A new paper might inform possible impacts because it analyzed 556 collective layoffs announced between December 2018 and November 2019 across different industries that involved more than 250,000 employees. They wanted to see what collective layoff decisions had on the firms that initiated them.
The termination of employment, particularly of large numbers of people, typically evokes negative connotations. While the effect on individuals is obvious they found that layoff announcements have negative effects on companies. The authors found negative effects are universally present and outlined the magnitude of such effects.
The researchers focused on the automotive industry across nine major automotive markets (Austria, Canada, France, Germany, Italy, Japan, Spain, the U.K., and the U.S.) and studied 205 collective-layoff announcements of 20 major brands between 2000-2015, which led to the termination of the labor contracts of more than 300,000 employees. The model specification estimates the advertising effectiveness and price sensitivity of every affected brand over time and across countries.
The data and analyses uncover the differences in the commercial consequences of collective layoffs across characteristics of the layoff announcements. The article identifies three typical information components in an announcement: (1) Motive - Did the firm motivate the collective layoff by a decline in demand?; (2) Nationality - Is the firm domestic or foreign to the layoff country?; and (3) Layoff Size: How many employees are affected by the collective layoff?.
The findings were that for two-thirds of the collective layoff announcements in the sample, sales in the layoff country of the corresponding brands decreased in the year following the announcements compared to sales in the year before the announcements. The average drop in sales across all announcements was -6.6%. After accounting for all other effects in the model, sales for the layoff brand are 8.7% lower following a layoff announcement than the predicted level absent the announcement. Second, following collective layoff announcements, consumers become less sensitive to the advertising of the firm and more sensitive to its prices. Third, the layoff announcement characteristics do explain some of the differences in the commercial consequences across announcements. Fourth, firms do not universally increase or decrease their advertising spending following collective layoff announcements. (The median change in spending is about 2%.) However, firms typically spend less on advertising (16% less, on average) than they would absent the announcement in the layoff country during the year following a collective layoff announcement.
The adverse effects of collective layoffs on sales in the layoff country loomed larger, not only because of lower advertising elasticity, but also because of lower advertising spending. An alternative response could be to increase advertising spending to compensate for the decreased effectiveness and to consider such higher ad spending in the layoff country as a restructuring cost.Coronavirus is unique in that companies had no choice in layoffs so the impacts might not be found. Local officials and then national ones gave them no choice. In many cases, like restaurants, people even spent more to support them.