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Why is it not possible to prevent sudden unemployment of thousands of people? Often one can observe, for example in news, that suddenly from one day to the other thousands of people of a company get unemployed. Why is it not possible to prevent this or why do companies not downsize slowly instead of above stated? Of course those companies should know this earlier and they could downsize slowly, but they don't. Why? I would really appreciate any solutions and ideas

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  • $\begingroup$ You can, at least to some degree, boil this down to asymmetric information. The most perceptive employees jump ship with a severance before a company implodes. Those employees who lack information and/or foresight go down with the ship. If all employees had perfect information, this would be less of an issue. $\endgroup$ – 123 Jul 16 '17 at 16:55
  • $\begingroup$ When asking any economic question, always set a context. The question just too broad to be answered. $\endgroup$ – mootmoot Aug 15 '17 at 16:10
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This question boils down to asking why business cycles exist and change employment in shocks.

One possibility is that employment is sticky or not worth changing constantly. A firm cannot constantly calculate and evaluate worker productivity and general profitability without a, perhaps rather expensive, cost, especially if the firm is very large. Constantly hiring and firing to try and have "optimal" employment for a firm is also bad for morale.

And perhaps more to the point, the alternative to firing people in large swathes is lowering wages, which is even worse for worker morale and sometimes not really legal (e.g. salaries are fixed for a year). So if there is a recession for example, a firm will generally choose to keep wages up, and then when it can't afford such a scenario anymore, it will create large layoffs.

Further Reading: The cost of firing changes the dynamics of how people are fired as well. See this article about France and Spain's different changes in employment with respect to the Great Recession. It is possible to prevent large drops in unemployment. Whether it is efficient is another question. My answer only briefly touches on the theory, and there is plenty of literature related to the points I've made that you can look for.

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Your question asks "why" but does not provide a perspective. Who is it that you believe should be attempting to prevent sudden unemployment?

It sort of sounds like you think CEOs might want to let people go slowly. Generally speaking, I don't see why they would want that. I believe an environment in which there is a constant threat of job loss would be worse for morale and productivity than one in which very occasionally there are larger cuts to a certain part of the business. Also, the reasons for cutting the workforce don't tend to trickle in over time. For example, when a certain production line stops making money, it's not like firing one or two people will change that. You kind of have to shut the whole thing down. CEOs could achieve slower workforce reductions if they desired it, but it would be bad for their companies and lose money.

There may be government officials or other third parties who might prefer slower layoffs, but they don't have power over hiring and firing decisions, so they aren't relevant.

I will also ask you to think of why you believe slow downsizing would be better than fast. It seems clear to me that fast downsizing is better for firms. Are you certain that slow downsizing is better for the economy, or for the workers? You would have to show this before others could provide additional reasons why it makes sense for large layoffs to occur.

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