My company made record profits this year!

People who help fund my company now expect us to make similar profits next year.

But it looks like we probably won't because it's harder to make money.

So let's cut costs like labor (layoffs) so those savings go into our next year's profits!

"But what about the year after?"

"I can't hear you over the sound of my golden parachute deploying!"

Are record profits followed by mass layoffs? Not usually.

This is a misnomer, but it is common for periods of high profits to coincide with layoffs.

One of the biggest costs of running a business is staffing, by laying people off you can reduce the size of your payroll and increase your profits... at least in the short term.

The long term consequences of these actions are pretty obvious.

Suppose you are a company that makes widgets. You make 1000 widgets a month and sell them at the market price, which is determined by many other companies which make widgets as well and the demand for widgets in the world at large.

Now suppose something happens that disrupts the supply chain leading up to your making widgets. There is less of the raw ingredients you need to make widgets available, or they are more difficult to acquire, and your costs increase somewhat as a result. Overall widget production may drop as well. For your company however you keep making 1000 widgets per month but you pay a bit more in material costs.

The demand for widgets though hasn't dropped off. Now those who want widgets need to compete to obtain them, pushing the price to be higher. When you go to sell your 1000 widgets at the market price that price may have increased more than your costs to produce them, meaning your overall profit is higher than before!

But it is still harder to obtain your materials to make widgets and looking forward the same problems that caused the disruption in widget materials supply look like they might cause a downturn in your business in the future. You forecast that in the coming months or years you are only going to be able to sell 750 widgets. In response you start to lay off some of your employees.

The result is that you make record profits then turn around and lay off employees, looking on the surface like a cartoon villain.

Record profits came from record sales. Many are predicting a really bad run for the economy which means less demand. Less demand for stuff means less of that stuff being made which means you don't want to pay people to not make stuff.

Any examples we can better explain?

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