Layoffs vs. Rightsizing: What’s the Difference?

• Even in a strong labor market, many companies lay off employees.
• Although layoffs and rightsizing both involve letting employees go, they differ in key ways.
• There are warning signs to watch for before your employer begins a cycle of layoffs.
• You can take steps to make it less likely you'll be laid off in a downturn.

So far in 2023, many big-name companies, including Amazon, Google, and Microsoft, have announced huge layoffs. Layoffs are generally a difficult decision for companies to make and can be a sign of drastic shifts in what they predict for the future of their businesses.

The past few years — particularly in the wake of the COVID-19 pandemic — have been fast-moving, fast-changing times for the global economy. This means many companies have had to readjust their staffing expectations, whether that's through new hiring practices, layoffs, downsizing, or rightsizing.

What's a Layoff?

While it's common to speak of employees losing their jobs as “getting fired,” a layoff, or being laid off, is different from being fired. Employees typically get fired because they haven't met their employer's expectations in some way.

By contrast, layoffs are not the “fault” of the person being laid off. Companies often lay off employees because the business is reducing its total number of staff for one reason or another.

When an employee is laid off, many employers try to make the process as painless as possible. This can include offering a severance package, which may vary depending on how long you've worked for the company. For example, some employees may get four weeks of severance pay for each year worked.

Companies laying off employees will also often offer to write references for the laid-off employee to help them find a new job.

Layoffs vs. Rightsizing vs. Downsizing

When looking at layoffs, it's important to distinguish them from other company staffing adjustments, such as rightsizing and downsizing.

Brenton Thomas, founder and CEO of the digital marketing agency Twibi, distinguishes between layoffs and rightsizing from an employer perspective, saying the difference lies in scope and intention.

[Layoffs] are typically done in response to an immediate need to reduce costs, such as during a recession, explained Thomas. They are often across the board, meaning that all employees in a particular department or location are affected.

A company lays off employees as an emergency measure, with the hope that the emergency will soon pass. Companies may also lay off employees to cut costs, during an economic downturn, or for seasonal closure.

Layoffs are also usually temporary, with the intention of rehiring employees once business improves, added Thomas.

Rightsizing, on the other hand, is part of a long-term strategy. Thomas describes rightsizing as a more permanent reduction in workforce.

“[Rightsizing] is often done in response to long-term changes in the business, such as a shift in customer demand. [It] is usually targeted, meaning that only certain positions are eliminated.”

In other words, rightsizing represents a shift in focus for the company and its business model.

If a company is unsure whether to choose layoffs or rightsizing to deal with a staffing issue, it will likely conduct an overall assessment to see whether its current staffing issue reflects a temporary problem or a larger shift in the business model.

For example, a company that is getting rid of a particular service will likely use rightsizing to cut staff from the department that handles that service. It may also rightsize by reorganizing upper management and changing job roles.

If, however, the company is facing a broader, albeit temporary, issue — such as lower consumer confidence, which has led to less demand for the products it offers — it may choose to lay off staff in the hopes of hiring more people later in a stronger economic climate.

Industries With the Most Job Losses

According to the Bureau of Labor Statistics (BLS), some industries have faced a particularly high number of layoffs in the first four months of 2023.

Some industries faced layoffs due to naturally high turnover or seasonal work, whereas others suffered industry-wide declines.

Here are some of the fields with the highest percentages of layoffs in April 2023:

• Arts and entertainment (3.9%)
• Construction (3.8%)
• Professional and business services (1.8%)
• Leisure and hospitality (1.7%)
• Information (1.6%)

Industries With Employment Stability

Some industries have been particularly stable or growing rapidly in 2023. These industries are often called “recession-proof” in that they always have high demand or may be expanding due to specific circumstances. However, even the most recession-proof businesses may have difficulties during economic downturns.

Here are the steadiest industries based on average turnover rates in April 2023:

• Federal government (1.4%)
• State and local government (1.6%)
• Finance and insurance (1.9%)
• Educational services (2.1%)
• Financial activities (2.2%)

Frequently Asked Questions About Layoffs

What are the most common warning signs before a layoff?

The warning signs before a period of layoffs at any given company can vary significantly based on the type of employer and the goals it's trying to reach.

Some general warning signs of impending layoffs include:

• World events that may lead to difficult times in certain industries
• Difficult economic conditions across the board or an impending recession
• Major shifts in your company, such as getting acquired by a larger company

How do companies decide to lay off?

Companies generally decide to begin laying off employees based on a major disruption affecting the entire company, which is predicted to last a significant amount of time. This could be something like a national or global economic downturn or a specific issue within the company or its broader industry.

Is it better to be laid off or quit?

Whether or not it is “better” or “worse” to be laid off or to quit will depend greatly on your personal circumstances and how you feel about your job. Depending on how long you've worked at a company, one advantage of being laid off as opposed to quitting is that you may be able to file for unemployment while looking for another job.

If, however, you suspect your company will be laying off employees, you should start looking for a new opportunity as soon as you see the signs. You may be able to secure a job offer before you're laid off, so you can quit and immediately start your new job. If you do get laid off, you will have had a head start on your job search while still collecting severance pay.