WTF is going on with tech job losses?
Over the past couple of months, some of the biggest tech companies on the planet have shed large chunks of their workforce.
According to Layoffs.fyiâs tracker, 234 tech companies have laid off nearly 76,000 employees since the beginning of the year. These add to the 159,684 jobs lost in the escort last year, which if youâre into looking at trends, doesnât look like it bodes well for the rest of the year.
Some of the notable recent layoffs include:
Google (Alphabet): 12,000 workers (6% of the workforce)
Meta: 11,000 workers (13% of the workforce)
Amazon: 18,000 workers (5% of the workforce)
Microsoft: 10,000 workers (5% of the workforce)
Salesforce: 10,000 workers (10% of the workforce)
Booking.com: 4,735 workers (25% of the workforce)
These are just the tip of the iceberg, and the list goes on. So whatâs happening?
Like everything in the economy, thereâs not one clear cut answer. Here are the angles we think are worth looking at.
The story according to the tech companies.
If you listen to the tech companies, theyâll tell you something along the lines of âwe hired for a different economic reality than the one we see right now, which is why we have to shed jobs.â
On the surface, that does make a bit of sense (as weâll look at a bit below). Tech was the high performer during the pandemic as the world went into various forms of lockdowns, office work moved to 100% remote, and consumers spent money on goods rather than services.
At the same time, central banks cut interest rates to near or below zero at the onset of the pandemic to prevent a depression. The ensuing âfree moneyâ (free as banks and investors had no incentive to leave it parked in accounts) created a boom for startup investing.
Venture capitalists through hundreds of billions of dollars at all sorts of tech startups and scaleups, many times without fully analyzing what the business actually did (let alone made money).
As the bubble grew in 2020 and 2021, valuations soared. By the middle of last year, though, the party started to come to an end.
All of a sudden, startups, scaleups and established tech companies alike were caught out. For the younger firms without any real path to profitability, that meant either removing most staff or shutting all together.
The giants in the sector had a bit more leeway. With stronger balance sheets, it was easier to weather the storm, so to speak.
However, over the past few months, it appears that the party is now over. (Again, thatâs if you take the tech companyâs opinion on it)
On the other hand though, these bigger firms who are responsible for the lionâs share of the layoffs arenât exactly about to go bankrupt. In fact, theyâre still profitable.
So what gives?
Changing economic conditions
It should be no surprise (especially if youâve been reading our newsletter over the past year) that the economy is going through massive changes.
2022 was an outlier to the norm in multiple ways:
Outside of the geopolitical aspects, the main cause of a solution to the economyâs problems was how central banks reacted. In short, when inflation goes up, itâs usually because the economy is too hot. (Employment and growth were at decades-long highs over the past two years).
Central banks respond to an overheated economy by raising interest rates. The idea is that people and companies will spend and borrow less while saving more. For tech companies raising interest rates represent two threats:
Established tech companies know that consumer and business activity should drop in the near-term. That means less revenue until the economy picks up again when rates go back down.
Startups and scaleups will see that investors have less appetite to fund their risky activities. Lower interest rates encourage more risk because the returns are greater. With less funding available, theyâll need to cut costs. With labor being their highest expense, itâs usually the first to go to the chopping block.
Tech was overvalued and investors now it
Tech spent most of the pandemic at breakneck growth. Growth means sacrificing short-term profitability for a larger market share down the road. As such, growth investors donât want dividends, but rather the ability to buy low and sell high.
In a growth phase, a well-funded company will hire as many workers as they can to reach their goals. When that growth phase happens in a bubble, a hiring frenzy ensues. For tech companies, that meant beefing up payrolls for developers, marketers, salespeople, customer support, admin, and (naturally) HR staff.
Now that itâs becoming clear that the turbo-growth of the past three years is firmly behind us, investors are demanding a strategy shift. Instead of looking to grow their share price, they either want to:
The former requires companies to shift down a gear, mainly by abandoning lofty research and development and shedding workers.
The latter carries two points. For one, founders and CEOs know that potential capital is leaving the market for the time being. In other words, new funding wonât be so readily available in the near-term. Trimming excess costs like payroll can help them extend their cash and runway longer. Second, savvy tech investors know that the industry is cyclical.
Tech tends to grow when an economy recovers from a recession. If investors think thereâs a downturn on the horizon, theyâll cash out now âwhile the gettinâs goodâ and await their next investment opportunity.
Cycles and new businesses
Speaking of new investment opportunities, this current tech downturn and round of layoffs are seeding the next cycle of startups and businesses.
If youâre a fan of the theory of evolution, that shouldnât be surprising. The business cycle is analogous to biological life in that it goes through various states of being, with catastrophe sometimes reinventing the system.
Tech offers a great case study in this phenomenon since the industry moves much faster than others. Startups can emerge at lightning speed, bringing an all-digital product to market within mere months. If the idea sticks and the company generates revenue, it can likely survive through the next downturn (assuming they evolve to meet its customersâ changing needs).
Those who donât die off. But, unlike in biology, the death of a company or a loss of a job doesnât result in an end-of-life event, but rather a fantastic opportunity for innovation.
Right now, those who have lost work or are pivoting are leading the next wave of tech. For some laid-off workers, that means creating a startup of their own. For others, it translates into a new job opportunity at a company or startup that is still growing. After all, businesses donât all move in unison (even if some sectors have tight correlations).
Economists call it creative destruction, and weâre seeing that cycle repeating.
What can I do if Iâm living abroad or working remotely and Iâve lost my tech job?
If youâre living abroad or an international remote worker and you lost your job due to current market events, that sucks. weâre really sorry to hear that. Here are some tips to try to make the most of the situation.
Understand what your rights are and what youâre entitled to.
Depending on where you live, your termination will likely have two components: a company severance and some sort of unemployment benefits. Check with your former HR, peers, or even a lawyer to understand whatâs going on. That last part might be important if youâre abroad and donât fully understand the local labor laws and practices.
If youâre registered as a freelancer (independent), you might also be entitled to some sort of safety net. Many international remote workers act as contractors to their foreign employer instead of being an employee. In these cases, the worker registers as a freelancer and handles all of the paperwork and taxes. Depending on where you live, you might be entitled to some sort of unemployment benefits as well. Check with your accountant or lawyer to find out what, if anything, you might be able to claim.
Take a little bit of time for yourself to recalibrate.
Working takes a toll on us mentally, emotionally, and even physically. With more free time, take the opportunity to recenter yourself. If that means checking out for a few days or going on a short vacation to clear your head, and you can financially afford it, do so.
Take a course (or two) to up your skill set.
Have you wanted to learn a new skill or go deeper into a topic youâre interested in? Nowâs a great time to not only learn but also up your skill set and CV. Unlike during the last financial crisis, there are tons of affordable online courses at your fingertips. Check out places like Udemy and Coursera to find one that fits what youâre looking for.
Work your network.
Nowâs the time to flex your networking muscles. Reach out to friends, former colleagues and even mentors to get their advice about where to look and what you should be looking for. Networks exist for this reason, and thereâs no telling what asking for a bit of feedback might lead to.
LinkedIn premium for job seekers could be a worthwhile investment
LinkedIn has a special premium tier for job seekers called âLinkedIn Career.â The pricing sits (well) below the professionals tier and comes with such nifty features as inMail, training courses, and extended insights on who is checking your profile.
Be positive, and donât be hard on yourself.
Most importantly, donât beat yourself up over losing your job. I know itâs hard not to blame yourself, but these job cuts arenât personal. Separating the business part from the human emotions might be challenging, but it will help give you perspective. If you feel yourself going into a negativity spiral, note the feeling down, take a minute to breathe slowly, and recenter your thoughts to a more positive mindset.
What do these job losses mean for my investment portfolio?
Great question. While we canât answer that personally for you (as itâs impossible for us to know your risk tolerance, goals, and investments by sending you an email), there are some general guidelines.
Tech, like other sectors, is cyclical. The varying sectors of the economy follow different paths. While tech might be down at the moment, it will almost certainly go back up. If youâre a tech investor, it might be a matter of waiting out the downturn.
Diversification is always your friend, especially over the long run. Diversifying your portfolio means reducing sector-specific and even company-specific risk. If youâre invested in some sort of index fund or ETF that tracks broad markets, techâs shaky performance isnât going to impact you as if you were concentrated in the sector.
Timing markets and stock prices is often no more than an educated gamble. If your plan is to buy or sell an investment based on current market conditions, beware of the unexpected as it will likely come back to haunt you.
|