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The tech sector has experienced a significant amount of turbulence in recent times, with numerous companies implementing substantial reductions in their workforce.
Perhaps the most high-profile reduction came in the wake of Elon Musk’s acquisition of Twitter. But in actuality, Musk’s somewhat ruthless and, some might argue, reckless shedding of key workers, amounted to just 3,700 in November 2022.
In fact, it pales by comparison with the number of people he cut from his other company Tesla in April of this year. Some 14,000.
Meta made two huge layoffs of 11,000 in November 2022 and another 10,000 in March 2023.
It is a trend that has affected industry giants and smaller firms alike, reshaping the landscape of tech employment and causing ripples elsewhere in the job market.
And it shows no sign of abating just yet. Only this month (August 2024) Intel announced a massive cut of 15,000 positions, equating to 15% of its workforce. The decision is expected to create savings of $10billion by 2025.
According to Layoffs.fyi there have so far been 134,061 global tech company layoffs in 2024. There were 264,220 in 2023. So, the direction of travel is positive in that sense.
Despite overall labor market resilience in 2022 and 2023, the tech industry has experienced disproportionately high job losses. And the sheer size of many tech corporations means that even minor percentage cuts can result in thousands of job losses.
Historically, the sector has rebounded from setbacks, (remember the dot-com crash?) the current wave, however, suggests a fundamental shift in industry dynamics and perhaps a disregard for workers in favor of share hikes and dividends.
What is behind all the tech sector layoffs?
Economic conditions, including inflation and rising interest rates, have played a significant role. In June 2022, US inflation reached a 40-year peak of 9.1%, as reported by the Federal Reserve.
The spike led to increased costs for both consumers and businesses. In response, the Federal Reserve implemented multiple interest rate hikes in 2022, making borrowing more expensive and slowing economic growth, which of course leads to decreased consumer demand and lower sales for tech companies, causing them to… cut massive amounts of jobs.
The aftermath of the COVID-19 pandemic has also influenced the current situation. Many tech companies aggressively expanded their workforce during the pandemic, anticipating that the uptick in demand for the tech services that resulted from WFH (work from home) would persist indefinitely. As pandemic restrictions eased and consumer behavior began to normalize, however, some companies suddenly felt a little bit bloated.
Meta, for instance, nearly doubled its workforce between March 2020 and September 2022, resulting in those huge layoff numbers. The shift towards hybrid working models has further reduced demand for certain digital services popular during the pandemic's height. Remember Zoom?
The rise of artificial intelligence (AI) is another factor impacting the tech job market. The Economic Report of the President suggests that approximately 10% of US jobs are at risk due to AI advancements.
While the technology has the potential to boost productivity and create new job opportunities in the long term, there are concerns about widespread job disruption, particularly for workers unable or unwilling to adapt to the new reality. If one were being cynical, it might be suggested that some companies are using AI as a smoke screen to implement cost-cutting measures, despite maintaining healthy profits.
US job cuts and investor pressure
Investor pressure has also played a role. As revenues slow and profits come under pressure, investors have been pushing tech companies to reduce overheads and some have been emboldened by the reductions they have seen rivals making.
The maturation of the tech market is another contributing factor. As the industry reaches a point of saturation, companies are finding it increasingly difficult to acquire new customers, leading to a shift towards diversifying offerings and expanding into international markets, often resulting in workforce reductions as growth slows.
The collapse of Silicon Valley Bank in March 2023, a major lender to tech startups, has also had ripple effects throughout the sector. It made investors more cautious about funding high-risk ventures, making it harder for startups to secure funding and, you guessed it, lead to additional layoffs.
While the tech industry has borne the brunt of these layoffs, the effects are being felt across other sectors as well. Despite these challenges, the overall US unemployment rate remains relatively low, and many smaller firms continue to hire. However, as the tech sector undergoes this period of adjustment and transformation, the long-term impact on the broader economy and job market remains to be seen.
As the industry navigates these challenges, it is clear that the tech landscape is evolving. Companies are reassessing their strategies, workforce needs, and growth trajectories in light of economic pressures and technological advancements. While the current wave of layoffs presents significant challenges for affected workers, it also reflects the dynamic nature of the tech industry and its ongoing adaptation to a challenging market and a changing world.
