Layoffs, more layoffs and then, perhaps, file for bankruptcy

This is the way it goes. Firms face declining profits, for either temporary or permanent reasons, and need to cut costs somewhere. Pink slips are sent out, en masse at times. Witness Citigroup's 52 000 just this week. So as a picture is worth a thousand words, a graph, to an economist, is worth a thousand more.There were about 700 publicly listed firms in the US to have filed for bankruptcy in the last two decades of the 20th century. This figure depicts what occurred, on average, to the growth rate of their workforce in the years running up to, and immediately following, their filing for bankruptcy.

When hit by hard time, layoffs as a fraction of a firm's employ can achieve staggering proportions. In the year previous to filing for bankruptcy - remember, at this point management still thinks it can save the ship - firms layoff on average 20% of their workforce. Returning to the case of Citigroup, with around 350 000 employees, the combined layoffs of this week and those earlier this year reach 69 000. Or about 20% of the workforce.

I don't want to draw any conclusion as to Citigroup's future prospects. IBM slashed 60 000 employees back in 1993 and is still around today (although in business lore, IBM is a story of recovery from near bankruptcy).