Nov 8, 2022
The pace of tech job cuts is reaching early pandemic levels
Meta to Start Laying Off Thousands of Staff, WSJ Says
Job cuts in the technology industry are accelerating, nearing levels seen in the early stages of the COVID-19 pandemic, as companies both large and small curtail ambitions and brace for tough times ahead.
In recent weeks, a spate of tech companies have said they will pause hiring or cut jobs outright in the face of sluggish consumer spending, spiraling inflation and a strong dollar undercutting sales overseas. Leaders in the industry, a major driver of the global economy for the last decade, sense that they're in a higher-risk environment, making them less willing to spend to grow their businesses like in years past.
Meta Platforms Inc., the owner of Facebook and Instagram, is poised to cut thousands of workers this week, the Wall Street Journal reported. That follows Elon Musk's decision to halve Twitter Inc.'s staff last week after acquiring the social network. Apple Inc., Amazon.com Inc. and Alphabet Inc. have all slowed or paused hiring.
Investments in more speculative technology will receive greater scrutiny, said Jo-Ellen Pozner, an assistant professor of management at Santa Clara University's Leavey School of Business.
“For the big companies, it's reasonable to assume that the rising tide that has been floating their boats for the past 15 years is just now a lot choppier,” Pozner said. “They clearly need to trim and to rationalize projects that they just haven't had to do for a decade and a half because the environment was so munificent.”
With tech executives growing more pessimistic about the economy, the industry shed 9,587 jobs in October, the highest monthly total since November 2020, according to Challenger, Gray & Christmas Inc., a consulting firm. Challenger tallies job cuts announced or confirmed by companies across telecom, electronics, hardware manufacturing and software development.
The second quarter of 2020 still ranks as the worst three-month period for layoffs since the COVID-19 pandemic began, but this year is shaping up to be grimmer for job cuts than 2020 overall, according to Roger Lee of Layoffs.fyi. More than 104,000 startup workers have lost their jobs so far this year, surpassing the roughly 81,000 posts shed in 2020, said Lee, whose site tracks cuts at startups, which it defines as any firm formed after the dot-com bubble. Layoffs.fyi's estimates differ from Challenger's because they include numbers from media reports companies may not have confirmed.
The pandemic cuts may not compare to the current situation. As soon as people started working from home and isolating, they turned to tech companies' products for remote work, food delivery and social connection, spurring significant growth. Now, the tech companies face a different economic reality.
In recent earnings reports, Alphabet, Amazon, Meta, Microsoft Corp. and others fell short of projections, sending shares plunging and shaving hundreds of millions to billions of dollars from their market valuations. Meta, for instance, has lost more than 71 per cent of its value so far this year, with investors uncomfortable with Chief Executive Officer Mark Zuckerberg's invesments in an immersive digital world called the metaverse.
The predicament is more dire for startups, which likely will have to make more significant cuts to their staffs as soaring interest rates hinder their ability to raise capital, said Stephen Levy, director of the Center for Continuing Study of the California Economy, a research firm based in Palo Alto, California.
“It's real, and it won't go away until we get interest and inflation rates back to normal,” Levy said of startups' woes.
To be sure, the scale of layoffs remains a far cry from the cuts made after the dot-com bubble burst. In 2001, the tech industry shed 168,395 jobs, followed by another 131,294 posts lost in 2002, according to Challenger.
The composition of the industry has changed greatly since those days. Many of the firms that survived the dot com bust are now sprawling enterprises, meaning that this contraction in the tech economy may be more a case of large firms tightening their belts, rather than small companies closing up shop.
“Most of the industry, and the jobs, are in the big companies now,” Levy said.