Massive tech company layoffs look ugly. But it may not be as bad as you think.
The tech industry has recently seen a wave of layoffs, with companies such as Affirm, Google, Alphabet, Meta, and IBM cutting thousands of jobs. According to data compiled by Layoffs, 297 tech companies laid off nearly 95,000 workers in 2022. If this trend continues, the industry could cut more than 900,000 jobs in 2023, almost six times the total for the industry in 2022.
However, the tech industry was growing steadily before the pandemic. In the five years leading up to the pandemic, the sector added 1.3 million workers. The earlier hiring was not as widely publicized as the hiring that occurred in 2021, which may have led to a perception issue that there was so much more demand during the past two years compared to previously. The pandemic forced companies to lay off workers when COVID-19 swept across the country, resulting in massive job losses.
Economic conditions improved in the fall of 2020, and tech companies had to navigate broken supply chains and transform into more e-commerce-driven businesses to meet the unprecedented demand. To seize the opportunity to profit from this demand, tech companies needed more workforce, and they needed it immediately. Thus, they went on a hiring spree.
However, when the Federal Reserve started hiking interest rates in March 2022 to get inflation under control, tech companies felt the pain because they are more reliant on outside funding than other industries. When interest rates increase, it is more expensive for them to borrow money. Meanwhile, many consumers stopped buying electronics after they depleted their stimulus money. Tech stocks got crushed in the months after the Fed’s March rate hike. The companies that went on hiring sprees did a 180-degree turn and began cutting.
Although the layoffs are alarming, they represented a relatively small share of tech companies’ workforce in 2022. Even with the releases, all five big-tech companies have more significant crews now than before the pandemic. Moreover, the tech unemployment rate is dropping, and many laid-off workers were quickly reabsorbed into the tech workforce.
The hiring is most likely coming from small and mid-size companies still facing worker shortages because they couldn’t previously compete with the salaries and perks traditional Silicon Valley tech companies used to lure in new talent. Relative to the entire industry, big tech accounts for a relatively small share of the whole tech workforce. Small and mid-size companies make up the bulk of the industry, and they, for the most part, are doing okay for now. However, the future of the tech industry remains uncertain.
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