Who gets let go first in a recession? Last hired employees. Companies employ a last in first out model with employment. The newest employees come with the highest risk. Furthermore, tech companies are usually the first to initiate layoffs in a recession.
Why tech companies? Because they are the first ones to over-hire because their business model scales the quickest out of all the industries and falls just as quickly. Demand for their products is not a smooth line curve.
However, there’s still good news! Tech unemployment is still low at 2.2% as of March 2023. And they are one of the highest paid employees out of any other industry already. However, that doesn’t mean that it can’t change at the drop of a hat.
If companies can’t afford their bloated salaries, then they will not shy away from laying the employees off. Who gets let go first in a recession? Last in employees are the first out. However, the exception is if the oldest employees are already too expensive.
Then the new employees are a way for the companies to refinance their salaries so they can have cheaper employees. The higher income employees provide the worst margins for companies. Because an employee’s input is limited to their time but they have unlimited upside compensation potential.
As March 2020 showed, companies will not shy away from letting employees go in a second. Profits are too important for companies that they’ll do anything to protect them.
Who Gets Let Go First in a Recession? Why It’s the Last One Hired
Below are 3 reasons why the last ones hired are the first ones to get let go in a recession.
1) Risk
Although it’s unfair, the new employees just haven’t had time to prove themselves yet. I got hired into a brand new company in January 2022 and every day, I was worried whether that day was the last day for me to work. I haven’t had a chance for my coworkers and bosses to get familiar with my work yet.
Who gets let go first in a recession? The ones that hold the most risk. If the company pays a $100k salary to a veteran who’ve been there 10 years versus a brand new employee, why would they take the risk of the brand new employee?
What’s even worse is that companies already generally know they’re going to lay off employees soon. And yet, they still lay off the new employees anyway without disclosing the information in the interview process. That’s why picking the right employer is key.
You don’t want to give up a career you spent the last 10 years building and take a chance on a new employer who may let you go whenever they feel like it.
2) Existing Employees Already Established Relationships
This may be a negative rather than a positive if the employee just isn’t good at building relationships. However, for the most part, the employees who are already at the company established good relationships with their bosses and coworkers. Their bosses know their strengths and weaknesses.
Even if the existing employees are bad, the newest employees could be even worse. Who gets let go first in a recession? The newest employees because they don’t have anyone who can vouch for their skills. Whether we like it or not, career success depends on who’s willing to come to bat for us.
Come promotion, demotion, hiring, and firing time. It’s absolutely unfair but that’s just the way it is. This is why switching and moving companies have to be done very carefully. The newest employees will not be treated like royalty. They are treated like a stranger until they prove themselves otherwise.
This is the biggest reason why I refuse to switch companies for a tiny $5k raise. It doesn’t make business sense.
3) Knowledge Transfer Process is Expensive and Time Consuming
We are living in an information economy where knowledge and information is highly valued. Companies are willing to pay top dollar for highly skilled workers that make them richer. For a new employee, the time it takes to develop and transfer the knowledge companies know to the new employee is an expensive process.
In a booming economy, companies invest the money it takes to develop and train their employees. In a recession, that’s a luxury expense the company is willing to cut at a moment’s notice. Who gets let go first in a recession? The newest employees.
Because they are a luxury expense. The company didn’t need them before they were hired so they won’t need them after a recession starts. There are very few jobs in which only the select few individuals can perform. We are all replaceable.
Therefore, instead of investing in a new employee who doesn’t know the lay of the land, the company elects to keep the current employees.
Which Comes First, the Recession or the Layoffs?
Decades ago, companies would wait until they actually lose money before they cut jobs. There was a social contract companies honored to help their own employees out. It’s no longer the case. The pandemic showed us companies cut jobs even before they lose money.
Just the fear of losing money is enough to convince companies to let go of employees. Whether we like it or not, employees are the first expenses companies cut. The layoffs now come before a recession. We haven’t even hit a recession in the first half of 2023 and companies already cut jobs.
Who gets let go first in a recession? The newest employees and companies will not give it a minute’s thought before doing so. They protect their profits at all costs because they need to service their shareholders, first and foremost.
The layoffs come well in advance of a recession, and even more so if there are media reports suggesting fears of an impending recession. These days, companies do not honor their social contracts to their employees, not even in the slightest.
Who gets let go first in a recession? Everyone is up on the chopping block. There are no exceptions. No matter how much your boss promises you security. No matter how friendly you are with the executives. It doesn’t matter.
If you are a new employee, it’s difficult to stand much of a chance.
Who Gets Let Go First in a Recession? Exceptions to the Rule
That doesn’t mean the newest employees will always be the one to get let go first in a recession. There are times when who gets let go first in a recession are the oldest employees! Let’s dig in further.
1) High Cost Employees
If a new employee costs $100k but an old employee costs $200k, there’s no reason to keep the old employee. There are few employees who truly pull their weight in cost and provide $100k of additional value to their employer. Most of us are a cost center expense.
It’s one thing if it’s a sales person who gets paid $200k to deliver $2mil of sales to the company. It’s another if we are in finance, accounting, legal, and the like. We are a cost center expense in which our contribution to the company isn’t easily quantifiable.
Who gets let go first in a recession? The highest cost employee is very high in the list. Even established employees. Companies are agnostic and $200k out the door is more expensive than $100k out the door. Any way they can make more money, they’ll seize the opportunity.
It’s a business relationship and a company was created for the sole purpose of generating a profit.
2) Low Performing Team Members
Who gets let go first in a recession? Not the newest employees if there were already low performing team members. Companies would rather keep an unproven and new employee versus a low performing employee who brings down team morale at every turn.
There are few low performing employees I’ve met throughout my career. My prior bosses could not stand having him as a part of the team. However, during good times, they still got paid 100% of their bonuses, they were never written up, and weren’t at risk of ever getting fired.
During bad times was a different story. During recessionary times, companies don’t have time to practice compassion. It’s every person for themselves. They’ll let go of anyone they need to let go of. Every company has their bottom 5% of people they can’t wait to let go during a recession.
Even Google started handing out low performance reviews to find where they can cut. The performance reviews are a very indicative sign of how the company is financially performing.
3) Lack of Teamwork by Existing Team Members
Studies show those who are collaborative are better for the team than the ones who are exceptionally smart. Therefore, even though an employee might not be the brightest and smartest, companies keep around glues that hold the team together.
Who gets let go first in a recession? The ones with terrible attitudes. The ones who complain over every little thing they can. Whether we like it or not, every company works in a team. The ones who work together to achieve the team’s goals are the ones who gets kept around.
There will be many people who just doesn’t fit well with the team. Companies happily get rid of them and let someone new take their place. Companies don’t work with unlimited resources. Rather, they have limited resources they have to allocate to team members to grow their bottom lines.
I’ve met upper management with terrible attitudes. However, because they are the ones making the decision on who to lay off, it didn’t affect them as much. It’s the ones in the lower end of the totem pole that this is the most applicable to.
4) Who Recruited the New Employee?
If an executive recruited the employee, there’s little chance they’ll get laid off. I had a coworker who got her boss to introduce them to the CFO of Fidelity. The CFO of Fidelity was happy to even make a new position for her because they didn’t have any positions of what she wanted to do.
That was the biggest sign of nepotism that I’ve seen in my life. It matters who recruited the new employee. If a high decision maker recruited the new employee, there’s little chance the new employee will get laid off. Who gets let go first in a recession?
Not the newest employee if the CFO or the CEO recruited them to the team. They could even be favored above existing team members during a recession. Whether we like or want it or not, who we know matters much more than we realize. It doesn’t make a difference in our day to day.
But it could in a single day when we least expect it. I’ve seen family connections make the difference in acquiring an internship. It’s not a complete meritocracy system we are in.
Who Gets Let Go First in a Recession? Layoffs are Real
2022 and 2023 made it crystal clear in what happens in a recession. Times are tough and we no longer lived in unlimited QE times where money just flowed into everyone’s pockets. Who gets let go first in a recession? The newest employees and in certain sectors of the economy.
Oil and gas folks were raking in money in 2022 and 2023. Their job security has never been more clearer than before! However, tech companies with employees working in “Diversity Initiatives” laid off their employees real quick.
Some tech companies actually hired employees not because they needed them.
But to stop their employees from going to their competitors or to stop them from starting a business! That’s how much money tech companies had to burn. And at the same time, they were still generating record profits for their shareholders.
That all stopped when the reality of a recession hit. Facebook laid off 10k+ employees in just their first round and laid off additional 10k+ employees in their subsequent rounds. That’s what happens when companies don’t print unlimited profits for their shareholders.
Who gets let go first in a recession? Is a more relevant question than ever before. I personally have been preparing to get let go and have been saving my money to boost financial confidence. It’s best to prepare for the worst and have the best happen than the other way around.
Many employees got a rude awakening on what happens if the government doesn’t print unlimited money for everyone and a recession happens.
Who Gets Let Go First in a Recession? 3 Reasons Shortlist
- Risk
- Existing employees already established relationships
- Knowledge transfer process is expensive and time consuming
