Do Layoffs Work – Assessing the Wider Impact

Nominal News, written by a PhD Economist, is an economics newsletter that translates the latest economic research into clear, policy‑relevant insights on current issues. Join 4,000 readers for free to stay-up-to-date with Nominal News directly in your inbox:

In the US, a recent report by Challenger, Gray and Christmas Inc (the “Challenger Report”) made significant headlines, as it showed a surge in US layoff announcements in January 2026. The report stated that 108,435 job cuts were announced, a level not seen since 2009. Companies like Amazon and UPS have announced major layoffs. What to make of these layoffs, and, more broadly, are firms making the correct decision when conducting layoffs?

Layoffs in Context

First, it is worth putting the layoffs in context of the US Economy – weekly, around 100,000 to 300,000 new people file for unemployment. This suggests that these job cut announcements are not likely to impact national unemployment figures due to their relatively small size in comparison to the number of unemployed (around 7.5 mln currently). Moreover, as explained by labor economist here, the Challenger Report’s layoff announcement figures do not track actual layoffs well. It is directionally correct (i.e. layoffs have increased), but the magnitude in the Challenger Report is usually much

higher than what actually materializes. The reason for this discrepancy is unclear.

But how do layoffs, in general, impact:

• the wider economy;

• the individuals affected (which includes both laid off workers and workers that were not laid off); and

• the company making the decision to conduct layoffs.

I’ll start off from the latter.

Firms and Layoffs

The decision to layoff employees is an independent choice by the management of the company. Therefore, we would expect that this decision should bring some positive impact to the company, preferably in a quantifiable way. Answering this question is not as easy as it seems due to the fact that it is difficult to establish the counterfactual, i.e. what would have been had the company not laid off employees. Furthermore, as each company’s circumstances are unique, undertaking a ‘natural experiment’1 is not straightforward. It is difficult to argue that the company that did a layoff is similar to a company that did not do a layoff. However, attempts to address these issues and develop some insights have been made.

Layoff Impacts on Company