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Interesting way to get [most likely] good job applicants. Also love the picture of Jerry Yang at the end of the article.
I'm not so sure the applicants are that good. Usually the ones getting laid off are the ones from the bottom of the barrel.

Of course there might have been some jewels, those who got fired due to politics or some other BS reason, and not because of competence

I think you have a valid point that Yahoo! is probably not laying off their top performers. However, the job cuts were large, and there is enough randomness in the HR process to assume that the startup could find 5 good employees there. Not to mention, an employee in the bottom half at Yahoo would probably be an excellent employee anywhere else. Also, there are factors other than competence that play in to decisions like these, like tenure.
In situations like this, a lot of times a whole team gets cut. For example I think they mentioned the entire Yahoo Toolbar and Yahoo Finance teams in the U.S. were being laid off. That isn't a reflection on the skills of those engineers so much as recognizing that these products aren't mission-critical.

Also, if you have to fire people, often it's easier to fire people who are more recent additions to the team, even if they are more skilled. It has less of a social impact on the rest of the company, and you lose less institutional knowledge.

In short, there are plenty of reasons to believe there are great engineers being let go. Let's stay classy.

Part Brilliant. Part Sleezy. 100% Taco.
Big hat, no cattle.
The sheriff might even swing by himself for a taco ... and a job application.
Or he might turn them down hoping for a better deal down the road...
Maybe there is an opportunity for someone to create a mobile job fair inside a tractor trailer that goes around to companies laying off employees...
"You just lost your job. Have a taco!"

Seriously, I find this pretty distasteful.

Google did that after the first dot-com bubble burst. I've heard Tim Sanders, who worked at Yahoo, talk about how demoralizing it was for Yahoo employees to see their employees get lured over to the new, new thing.