4 Worrying Trends that are Causing Massive Layoffs in Tech

Layoffs are making headlines, especially in the tech space, with companies like Google, Amazon, and Meta leading the charge. This trend was rampant in 2022, continued in 2023, and has threatened to be at the forefront of notable events in 2024.

However, as I mentioned earlier, layoffs occur in all work sectors. The reason layoffs are most visible in tech is that the industry has a vast workforce. Thus, even a small percentage of layoffs would translate into thousands of individuals losing their jobs.

Various factors contribute to tech layoffs, including the economic downturn, inflation, higher interest rates, and the COVID-19 job pandemic correction.

In this article, we will delve into each of these points and many others to understand the trend in tech layoffs.

Global Economic Downturn

Debates about a U.S. recession emerged when data from the U.S. Bureau of Economic Analysis indicated a shrinking economy in July 2022 for the second consecutive quarter. Economists remain uncertain, and the fear of a recession continues to loom in news reports. Other conditions further threaten the economy’s health, including the government debt ceiling, the war in Ukraine, the ongoing issues with Israel and Palestine, the persistent pandemic, and the rise in interest rates.

Facing leaner revenue and profits, companies like Google, Amazon, and Meta resort to layoffs as a survival method to cut costs.

Soaring Trend of Inflation Leads to Layoffs

In June 2022, when inflation significantly impacted the economy, consumers experienced a 9.1% increase in prices, a stark contrast to the typical annual inflation rate of 2% for steady inflation, as reported by the Federal Reserve. The year 2022 marked the highest inflation rate in 40 years, according to the U.S. Bureau of Labor Statistics (BLS). This surge in inflation prompted a decrease in consumer spending, leading to a substantial jump in the cost of living. Both individuals and businesses had to make cutbacks. Technology companies faced price increases for services, forcing them to evaluate and make cuts if necessary.

Businesses, grappling with increased expenses due to inflation, sought to cut costs, with employee layoffs often being one of the initial measures due to their significant impact on company expenses. Tech companies, reliant on advertising revenue, faced challenges as businesses reduced advertising spending. This affected tech giants like Meta, Google, Instagram, Snap, and ByteDance, all of which have business models heavily dependent on selling ads.

Higher Interest Rates

In 2022, the Federal Reserve increased interest rates seven times, reaching the highest level in 22 years. The purpose behind these rate hikes was to slow economic growth and discourage both consumers and businesses from spending, thereby reducing demand and ultimately lowering prices.

The impact of higher interest rates is significant, influencing a company’s borrowing decisions due to increased costs. These elevated rates directly affect venture capitalists (VCs) and other startup funding sources, as companies become reluctant to invest in riskier areas during uncertain economic times. Economic uncertainties prompt companies to reassess their hiring and growth strategies.

Pressure from Investors in Google, Meta, and Microsoft

Investors exert pressure on companies to cut expenses when revenues decline. Despite significant gains in 2023, investors remain skeptical due to market volatility. Tech companies have responded to investor concerns through layoffs. For instance, TCI Fund Management urged Alphabet, Google’s parent company, to reduce headcount for improved profitability. Other major tech firms like Meta and Microsoft also faced investor backlash, with criticism centered on perceived high headcount compared to other companies.

Overhiring During the Pandemic

The increase in layoffs can be attributed, in part, to the correction of overhiring during the pandemic. As the use of technology surged during the height of the pandemic, with activities moving online, tech companies experienced record-level profits, leading to a hiring frenzy to meet the heightened demand. Companies, including Meta, significantly expanded their teams in anticipation of a sustained increase in online activities.

For example, Meta nearly doubled its employee headcount, going from 48,268 staffers in March 2020 to over 80,000 by September 2022. However, as work patterns shift back to pre-pandemic norms and people adopt hybrid work schedules, the demand for tech services has decreased. People are now spending more time engaging in in-person activities like going to stores, traveling, attending events, and dining out, reducing their reliance on technology. Consequently, the need for the extensive workforce hired during the pandemic has diminished, leading to layoffs.

Post-Pandemic Reality and Correlation with Tech Layoffs

The post-pandemic reality reveals that many workers hired during the pandemic were not entry-level employees but experienced software engineers and developers earning six-figure salaries with generous benefits. Companies now grapple with an excess of employees, leading to redundancy and overstaffing. Initially optimistic about sustaining rapid growth, big tech companies are adjusting by removing the additional layer of employees hired during the peak of the pandemic.

While technologies for remote work, such as Google Meet, Microsoft Teams, and Zoom, are still in use, their usage has decreased as not every meeting remains solely online. With the return to pre-pandemic lifestyles and work environments, several workers are now returning to the office for collaboration and idea sharing.

Despite the tech industry’s improved profits last year, the underlying trends that triggered massive layoffs in companies like Google, Amazon, Meta, and even Tesla persist. Ongoing geopolitical conflicts, such as the Israel-Palestine war, in which the United States plays a significant role as the home to many tech giants, contribute to the challenges.

Furthermore, a new wave of instability in Africa, including events like Niger’s coup, Nigeria’s elections, and a plot to unseat the military junta in Burkina Faso, involves the United States directly or indirectly. These global events contribute to the challenges outlined earlier, anticipating a significant reduction in the tech workforce.