Massive layoffs by publicly traded companies are increasing as the recession tightens its grip on the United States. The layoffs are indiscriminately affecting all sectors and businesses and have probably not yet peaked. Although these layoffs are terrible for those involved, the speed at which they are taking place shows the discipline of corporate America versus previous cycles, when companies were reluctant or constitutionally unable to trim fat.

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Layoffs Anyone?

The latest company to have a mass layoff was National Semiconductor (NYSE:NSM), which fired 1,700 workers, or 26% of its employees. This was a little odd since the company actually earned 9 cents a share in the quarter.

It would not be heresy to say that top managers at American corporations are under more financial and investor pressure than during the last great recession in the early 1980s. There are three reasons for this:

  • Global competition is much more intense due to the removal of many trade barriers and quotas over the last 25 years.
  • Pressure from large institutional investors to manage the cost structure is much more intense than in the early 1980s.
  • Use of the Internet makes information speedily available to investors and the media, giving management less room to hide.

This disciplined approach to handling a downturn will reduce expenses and protect earnings as we enter the trough of the recession.

Precautionary Layoffs
Another theory is that looking at unemployment is not an effective way at gauging the downturn, as many companies are doing precautionary layoffs despite being in excellent financial condition. Microsoft (Nasdaq:MSFT) recently announced its first layoffs ever and will cut several thousand positions over the next two years. This is also odd considering that the company had $18 billion in net cash at the end of 2008.

International Business Machines (NYSE:IBM) fired 2,800 workers in January. Just one week earlier, the company reported earnings for the fourth quarter and full year, using the word "record" four times in its press release when referring to revenues, pretax profit, free cash flow and earnings per share. Hardly the stuff that mass layoffs are made of.

Others Are Necessary
Some layoffs are legitimate and necessary for a company to survive. General Motors (NYSE:GM) announced a headcount reduction of 47,000 as part of its survival plan presented to the U.S. Congress in February. Goodyear Tire and Rubber (NYSE:GT) reported a $1.37 loss per share in 2008 and fired 5,000 workers. Tire production fell 19%, and the company is heavily leveraged to the automotive industry.

This Cycle Is Different
The speed at which unemployment is increasing reflects the discipline of corporate managers running publicly traded companies. During the previous cycle companies could rest behind protectionist laws, and activist shareholders had not yet come into vogue like today.

If you are getting laid off, be sure to read The Layoff Payoff: A Severance Package, and learn how to go out fighting for the best benefits you can get.

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