To understand it, you need to think of it from the businesses perspective. People are capital equipment that consume money and output productivity in a particular area.

There is a cost to hiring (recruiting, onboarding, training) and firing (severance, reallocation of responsibilities) these people, which is why corporations are not run like an Uber-style demand-based gig for the most part. There is "stickiness" to hiring someone.

However, when the required productivity or capital availability changes (external forces, bad forecasting, change in market conditions), as a company you decide whether the pain of changing the labor force is worth it. These may be the result of bad bets or dumb luck, but that doesn't matter. The goal is to adjust the companies' production to its ability to finance those production machines (people).

Imagine you're in the photocopying business, and you lease photocopiers from Xerox. Depending on demand, you may want to increase the number that you lease. Or maybe the market is in a economic downturn, and people are photocopying less. You try run the numbers and decide if paying the penalty for breaking the lease on x machines is worth it vs. paying the monthly fee for them. That's the simple calculus.