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Big Job Losses Early Good Or Bad

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by Kevin Maney
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Oct 27 2008 9:48am EDT

Big Job Losses Early -- Good or Bad?

Kevin Maney notes: Economists are worried and even a little puzzled about the mass layoffs and deep job cuts this early in a down cycle, The Wall Street Journal says. Most of the time, the weakest labor situations come at the end of a recession, not when it's just starting. The story is based on numbers from the Bureau of Labor Statistics, and they do look pretty scary.


But then I got thinking about that slide presentation VC firm Sequoia gave to its portfolio companies. Part of the advice was to ruthlessly cut staff now, preserve cash and climb back up. Waiting too long ultimately damages the company more. Other VCs are giving their companies the same kind of advice -- or orders.

I've also heard big-company CEOs talk about this over the past year. Perhaps this is a new lesson that's seeping into managers' consciousness -- or maybe it's a course at business schools or something. But the accepted wisdom now seems to be: when trouble starts, immediately cut as deeply as you think you need to in order to survive the whole crisis, keep your core best people, and rebuild.

But this leaves some important questions on the table. Does that strategy only work if you're the ONE smart company that does it while all your competitors drag their feet? If every companies does quick, hard layoffs, will that plunge us into a deeper overall recession -- or set the stage for getting us back to prosperity more quickly?

Any economists out there with answers?

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