A graphic view of how bad things are getting

Scrolling stock quotes at the bottom of a TV screen and real time market quoting software and web sites are familiar tools, but as we’ve heard many times – the market is not the “real” economy. Fortunately, there are a number of web sites around to help you watch as the economy sheds jobs. For example: the TechCrunch Layoff Tracker is updated daily and currently shows 224,169 employees laid off in the technology sector since the end of August.

What’s really interesting about these statistics is not the number of people being laid off – but the financial and economic aspects of the layoffs. You see, many of the companies on this tracker list aren’t actually losing money. In fact, some of them are reporting steady or even increased income.

So why are they laying people off?

There are a number of possible reasons:

• Most of them have had large drops in stock price – meaning that any stock options people are holding have become worthless for now. Dropping profits will only serve to make this worse, and cutting head count is a quick short-term way to increase profitability.
• Some of them expect this year to be awful – cutting expenses now will help their cash last longer if income drops.
• Every company tends to hire some people who aren’t really all that good – the economy provides a great excuse to unload the less competent (or dump the older and higher paid employees – often by providing a special incentive package to get them to quit).
• Management can’t figure out a way to put these people to work in a way that is profitable.

The irony of all this is that by laying these people off, the economy gets worse – as there are that many fewer people with incomes sufficient to purchase their products.

The final irony (dare we say hypocrisy) is that these very companies are often the ones that in good times emphasize how their employees are their most valuable resource.

Consider, if you will, the recent report that Microsoft is laying off 5000 people. Between these layoffs and additional cost savings (cutting merit increases, travel and other expenses), Microsoft expects to save $1.5 billion. That’s a lot of money. On the other hand, at year end Microsoft had over $20 billion in cash. One can’t help but wonder what were the reasons that went into their decision to go with layoffs at this time.