This has baked into it the incredibly naïve (and generally accepted to be incorrect) assumption that layoffs are performance-based. There are plenty of examples of FAANG and other companies laying off folks with 15, 20, 30 years of incredibly specialized and presumably valuable experience but with a compensation price tag to match.
If anything it's a great time to shed well-paid fat. Hire a noob out of MIT for 1/2 price and hope that the Sr. gave the project enough legs and enough documentation to allow the NUG to figure it out.
I mean that's certainly part of it. If (and it's a big if) you can run a project for less money, you probably should.
However I'm not sure it's as large-scale a thought process as "let's keep industry wages as low as we can" and more "I will look good if I can trim my budget, so I'm going to try to do that." The effect is the same, generally, but not quite as nefarious.
"I don’t think dropping the lowest 10% of developers is hurting your output. It might even raise it."
I have seen a few mass layoffs while I was contractor at different companies. Most of these big layoffs weren't performance based but they axed whole departments. Another group at danger were managers that didn't actually manage anybody. they were either demoted or let go. But in general I didn't get the impression that the layoffs were about performance. It was more about being lucky and being at the right place at the right time.
This does not work in practice. You don’t have a perfect metric to evaluate performance, and managers at all levels have some margin of decision and they can interpret different people’s productivity differently. The effects on morale are also usually terrible and can reduce the productivity of the remaining employees while the best ones polish their CV and look elsewhere.
This idea is rooted in a philosophy where people are interchangeable cogs that can be evaluated purely on a one-dimensional axis, don’t have emotions, and where you don’t have competitors taking advantage of this by getting good engineers for cheap you fired for ideological reasons.
This generally isn't how layoffs work because if there is any correlation between performance and protected indicators (age / gender / race / etc.), then a mass layoff may appear to be biased and open up a legal liability.
Instead, layoffs are shaped by specific reductions in funding for product areas, and a degree of randomization and rebalancing is mixed in to eliminate bias.