15th November, 2022
By Moshood Yahaya
The “tech” industry, which was once known for its high salaries and job security, has been experiencing a wave of layoffs in recent years. Companies like On Deck, Chime, Robinhood, Microsoft, Salesforce, Better.com, and Amazon have all announced mass layoffs in 2022, citing various reasons such as market uncertainties, slow revenue growth, and changes in consumer behaviour. According to Layoffs.fyi, a website that tracks tech layoffs, the estimated total number of layoffs in 2022 was 16,000, spread across over 1,000 tech companies. Some of these companies have laid off as much as 50% of their workforce. These layoffs have not only affected the tech sector but have also rippled throughout the economy. Many factors contributed to mass tech layoffs, including the pandemic, policy changes, over-hiring, and redundant employees. This article helps to delve deeper into the reasons why tech companies are struggling and why they’re being forced to make drastic cost-cutting measures.
Over Hiring During the Pandemic Boom
The COVID-19 pandemic brought about a sudden surge in demand for tech products and services as people worldwide turned to remote work and digital communication. Many people were forced to work and study from home, leading to a surge in online activity. Major tech companies aggressively hired thousands of employees to meet this unprecedented demand. This boom was especially evident in e-commerce and social media, with companies like Amazon and Facebook reporting record-breaking profits. Unfortunately, this unusual boom for several tech companies was short-lived. As the global economy began to slow down, companies were forced to cut back on costs, which led to massive layoffs. For example, Meta (formerly Facebook) had overinvested at the start of Covid and expanded their workforce by around 60% during the pandemic. The company assumed that the increase in online activity would continue and accelerate even after the pandemic ended. However, online activity returned to prior trends once the pandemic lifted, resulting in the company cutting 13% of its staff, representing roughly 11,000 employees.
Klarna announced plans to cut its global headcount by 10% in May, blaming the invasion of Ukraine, inflation increases, and a likely recession for having to fire employees. Australian BNPL company BizPay also laid off 30% of its workforce in May, citing tougher market conditions. Additionally, Peloton, which was a pandemic darling, announced a round of mass layoffs where 2,800 jobs would be lost, which amounted to around 20% of the corporate workforce at the time. In July, e-commerce company Shopify also announced that it had laid off 10% of its global employees, which represented around 1,000 workers in total. CEO Tobi Lütke explained that a pullback had hit the company in online spending after he had wrongly predicted how long the pandemic-driven e-commerce boom would last.
Typically, over-hiring is a common mistake that tech companies make during periods of high demand. This mistake often leads to bloated workforces that have to be downsized eventually. For instance, Jack Dorsey of Twitter admitted to over hiring and growing the company too quickly, which inadvertently contributed to Twitter’s mass layoffs.
Policy Changes
Tech giants like Google and Meta are facing the fate of decreased advertising revenue due to policy changes, mainly Apple’s privacy update, which has cost Meta over $10 billion in lost ad revenue. Google’s ad business is also struggling, and the company has seen a change in leadership. These factors have resulted in layoffs to cut costs and restructure the business for better profitability.
The Rise Of Automation And Artificial Intelligence
The drive toward automation and artificial intelligence has hugely affected he operational approach of big technological firms and regarded as one of the major contribution to the huge layoffs in the technology sector (AI). As these technologies progress, they can increasingly complete tasks that were previously completed by humans. This has resulted in a decline in the demand for a number of job categories, notably those that are repetitive or call for low-level abilities. Notably in 2019, Google fired contract employees who were in charge of vetting YouTube material. This was partially caused by the company’s adoption of AI algorithms that could perform tasks more skilfully and accurately than people. Similarly, Amazon has been spending a lot of money on automation technology, which has resulted in the firing of warehouse workers and other staff members.
In conclusion, the reasons behind massive tech layoffs are complex, with multiple factors contributing to the struggles of tech giants. Over-hiring, policy changes, and redundant employees are among the top reasons companies are forced to make drastic cost-cutting measures. The rise of mass layoffs in the tech industry has raised questions about the future of work. The pandemic has accelerated the shift towards automation and digitalisation, and many experts predict that this trend will continue in the years to come.
There has been a huge split of opinion on the necessity of mass layoff amidst the effect on employees and organisations. While some experts have argued that mass layoffs are necessary to maintain profitability and stay competitive, others argue that they contribute to income inequality and erode workers’ bargaining power. Additionally, experts are of the opinion that public outcries do not essentially translate to the realities in the employment landscape. According to Bledi Taska, the chief economist at labour market consulting and research firm Lightcast, the recent mass layoffs in the tech industry do not indicate the overall trends in the labour market or even in the tech sector. Taska noted that layoffs are not surging overall even in tech and at private VC-funded companies like Stripe. In the Professional and Business Sectors, where most of the tech companies belong, layoffs dropped in September, and startup layoffs have also dropped over the past few months.
Admittedly, the effects of mass layoffs in the tech industry are not limited to the labour market. They also have wider economic implications. For instance, the reduction in demand for certain products and services can lead to a decrease in tax revenues, which can affect government spending on public services like education, healthcare, and infrastructure. Additionally, laid-off workers may struggle to find new jobs, especially if they have specialised skills that are not in high demand. This can lead to long-term unemployment, increased used of publicly available national funds and reduced national productivity. When the economy is strong, tech companies may be more willing to take risks and invest in new projects and initiatives. However, when the economy slows down, they may need to cut costs and lay off workers in order to stay afloat.
So, what does the future outlook for mass layoffs in the tech industry look like? While it is impossible to predict with certainty, some trends are worth watching. Firstly, it is probable that more employment will be at risk of automation as automation and AI develop further. This will be especially true for professions that are repetitious and call for low-level abilities. Secondly, due to the evolving nature of labour, the tech sector may employ more contract workers and independent contractors. While this might give businesses more flexibility, it might also mean that workers don’t have the same benefits and job security as full-time workers. Finally, much like other industries, the tech sector is impacted by market forces and economic cycles. As a result, as businesses try to cut expenses and stay afloat during economic downturns, there may be more layoffs. Finally, there are efforts underway to address some of the issues that have contributed to mass layoffs in the tech industry. For instance, there will be calls for greater protections for job contracts, and institution of legal frameworks that guide against the development of technological initiatives that completely displaces humans, rather than complement them.