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The boom in last few years was a bubble with unrealistic pricing. As the inflated money supply decreases, many banks and financial institutions have lost money due to bad debts. This has made them vary of lending money, as a result of which there is credit crunch and the economy is contracting both in the developed and developing countries.

Since the customers of many companies cannot afford to pay them, they are trying to cut costs and one of the most obvious ways a company can save money is by reducing the number of employees. As the number of employees on the payroll of the company decreases, the company saves money directly as the salary bill reduces and also directly as the overhead reduces. Each employee has to be provided a workplace , computer and other facilities. If a large number of employees are laid off, the savings can be significant.

Some of the common reasons for job losses are:
Decrease in orders
Losses
Change in expansion plans

Though companies claim that they lay off poor performers to improve efficiency, there are other criteria which determine which employee is fired. Often office politics plays a major role. Usually the manager has to make a decision about the employees and often his or her personal prejudices affect the judgement. A better worker may be sidelined by the bosses favorite.