Over the past few weeks, several high-profile US tech companies have announced layoffs. Meta is laying off 11,000 workers and Amazon 10,000. Twitter’s ongoing purge could see its 7,500 employee base shrink by about 75%. According to the layoffs, nearly 42,000 workers at US tech companies lost their jobs in November alone. FYI, which tracks firings in the tech industry. In addition, in 2022, about 136,000 people were fired from 849 tech companies.
The tech industry is one of the most high-profile—three of the top 10 companies on the Fortune 500 list are based here—and tech workers are among the highest paid. However, the cutbacks here are not reflected in the overall numbers as other segments are growing. The US added 315,000 jobs in September and 261,000 in October, and the unemployment rate stood at 3.7% in October, compared to 14.8% in April 2020.
The main reason for the layoffs can be seen in the over-hiring of the sector. The top five companies—Facebook (Meta), Apple, Amazon, Netflix and Google (Alphabet), also known as FAANG—increased their workforce by more than 80% between 2019 and 2021. They are now correcting for their optimism. Meta CEO Mark Zuckerberg said that its increased investment in the company “didn’t play out the way (he) had hoped.” Former Twitter CEO Jack Dorsey tweeted that he “grew the company too fast”. saying that, “we were too optimistic”.
layoff lull
When COVID-19 In early 2020, many economies including the US faced recession (defined as a decline in GDP for two consecutive quarters) due to lockdowns. This also led to layoffs. According to Laoffs.fyi, in the second quarter of 2020, around 60,000 tech workers were laid off across 428 companies. However, this was followed by mass adoption of digital. The demand for remote delivery grew, including remote working tools such as Zoom, at-home entertainment options such as Netflix and e-commerce.
The revenue of digital companies also increased. Falling interest rates, increasing the flow of money. Venture capital investment broke the previous record. Layoffs in the technical sector have reduced and replaced by a war for talent. The demand for technical talent extended to non-technical companies as well. When the US non-profit trade association CompTIA surveyed human resource managers across the US in 2021, it found that 40% of companies hired technical workers during the pandemic. Layoffs in the current quarter match Q2 of 2020.
growth pangs
However, it Over the next year, several coincidental factors affected the Tech Party. The US central bank tightened the money supply. Russia invaded Ukraine. And, most importantly, the demand for digital subsided as workers returned to offices and economic activity began to shift to the physical world. There has been a steady decline in revenue growth for FAANG companies over the past few quarters. There were also segment- or company-specific issues—for example, a change in Apple’s advertising policies led to a decrease in Meta’s revenue.
The pain was felt outside FAANG as well. In the most recent quarter, Microsoft suffered its slowest growth rate in five years. Tech companies are facing increasing pressure from investors to reduce costs. Recently, activist investor TCI Fund Management asked Alphabet to trim its headcount and salary expenditure. Meanwhile, new owner Elon Musk is pushing Twitter to perform with a fraction of its previous headcount. If he is successful, it could increase investor pressure on other tech companies to cut costs as well.
attrition crisis
Indian Tech Companies also saw a similar surge in demand for online products and services during the pandemic. Many are now under pressure to cut costs amid the winter of VC funding. From Byju’s to Udaan and Zomato, Indian startups have laid off employees in the recent past to compensate for over-hiring.
However, in the traditional software services segment, which is the largest employer of technical talent, employment is stagnant. Other than performance-related firings, employees have not faced layoffs. Many of these companies have borne the brunt of the war for talent over the past few years. According to a September 2022 report by TeamLease, the IT industry saw a growth rate of 23-25% through 2021. It expects the trend to continue in the near future. While layoffs can be the result of hiring decisions made by firms, it can spiral into a harsh economic downturn.
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