Face-Saving and the Business Cycle

I remember when once upon a time it was the socialists saying things like this and then the neoclassicals would respond about bills on the sidewalk.

Layoffs, from experience, happen in a downturn both due to business slowing down and it is a great way to eliminate poor performers without fear of a lawsuit. There could probably be thousands of reasons for everyone dump at once - I could see contracts as barrier to trimming during the boom and on and on.

Liquidating often means selling, and it's questionable whether anyone can save face by unloading assets at the worst possible moment. In any event it is valuations that drive a boom, not earnings, and at such times "success" takes on strange meanings. Imprudent decisions are applauded; blind risk is rewarded. But so what? Money is being made, the future is uncertain, and when there is food on the table -- you eat.

Reminds me of the story about the condemned prisoner who offers to teach the king's horse to sing. The king may die or the horse may learn to sing but at least the prisoner got a few more years to plan his escape.

One other element is there's often senior management turnover at the start of a "bust". New CEOs and other new senior management will typically have a mandate to cut costs and restructure.

add to that the accumulation bad workers. middle managers want to maximize the number of workers they are managing, and no one likes to fire. in a bust they are forced to pick and choose.

this would fit well with limits of management bandwidth.

when things are going well all attention will be focused on "get more"

when conditions go bad people will be forced to "get small"

also, laying people off in a downturn reduces the hazard that your smart but mismanaged people will go help a competitor