In November 2022, Meta announced it was cutting 11,000 jobs — about 13% of the company. The same year, it earned $23 billion in profit. A few months later, it declared 2023 its “year of efficiency,” cut another 10,000 jobs, and the stock roughly tripled from its lows around that announcement to the following winter.
Record profits and thousands of layoffs in the same breath. It looks like a contradiction. It isn’t — once you see the incentive.
The system isn’t rewarding a company’s kindness. It’s rewarding the number on the earnings release. And that’s the key to why it happens.
The machine that decides
Public companies answer to investors. Day after day, the market grades them on a few numbers: earnings per share, revenue growth, and whether they hit the targets Wall Street expected. If those numbers look weak relative to what people expected, the stock price drops. If they look strong, the stock price usually rises.
The clearest of those numbers is earnings per share, or EPS. Total profit divided by the number of shares outstanding. If a company earns $10 billion with 1 billion shares, EPS is $10. Cut $1 billion in costs without losing much revenue, and profit becomes $11 billion — so EPS becomes $11, without selling one extra unit.
For most large companies, payroll is the biggest cost they can control from quarter to quarter. You can’t renegotiate a factory in a month. You can change headcount. That’s why it’s the lever that’s easiest to pull.
The market rewards the result. Shareholders — including the index funds most of us own through retirement accounts — bid up the stock when margins improve. Executive pay follows the same scoreboard. Most of a big company’s CEO pay arrives as shares or options tied to targets built from the same numbers investors watch.
The system doesn’t reward headcount stability. It rewards the number on the earnings release.
Why record profits don’t stop it
High profits now don’t guarantee a company won’t cut jobs. The market prices the future, not the past. A profitable company today can still look bloated against what investors expect in six months or a year.
Margins get graded on a curve. If a competitor slashes costs and boosts margins, even a profitable company looks fat by comparison. Wall Street expects the next quarter to be better than this one. Record profits are backward-looking. The stock multiple is forward-looking.
Over-hiring plays a part too. After 2020, many companies staffed for a world that didn’t last. When interest rates rose fast and growth slowed, demand came back down. Restructuring, automation, and efficiency get framed as permanent savings — and the stock market often rewards them.
None of this means every cut is the right long-term call. But the pressure to cut early — and often deep — is built into the structure. It’s not a mood. It’s an incentive.
What this does not mean
A profitable company cutting jobs isn’t automatically greedy. Some layoffs are necessary when a division shrinks, customers move elsewhere, or the work simply changes. A business that refuses to adapt won’t keep employing people forever, either.
It doesn’t mean markets are broken. The same mechanism that pressures companies to cut costs also allocates capital toward businesses that can do more with less. It’s the invisible hand at work — coordination through prices and incentives. It isn’t kind, but it’s how the system steers resources.
It means the scoreboard is the numbers investors see, not job security. A company’s record quarter is not your safety net.
The system is working as designed. The design just doesn’t include job security.
What it means for your money (and your career)
Your job. Treat employment at any company as a contract, not tenure. Even profitable, well-known employers can cut when incentives change. It’s realistic, not cynical. As I wrote in Interest Rates Are the Price of Money, those cuts land on real people when the numbers move. I’ve been laid off from both startups and large companies more than once. The pattern is the same: a company’s record quarter is not your safety net.
Your cushion. If layoffs can hit without warning, your first defense is cash. Aim for 3–6 months of essential expenses in a separate savings account. That cushion gives you options — time to think, not just react. An emergency fund buys you time to think, not panic.
Your income. One employer is like one stock: concentrated. You can’t diversify your employer, but you can diversify your income — by building skills you can take elsewhere or a small side income you could grow if needed. The principle is the same one explained in How Money Actually Works: concentration adds risk you don’t need.
Your portfolio. If you’re an index fund investor, you’re on the other side of this trade. The same cost discipline that leads to layoffs also helps protect the margins that fuel earnings growth — growth that low-cost, broad-market index funds capture over decades. Trying to avoid companies that cut jobs means trying to avoid much of the market. The better approach, covered in Why Most ‘Modern Investors’ Still Lose Money: own the broad market, keep costs low, automate contributions, and stay in it.
Your filter for PR. Phrases like “repositioning for the future” or “rightsizing for long-term growth” often dress up the same incentive. The numbers in the earnings release tell you more than the press release does.
Closing
A profitable company cutting jobs isn’t a paradox. It’s the scoreboard doing what scoreboards do.
You can’t vote that incentive away. You don’t need to. Build a cushion. Own a broad index fund. Never mistake a company’s record quarter for your own security.
Profits are the company’s scoreboard. Your savings rate is yours.
Record profits are not your safety net. Your safety net is what you own outside your next paycheck.
