Many kindergartens have been affected by declining birthrates, and it has become difficult for them to recruit students. Due to the consideration of costs and benefits, some have had to lay off teachers to maintain operational benefits. This study focused on the types of layoff decisions made by kindergarten operators, as well as which types of layoff decisions would better benefit kindergarten competitiveness and effectiveness. Using the decision model by Husted and Allen (2008) as the foundation, this study divided layoff decisions into the ability approach, the public good approach, and the care approach, as well as in-group favoritism decisions, based on a literature review. On one hand, it analyzed the differences between various types of kindergartens in making layoff decisions, and on the other hand it explored the effect of different layoff decisions on kindergarten competitiveness and effectiveness. This study extracted 205 managers of kindergartens from the 23 cities and counties of Taiwan for questionnaire surveys. The research results showed that the layoff decisions of kindergarten principals in Taiwan were generally inclined toward the ability approach and public good decisions, while in-group favoritism decisions were less often used. Different types of kindergartens also showed differences in terms of layoff decisions; in-group favoritism decision was used more often in privately operated kindergartens than in religious/charitable kindergartens. In addition, kindergartens established by religious/charitable organizations were more likely to use care approach decisions, while kindergartens affiliated with schools were more likely to use ability approach decisions; however, the post-hoc comparisons were not significant. In addition, in-group favoritism decisions also had a negative effect on the kindergarten competitiveness and management effectiveness, but ability approach decisions had a positive effect on both of them. Care approach decisions could benefit management effectiveness but they had no significant effect on elevating competitiveness.