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Are lay-offs, economic downturn harbingers of impending recession?

BY: KS Rajagopal

Ordinary people may have wondered why social media icons like Facebook and Twitter, online shopping giant Amazon and  major IT companies such as TCS, Microsoft and Infosys are sending off their employees in hundreds and thousands. They tend to have an underlying fear of possible recession on the heels of the massive lay-offs.

Pandemic-induced lockdowns, Russia-Ukraine war and disastrous weather conditions due to climate changes have adversely impacted economic growth prospects of every nation but so far, they have not triggered a recession like that of 2008. The war in Ukraine acts as a catalyst in the process that has been undermining economic situations in most nations ever since the pandemic and if the war continues, the economic conditions are likely to deteriorate further to the extent of kickstarting a period of recession.

Though pundits as yet don’t rule out the possibility of a recession, there is no specific evidence at present that indicates the beginning of a recession in the US or Europe.

What is specifically witnessed is that there has been a slowdown in economic growth for some time in most of the countries. Manufacturing sectors such as automobile, garments, leather, toys, jewellery etc., construction and agriculture segments had seen a slump in growth during the time of the lockdowns for various reasons, including migration of workers, shortage of raw materials and disruption in supply chain. Customers’ priority also changed during the same period resulting in low demand for goods/products in the market.

Nonetheless, these segments now seem to have recovered considerably and are faring well, particularly in India. An alarming situation with regard to a possible recession is not yet in any part of the world but rise in prices and mortgage debts, unaffordable healthcare facilities and increase in unemployment are serious concerns in both the developed and developing countries.

On the other hand, in the two years since the Covid pandemic, IT and ITES companies had been on a hiring spree. IT giants, online shopping platforms and social media platforms have recruited thousands of employees across the board in order to get the extra work done as there was a spurt in demand for IT and IT Enabled Services. Online activities reached its zenith. It  was indeed juxtaposed to what was expected to happen in the IT sector like other industries as a result of the lockdowns.

IT industry experts had viewed it as a ‘blessing in disguise’, especially because all other sectors, including farming, were struggling to cope with an altogether new scenario. Unable to manage the hard times, a large number of retailers and MSMEs downed shutters and switched to other works like delivery service and house cleaning necessitated by the Covid virus infection.

IT firms and professionals were buoyed by the boom even though they had to work from home. More and more works as IT firms and the related institutions were flooded with new assignments. Amidst the lockdown chaos, business thrived in the sector and most companies recorded a huge increase in revenue. Massive hiring and pay hikes across the board continued to keep the workforce ready. The trend was phenomenal in the job market.

After the lockdowns, when life came back to normal and people returned to their old habits, IT and online markets started feeling the heat and big companies found that many senior positions were redundant. These companies felt they badly needed renovation on the lines of the latest technology for which hordes of their staff, though experienced in the field, were found to be unskilled. Given their age, senior positions and high salary, the companies were least prepared to upskill these employees and instead undertook restructuring. This internal mechanism to do away with the bulge is a managerial strategy in other sectors as well.

Almost all IT firms, social media and online shopping platforms have initiated lay-offs. While some of them have sent off thousands of employees without an advance notice, some are mild and have told their employees to stay home and not to come to the office.

Lay-offs are not happening overnight and sensible employees who have the knowledge of their companies’ functioning might have anticipated such drastic measures by the management.

Not getting new contracts, cancellation of contracts, overshooting of project deadlines, unskilled or obsolete workers and many more have been cited by the industry insiders as reasons for downsizing the employee strength. They say lay-off has become a necessity for a company’s survival and growth.

Like any other business institutions, IT companies find that reducing staff strength is the most viable option to narrow down losses, opine the insiders. These companies are blunt to make remarks that they are already set for renovation at all levels and the mid-level, high-paying professionals are a baggage as they prove themselves no longer skilful for modern tech programs hence the sacking. For an employer, it could be one of the practical lessons for successfully running a business but for an employee, it’s time to reinvent oneself and go ahead despite the shock and shame.

BY: KS Rajagopal




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