'd expected," Mark Zuckerberg, Facebook CEO, said in a letter to his employees after the mass layoff.

So, the non-performing or non-revenue-generating people are being fired from the companies.

"As we move forward in our journey towards making Udaan a profitable company, the efficiency enhancement drive and the evolution in business model has created some redundancies in the system, with some roles no longer required," an Udaan spokesperson told Inc42.

As the profits drop, the companies are finding ways to increase the profits with lesser staff and boosting productivity.

Should employees worry?
It is quite common for people to have 'layoff anxiety', but employees should take measures to protect themselves from getting fired. If people have managed to overcome the difficult 'COVID' phase, this too shall pass. Instead of getting worried, try to upgrade your skills and stay connected with your professional network. Last but not the least, have a positive attitude.

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