SMEs are less likely to lay off workers than large companies

2023-05-28 15:36:27

Since the start of 2023, major American tech companies have multiplied job cut announcements: 27,000 at Amazon, 10,000 at Microsoft, 10 000 chez Goal, the parent company of Facebook. At the end of 2022, Elon Musk, new boss of Twitter, announced 3,700 layoffs worldwide.

In a few months, several of the global tech giants will have cut between 5% and 50% of their workforce. The leaders of these companies justify these decisions by the need to reduce costs and improve financial performance in a context of economic slowdown linked to the rise in interest rates and a drop in demand.

The waves of layoffs in the event of a slowdown in economic activity in a sector of activity, such as today in tech, constitute a phenomenon commonly observed since the 1980s. If we are talking about waves, it is because the layoff plans in large companies seem result from a certain mimicry.

In other words, when a company announces a redundancy plan, its competitors often quickly follow suit, perhaps for fear of being accused of being passive by their shareholders when others are making difficult decisions. Pressure on performance exerted by shareholders and the financial markets would therefore help to explain the waves of layoffs.

Less pressure on SMEs

Small and medium-sized enterprises (SMEs) are less affected by this phenomenon. In a recent article research, we show that the probability of a dismissal occurring is around 5% lower than in large companies, a fairly stable figure over time between 2011 and 2019.

Moreover, when the turnover of the company under consideration falls, the probability of observing layoffs is also significantly lower in SMEs than in large companies. It is only in contexts of financial distress, that is to say when the risk of bankruptcy becomes very high, that there is no longer any difference between SMEs and large companies. Finally, when a dismissal occurs, it is of a much lower magnitude in an SME than in other types of companies.

How to explain it? First of all, unlike large groups, the vast majority of SMEs are not listed on the stock exchange, and therefore not subject to pressure from the financial markets. In addition, smaller organizations are commonly run by the shareholder-manager(s). Therefore, the decision to lay off is taken within SMEs directly by the shareholder-manager who works directly on a daily basis, and sometimes in the same offices as the employees.

As a result, it is not so easy to lay off employees with whom you have worked on a daily basis, sometimes for years, as employees whom you have never met in your career. The lower probability of layoff thus reflects a profound difference that exists in terms of social proximity between managers and employees of SMEs on the one hand and of large companies on the other.

A safer environment

Our work therefore shows that this greater social proximity that exists within SMEs between managers and employees is likely to protect the latter more from layoffs than in the case of large companies. We hypothesized that, in the context of declining performance, SME managers attach more importance to the future of their employees than do managers of large companies, because they feel closer to them. . Therefore, as the decision to lay off would be more difficult to take within SMEs, the number of layoffs would be reduced.

SMEs therefore represent a more secure work environment for employees whose employment is less likely to be jeopardized by short-term variations in company performance. Insofar as two out of three jobs created by SMEs in the European Union, our results underline the economic and social importance of a dynamic population of SMEs. Supporting their emergence, survival and development therefore appears to be a major challenge for the public authorities.

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#SMEs #lay #workers #large #companies

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