Should Americans Still Be Worried About Layoffs?

It's fair to say that 2023 started off on a rocky note from a layoff perspective. In early January, Amazon announced plans to slash headcount. Microsoft did the same a few weeks later. In fact, there was a stretch in early 2023 when it was basically impossible to read the news without hearing that a given company was making plans to reduce the size of its staff. 

But thankfully, downsizing activity seems to have slowed down -- or at least it's not making headlines as frequently. And that raises the question -- should workers today still be worried about losing their jobs? 

The answer is, it depends. 

The economy is in good shape -- but that's not the whole story

One reason to not be so worried about layoffs at this point is that the U.S. economy is in pretty solid shape. Economists are no longer predicting a near-term recession. And the unemployment rate is only 3.8%, signifying a strong labor market. 

But just because the broad economy doesn't seem susceptible to layoffs doesn't mean your specific job isn't at risk. A big reason so many layoffs made the news in early 2023 is that tech companies in particular were zealous with hiring during the pandemic and then realized they'd reached the point of being overstaffed. So if you work in that industry and were hired during that boom, it could still very much pay to be cautious.

Also, lingering inflation has impacted many companies and added to their operating costs. That could lead to additional downsizing in the coming year even across industries that are generally doing well. 

That's why it's important to pay attention to happenings at your company and within your industry. This doesn't mean you need to walk around paranoid. But pay attention to warning signs that layoffs may be imminent. If your company's higher-ups are suddenly hesitant to green-light new projects or approve business travel when they normally would, that could be a sign that things are amiss -- and that jobs will soon be on the line.

How to prepare for a layoff

It's actually a good idea to assume that you could lose your job at any time. It's not something you should actively worry about, but rather, prepare for financially in the form of a fully loaded emergency fund.

Socking away enough money in your savings account to cover three full months of living expenses or more could be just the thing that gets you through a layoff without wrecking your finances on a long-term basis. If you have the money put away to pay for a few months of bills in the absence of a paycheck, you'll be less likely to land in debt if you wind up on the chopping block.

It's also a good idea to familiarize yourself with your employer's severance policy, if there's an official one on the books. That might actually give you some peace of mind -- assuming it's a generous one, of course. For example, if your employee handbook states point blank that workers get one month of severance pay per year of employment, and you've been with your company for five years, that means you'll have a pretty large payday coming your way in the event of a layoff.

To be clear, though, don't just fall back on a severance package. Aim to have a fully funded emergency fund, too. You never know when you may be denied severance on a technicality, so it's important to make sure you have enough money in the bank to get through a period of unemployment. 

All told, there's no reason to worry about layoffs in general right now. But "in general" may not help you if there's a shake-up at your place of work. So be mindful of the signs of impending layoffs and get yourself prepared by socking away as much money in savings as you can.