Why Are So Many Tech Companies Laying Off Employees?

It’s the news no one expected after record-breaking profits: massive tech company layoffs. First, Meta announced its intention to lay off thousands, and dozens of companies followed suit. Many companies have also instituted hiring freezes in addition to the layoffs beginning in the second quarter of 2022. San Francisco-based entrepreneur Roger Lee started a website to track tech company layoffs during the pandemic that’s even busier since last year.

Tech generally enjoys strong growth and excellent opportunities. That’s what makes the large numbers of sudden layoffs so surprising. The last time we saw tech layoffs was more than 20 years ago, during the dot-com bubble that ended in 2000.

So what’s behind these layoffs in the tech industry?

Where They Are

Tech companies laid off 159,684 of their global workforce in 2022. So far, in 2023, 272 companies have laid off more than 86,000 workers. Will that trend continue? No one is sure or saying anything.

Many of the companies laying off are big names in tech. Meta (parent company of Facebook and Instagram) started the avalanche by announcing that it would be cutting 11,000 jobs. Other companies followed suit:

  • Amazon, 18,000 jobs
  • Microsoft, 10,000 jobs
  • Google, 12,000 jobs
  • Twitter, 3,740 jobs
  • Salesforce, 7,000 jobs
  • PayPal, 2,000 jobs, about 7% of its workforce
  • Cisco, 4,100 jobs
  • Coinbase (cryptocurrency company), 950 jobs or 20% of its workforce (primarily due to the fallout over FTX)
  • Groupon, 500 jobs, and 15% of its workforce
  • Spotify, 600 jobs, 6% of its workforce
  • Intel, 340 workers from its campus in Folsom, CA
  • Workday, 510 jobs or 3% of its global workforce
  • SAP, 3,000 jobs
  • IBM, 3900 jobs
  • Roku (the streaming company), 200 jobs
  • Stripe (the payment company), 1,050 jobs, following 50 layoffs in August 2022

Apple has not announced any layoffs, and it’s not yet known if they are planning any. Crunchbase has the full list of tech company layoffs. Anyone working in tech right now is cautiously watching these companies and the numbers they’re furloughing from their ranks. They’re also looking for other opportunities in different industries where tech is pervasive.

Reason #1: Ambitious Staffing

When the pandemic first appeared in early 2020, lockdowns and shelter-in-place orders forced people to stay home. Those who weren’t first responders, retail workers, delivery drivers, or other essential employees worked from home while their children attended school online. Google Meet, Zoom, and Microsoft Teams became the norm.

Technology kept much of the economy and the US going during the difficult early days of the pandemic. E-commerce grew exponentially as the remote workforce bought curbside and had their goods delivered. Anticipating this need, companies hired more people to keep up with the demand to upgrade and improve everyday technology.

Many tech and other companies hired more people to compensate for the possibility of regular employees falling ill with COVID-19 or its variants. Those pandemic employees are now extra.

Reason #2: Post-Pandemic Activity

Three years later, with the pandemic largely over, people are heading back to the office, shopping in stores, and resuming pre-pandemic life. While some are staying with fully remote or hybrid work schedules, the technology isn’t being used as much as it was during the pandemic.

Tech companies rely on selling advertising for revenue. Companies with high numbers of pandemic-era employees are wondering if they are still needed. The decrease in online activity and the accompanying revenue has led to these companies laying off workers they no longer need.

Reason #3: Inflation, Recession, And Changes In the Economy

Everything has become more expensive since 2021; just ask anyone buying eggs. Exponential inflation means lower consumer spending, leading to lower advertising spending. Tech companies’ revenue is primarily from advertising.

But slowed growth, a dampening economy, and large drops in stock value combined with inflation while the pandemic waned forced companies to reevaluate their operational budgets. Part of that evaluation is labor costs.

Recession talk began last year when many indicators began turning. Along with inflation and increased interest rates, a potential recession means companies consider lowering expenditures and conserving cash to ride it out. Labor costs are a large part of any company’s operating expenses, so most companies start cutting there.

Investors evaluating these companies are also putting pressure on them to reduce their expenses in light of a possible recession. Venture capitalists are concerned about lower profits following the recent period of high growth. For one, TCI Fund Management told Google’s parent company, Alphabet, to reduce their employee’s head count. They were also advised to take other actions to cut expenses and improve their profit margin. Other large tech companies were similarly warned by their investors about their headcounts and followed Meta’s lead.

Defining Recession

A recession is technically two consecutive quarters of economic decline in the country’s gross domestic product (GDP). Many economists believe the US has been in a recession for some time, but government officials aren’t ready to declare one.

Another definition is a decline in economic activity throughout the economy that lasts longer than a few months, according to The National Bureau of Economic Research. Forbes magazine has a similar description, calling it an extended period of economic downturn, usually longer than six months. Recessions are temporary, but recovery may take some time.

Reason #4 The Social Contagion: Copycat Behavior

When one company starts layoffs, more follow. Is there a reason why? One hypothesis is that the tech companies are simply mimicking each other. Jeffrey Pfeffer, professor at the Stanford Graduate School of Business, believes that one layoff announcement leads to more of them. One company’s board sees the layoffs as keeping up with other companies, especially in tech.

One thread seen through the different stories is that these rounds of layoffs “are not about performance.” Tech companies are laying off many top performers from their ranks.

Layoffs are distressing to the people affected. They’re also distressing to those left behind, wondering if they’re the next layoffs. This impacts morale and productivity as remaining workers look over their shoulders, update their LinkedIn pages, and look for opportunities at companies that are hiring.

Pfeffer points out that severance packages and other payouts are high when a company begins cutting personnel. Unless the company can get out of paying, unemployment insurance follows. Sometimes a company lays off workers and re-hires them as contractors, but not always. Pfeffer concludes that layoffs don’t help a company’s bottom line and harm the people left behind.

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