Understanding Tech’s Unexpected Season of Layoffs

In an economy that’s regaining momentum, the tech sector is the outlier, losing jobs faster than socks lose their mates in the dryer. So how does this economic uptick reconcile with the tumult in tech?

The jobs market report for November offered a glimmer of hope for the U.S. economy. The addition of 263,000 new jobs included 19,000 in IT, as well as growth in hospitality and retail. There was even a rise in dry cleaning jobs (yes, people are getting out of their sweatpants). Economic pundits were near giddy. Jerome Powell said he was sorry.

In an economy that’s regaining momentum, the tech sector is the outlier, losing jobs faster than socks lose their mates in the dryer. So how does this economic uptick reconcile with the tumult in tech?

Layoffs.fyi, which maintains a tech layoff tracker and startup layoff lists, reports that nearly 145,000 tech workers have been laid off in 2022 (more than 2020 and 2021 combined), with a 3x spike in November.) I’ve been doom-scrolling this site for weeks and the numbers,  added by volunteers who must identify their source, just keep climbing.

Everyone is familiar with the most prominent cuts: 11,000 layoffs at Meta, expected layoffs of up to 20,000 at Amazon , and  3,700 from Twitter. But that’s just the tip of the iceberg. Intel, HP, Lyft, Stripe, Salesforce, RedFin, RobinHood, Microsoft, Coinbase, Peloton…the list is so long that if you’re not doing layoffs (Apple?) you may start questioning whether you’re doing something wrong.

November was the cruelest month for tech workers according to TrueUp.

Lists are just numbers, but the human face becomes evident on LinkedIn, which has become something of a collective therapy group for laid-off tech workers. There you can see the human angst and the words of young, enthusiastic workers, flummoxed co-workers, and managers who didn’t see it coming, filling long threads. It’s often still upbeat but sometimes heartbreaking. One from a new mom, out on maternity leave, who then found out she was laid off from Meta, made me cry.  Just search “’Company Name’ Layoffs” on LinkedIn and you’ll find the communities of real people behind the startling and otherwise sterile numbers.

What realities do these layoffs reflect? Are they yet another example of overconfident tech bro lemmings following each other off the cliff? A correction from over-zealousness pandemic hiring?  Market saturation?  Economic uncertainty?  The ubiquitous “supply chain” excuse? There is, of course, no single answer.

But here’s a look at some of the key contributing factors:

‘Tis the Season

There is ample precedent for pre-holiday layoffs.  The year comes to an end, budgets get tallied, and shareholders must be sated. Way back in 2014, Fast Company tackled the topic of holiday-season layoffs. “The vast majority of organizations run on a calendar year budget”, explained Steve Spires, a managing director of outplacement solutions with BPI group. “…And year-end coincides with the need to achieve year-end numbers.”

Oops! We Did it Again

Faulting management is convenient but simplistic. Each company has a different plotline with the same outcome. My longtime colleague Dan Dubno, wrote me on Facebook to say “when a company lays off a lot of people, that indicates the problem isn’t with the folks laid off. Invariably it reveals terrible corporate governance. Best-run companies know what their employees are doing, why they’re valuable, and how they fit into a carefully crafted and evolving strategic vision.”

“When I see massive job cuts,” he continues, “invariably the folks that should have been dumped were the executives who usually created the mess. One business says they are laying people off, it gets picked up in the news, and investors start saying to executives something like ‘your competitors laid people off. How many will you lay off to match?’ Then they lay people off to show that they did. There is no logic to it. It is theatre but the workers are the ones getting played.”

Tech analyst Avi Greengart concurred: “I have been in the business world long enough to see that layoffs are rarely based in logic and are usually a ‘keeping up with the Joneses’ situation that’s influenced by the media and other businesses.”

Party Over

Josh Bersin, an expert in work and leadership, offers a more cyclical explanation. He says these massive recalibrations come from leaders who dramatically overestimated tech’s pandemic-fueled boom. “Even as Covid-19 shut down much of the economy, the digital realm continued to thrive. But as we know, that trend didn’t last.” But don’t blame everything on the pandemic, he cautions: “For the last ten years tech companies have been working from a different playbook. They were minting and spending money at incredible rates.”

J.P. Gownder, principal analyst at the market research firm Forrester looks at unpredictable, outside forces. He told Bloomberg News that “widespread economic concerns—some prompted by rising interest rates, others by the war in Ukraine, high fuel costs, and supply chain issues—are prompting these moves in anticipation of lower demand.”

Report Card Reckonings

There are all sorts of reasons for layoffs–mergers and acquisitions, duplication of efforts, a need for employees with new skill sets, and slowing growth. In response, measurements of productivity are also in vogue. According to The Information, Google managers have been asked to categorize 6% of employees, or roughly 10,000 people, as low performers. Expect to see more low-performance report cards being issued.

E-Commerce Fatigue

The pandemic drove many businesses online as they adapted to lockdowns. Online shopping, workouts, meetings, deliveries, and at home entertainment became a way of life. Whether it’s DoorDash or Netflix, the layoffs you’re seeing are the effect of a decreasing dependence on virtual services.  As sentiment moves away from online shopping, e-commerce is feeling the pinch of high returns and higher shipping costs.

Investor Pressure

Venture capitalists and investors play a larger than life role in the tech industry. Concerned that companies will be less profitable in 2023, they must be appeased. Two companies facing pressure from investors are Alphabet (Google’s parent company) and Meta. Stock prices can jump when a company dumps employees as a show of fiscal discipline. But the opposite can happen just as easily­­–layoffs can signal shoddy management and lack of planning.

A Sated Market

A company hires lots of people to build product. It’s done building and left with too many idle hands. Or it takes on a new project (say the metaverse) and managers realize their employees don’t have the requite skills. Yorlin Ng in Channel News Asia writes that as an industry “matures” or becomes more stable after its initial growth stages, it often needs to right size.

Inflated Salaries

Tech employees were overpaid and overly coddled for at least 15 years, says Bloomberg News.  According to Zippia, the tech industry on average makes 50% more than other industries. Another reason for retrenchment.

The tech industry will re-emerge from these ashes. Laid-off employees will move on to new jobs. But it’s going to require some forethought and reskilling. Emerging areas like climate, biotech, and AI will seek talent with the right skills. With any luck, there’ll be a lesson learned. Lean, efficient companies will be valued more than those that “use and lose ‘em.’ Most of all, new, innovative companies will be born from the flames.

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