Tech Layoffs: How it Happened and What are the Lessons for the Future?

Written by: Gurkomal Gill

While 2023 already started with great skepticism on whether there will be an economic downturn, it was tech layoffs that grabbed everyone’s attention. The post-pandemic phase saw recruiters going on a hiring spree with millions of job openings in a tight labor market (1). However, the statistics for tech sector say otherwise. Over the past year, several technology companies including big names like Microsoft, Meta, Amazon and Twitter have laid off more than 100,000 employees and the sector might see more downsizing in the future (2). Not only were there layoffs but many saw their offers being rescinded before the start of new jobs (3). Was it a sudden development or something that was forthcoming?
Here are the layoff statistics for major technology companies (4):

– Alphabet: 12,000
– Amazon: 18,000
– Coinbase: 2,000
– Microsoft: 10,000
– Meta: 21,000
– Robinhood: 1,100
– Salesforce: 7,000
– Shopify: 1,000
– Snap: 1,000
– Tesla: 6,000
– Twitter: 3,700
– Zoom: 1,300

Economic Impact on Tech Sector

Since the 2008 financial crisis, the tech sector has steadily shown growth with many startups coming along and gaining prominence in the business world. This growth saw a massive expansion of the tech companies accompanied by an ongoing hiring spree. Valuations for tech companies were skyrocketing and their price-to-earnings ratio were rising which were mostly backed by a promise of long-term gains even though the short-term profits seemed not so great. The pandemic was a peak that the sector could see which now seems like more of a bubble (5). However, the post-pandemic phase saw the bubble deflate and the market sentiment became bearish in the wake of an expected economic downturn. Rising inflation and interest rates that were following suit made it clear that the future profitability was not going to be what the sector had enjoyed so far. As a result, the tech sector was the biggest loser and lost more than 25% of its valuation in 2022 (6). This was in stark contrast to the stellar stock rallies by the same stocks during the COVID-19 era. The bleak outlook for the near future and investor pressure were the main driving forces that lead to mass layoffs across the technology industry.

Is it just Economics?

While economics and investor sentiment might have played a role in layoffs, is it possible that it was also a failure of HR strategy? There is an indication that the sector had over-hired while riding on the wave of expansion. This is quite evident from the differences in hiring and layoff numbers when Apple and Alphabet Inc. (parent company of Google) were compared. To begin with, Apple adopted a cautious approach to hiring when its employee base increased by about 20% from 2020 to 2022 while its contemporaries like Alphabet and Amazon were on a hiring spree where their headcounts swelled by 60% and nearly 100% respectively. More than 30,000 of the estimated 100,000 layoffs happened at the latter 2 companies while Apple has avoided significant cuts to its workforce (7). On the other hand, layoffs are also a means of hierarchy streamlining as Meta recently announced that it would be focusing on efficiency and is reportedly trying to cut middle managers. They will have them transition to contributor roles that would result in less reporting and more output (8). This proves that efficient hiring in the first place would not have made the problem worse.

Reputational Risk For Tech

The tech companies had been able to attract the best minds and talent from across the world who were allured by innovative leaders and the prospects of being part of teams that were building out-of-the-box products and technology. However, the recent layoffs are making the tech sector lose its sheen as the most coveted employer. The remaining employees too have lost confidence in their employers and are less likely to recommend them to their friends. One example would be Snap Inc. which laid off almost 20% of its staff in August 2022 which amounted to 1,000 employees being shown the door. While 75%-85% of their employees answered in the affirmative when asked about recommending their employer to their friends before the layoffs, the number declined to just 30% after their colleagues were laid off (9). This development poses a reputational risk for the tech sector as a whole.

Will there be a Ripple Effect Across Other Industries?

Moving on, one wonders if the mass layoffs are restricted to tech or if will it lead to a ripple effect across other sectors and industries? While each sector has its drivers and reasons when it comes to trimming the workforce, the fears of upcoming recession make it hard to say if the downsizing will be limited only to tech. Supply chain issues and rising demand, on the other hand, do not make things look as pessimistic but the possibility cannot be ruled out keeping in line with the expected economic collapse. Consumer and healthcare sectors, on the other hand, still point to a tighter labor market. Grocery chains like Costco and Walmart have raised wages in order to attract more employees as demand in the economy still remains strong (10).

What Can Employees and Employers Can Do

While getting laid off is not something that you expect or most certainly prepare for, however, the dynamic economic and technological landscape requires one to be prepared to look for alternatives in case of such developments in the future (11). One of the best ways would be to diversify your skill sets. In the modern world, role descriptions are becoming blurrier and there is a rapid and ongoing change in the way jobs are being performed. Also, new roles are coming up while traditional ones are undergoing transformation. One example would be PepsiCo where CEO Indra Nooyi hired Mauro Porcini to be the chief design officer to improve customer interaction with products (12). Going back 25 years, a chief design officer role may have been unheard of. Corporate houses are already pioneering rotational programs across companies where employees get to train in different roles and departments before making the final choice. It is a great way to add to one’s experience and has insights into multiple options in case a career switch is imminent. Arming oneself with a multitude of skills will definitely help in the long run as employees can leverage their diverse talents for new job avenues whether it is inside the organization or outside. On the other hand, AI will prove to be a major disruptor of the job market which makes the case of preparing for a new role or career path even more important. Forging a new entrepreneurial path is never too easy but something worth considering given the uncertainty of having stable jobs. Gone are the days when tonnes of inventory or fancy offices were a business need, the online world has myriad opportunities if individuals are willing to go the extra mile. In addition to what employees need to do, employers can also do their part. Nokia set a great example when it laid off employees in 2011 (13).

Nokia Case Study 

Under the leadership of then-chairman Jorma Ollila, Nokia developed the 50 million Euro Bridge program in 2011 to assist their employees in finding new opportunities when it was clear that they would no longer be able to continue their positions (8). To start with, the program helped them find new jobs within the company and provide support including career coaching or resume workshops for those roles something outside the firm. They also supported their employees’ learning initiatives and gave grants for both business education as well as trade school courses. In addition to job support, Nokia also backed their employees’ entrepreneurship ideas and their personally curated paths once they would leave their jobs. This resulted in more than 60% of the 18,000 affected employees being sure of what they would do next before their current role ended (13). It is a great example of excellence in company culture and being a responsible employer.

The Road Ahead

Even though many employees lost their jobs, the present demand for talent in the tech sector says otherwise. According to ZipRecruiter more than 75% of tech workers who were laid off, landed a new role within 3 months (14). This is certainly a positive development going forward in the wake of the mass layoffs.

Works Cited

  1. “Mass Tech Layoffs Don’t Signal a Recession, but This Trend Could.” CNBC. CNBC, January 31, 2023.
  2. Thompson, Derek. “What the Tech and Media Layoffs Are Really Telling Us about the Economy.” The Atlantic. Atlantic Media Company, January 20, 2023.
  3. Lalljee, Jason. “Some Companies Are Revoking Job Offers and Blaming It on the Economy.” Business Insider. Business Insider. Accessed March 22, 2023.
  4. “Google, Meta, Amazon and Other Tech Companies Have Laid off More than 104,000 Employees in the Last Year.” CNBC. CNBC, March 20, 2023.
  5. Lalljee, Jason. “Some Companies Are Revoking Job Offers and Blaming It on the Economy.” Business Insider. Business Insider. Accessed March 22, 2023.
  6. ai – Powering a Personal Wealth Movement. “Why Are Tech Companies Laying off All These Workers?” Forbes. Forbes Magazine, January 30, 2023.
  7. Menezes, Saksha. “Apple (AAPL) Avoids Tech Layoffs Because It Didn’t Overhire like Google, Amazon.” Bloomberg, February 10, 2023.
  8. “Meta Asks Managers to Get Back to Making Things or Leave.” Accessed March 22, 2023.
  9. “Amid Mass Layoffs, the Big Tech Dream Job Is Losing Its Luster.” CNBC. CNBC, November 17, 2022.
  10. Martin, Nik. “Could Tech Layoffs Spread to Rest of Us Economy? – DW – 01/29/2023.” Deutsche Welle, January 29, 2023.
  11. “A Better, Fairer Approach to Layoffs.” Harvard Business Review, January 10, 2023.
  12. Harvard Business Publishing Education. Accessed March 22, 2023.
  13. “A Better, Fairer Approach to Layoffs.” Harvard Business Review, January 10, 2023.
  14. Kalache, Sylvain. “Council Post: Big Tech Layoffs: A Hiring Opportunity.” Forbes. Forbes Magazine, March 6, 2023.

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