We live in the days of mass layoffs. News of layoffs and downsizing make headlines again and again, and lately it’s been affecting IT companies. Layoffs in the technology sector tend to be the most visible. Because tech giants have many employees, even a small percentage of layoffs results in thousands of people losing their jobs. The numbers are growing: according to

Layoffs.fyi

, a site that tracks layoffs in the tech industry, saw more than 160,000 layoffs in 2022, more than in 2020 and 2021 combined. In 2023, mass layoffs are occurring at 600 companies across all IT sectors, from application development to cryptography and enterprise SaaS. The total number of layoffs in 2023 to date has already exceeded 185,000 people (20% of them are software engineers).

Since the headquarters of major technology companies are in the US, almost 90% of the layoffs happened there. Such mass layoffs in technology have not been seen since the dotcom bubble. The tech companies’ rationale for these cuts and layoffs follows the general script, citing the instability of the global economy, slowing revenue growth, and the need to optimize the path to profitability. However, tracking layoffs helps to understand their causes, trends, and consequences.

Who is to blame?

Mass layoffs are a sign of an economic crisis. Businesses seek to reduce their increased costs due to inflation. Laying off employees is usually one of the first cost-cutting measures because it is one of the company’s biggest expense items. Economic uncertainty is forcing companies to review their hiring and growth strategies.

Part of the layoffs is related to the correction of hiring too many people. In the midst of the pandemic, the use of technology has increased significantly as everything has gone online. People were in quarantine, working remotely, shopping online, ordering groceries for delivery, watching movies at home, and taking online classes. A surge in online activity has brought record profits to tech companies and prompted a hiring frenzy to keep up with demand. Tech companies thought this would become the new norm, so they expanded their teams and grew rapidly. During the pandemic, the number of employees of Amazon increased by 93%, Microsoft – by 53%, Meta – by 92%, Apple – by 20% and Alphabet – by 60%.

Growth in the number of workers over the past 20 years

Salaries hit record highs as competition for top talent raged and the media was filled with stories of lavish benefits. So it’s no surprise that the average time a recently fired employee has been in their position is about two years. This may suggest that, in some ways, these cuts are a rollback of the hiring policies put in place after the pandemic.

In March 2022, inflation in the US increased, so the Federal Reserve System, seeking to bring inflation under control, began to raise interest rates. As a result, the tech industry has felt more pain than other sectors due to its reliance on external funding. At the same time, consumer spending began to slow and people began to return to pre-pandemic behavior. Although the companies had high hopes for maintaining growth rates, they were faced with too many employees with “excess” wages and bloated staff.

The proliferation of AI at work is also a factor, as it allows programmers to work more productively. Potentially, AI allows employers to do the same work as before, but with fewer workers. Neither company cited automation as the reason for the layoffs, but given the job roles involved and the context of what’s happening, it’s tempting to conclude that it’s a contributing factor.

It is interesting to note that the positions and job responsibilities of HR or personnel department employees were the most affected, accounting for 28% of all layoffs. There are two possible reasons for this: first, it implies that if companies are laying off employees, they will also be cutting back on hiring, and less hiring means less need for staff. The second, equally important reason is that HR is an area where some functions are being replaced by automation. There are already platforms designed to automate the routine tasks involved in interviewing and on-boarding new employees, such as reference checks, identity checks and conducting health and safety assessments. In recent years, companies like Amazon have even been reported to use AI to identify underperforming employees and then fire them. While HR and talent acquisition were the hardest hit at Microsoft and Meta, Google and Twitter, software engineers took the brunt of the layoffs. Elon Musk, who fired 80% of his employees, became a kind of inspiration for other heads of technology companies.

Is everything so bad?

Most of the layoffs in early 2022 fell to startups. But at the end of 2022 – at the beginning of 2023, it began to penetrate into larger technologies. Tech companies will slow layoffs,

“then and only when it becomes clear that the Fed is able to slow down inflation”

. And so far, almost everyone is fired.

Meta (recognized as an extremist organization in the Russian Federation) fired 11,000 employees in November 2022 and another 10,000 this year; Amazon has cut 18,000 jobs in 2022 and announced plans to cut another 9,000 in 2023. Twitter has lost more than half of its workforce since Musk took over. Also exempt are Microsoft, Google, Zoom, Spotify, Dell, Accenture, Coinbase, Lyft, Virgin Orbit, PayPal, Groupon and others. But it’s not just about technology: retail giant Walmart is laying off thousands of workers across the U.S. The wave of layoffs will also affect the media industry: e.g.

closing BuzzFeed News

, Announced very recently. Everything that happens is only part of a much bigger picture for technicians.

There’s no question that a reboot is underway at many tech companies. The significant growth and hiring of the past few years is reversing. While the layoffs are simply shrinking these companies back to their pre-pandemic sizes, the signal is that years of growth may be behind us, or at the very least, we’re seeing a pause. This contrasts with sentiment in recent years, when rapid growth seemed a given.

However, most of the layoffs at large tech companies were not just for technical positions (engineering, data science, and product development). Nearly 30 of Google’s 1,800 layoffs in January involved massage therapists. In this sense, it is very important to distinguish between technology jobs and “technical positions”. According to CompTIA, nearly 3 out of 5 people who work in technology do not actually work in the technology industry.

But not all layoffs are junior workers with little experience who can be quickly replaced or perhaps even automated in their roles. Employees who have worked longer tend to earn higher wages, and cutting wages can help businesses meet their financial goals. Many of the workers hired during the pandemic were not entry-level employees, but experienced software engineers and developers earning six-figure salaries with generous benefits.

For example, the latest round of layoffs at Meta affected workers in key technical roles such as data scientists and software engineers—jobs that were once considered indispensable. It’s a sharp turnaround for a company that until recently offered some of the highest salaries and recruited professionals for in-demand technical roles. Now, within the “year of efficiency” of the company, some of them are let go.

In other words, tech companies aren’t just laying off people in their larger ecosystem, which ranges from marketers to massage therapists. They’re also, many for the first time, undercutting the people who make the same products they’re known for and who have a kind of venerable status.

An example of the increase in the number of vacancies for some technical positions

Software engineers and other technical workers are still in high demand, but their market “power” and demand for perks and high salaries is now muted. The latest monthly jobs report from the high-tech industry association CompTIA showed that while employment at technology companies (including all positions at those companies) fell slightly in March, employment in technical occupations across all industries increased by nearly 200,000 positions. So, even as tech companies lay off tech workers, other industries are picking them up. Unfortunately for software engineers and their ilk, this means they’ll have to follow the salary patterns of these industries. According to PayScale, the average base salary for a software engineer in the U.S. is $90,000, but it can be much higher at tech firms like Facebook, where such workers also receive bonuses.

So despite more than 300,000 tech layoffs over the past 12 months, tech employment is still above the pre-pandemic trend, according to the US Bureau of Labor Statistics.

What happens next?

The layoff trend shows no sign of stopping, with several more quarters of slow tech growth likely. As brands adjust to new market conditions, rising interest rates and changes in consumer spending, layoffs are likely to continue.

With industries having a long way to go in the tech sector, the current layoffs are taking a significant step back. With hiring freezes and mass layoffs at tech corporations, recruiting teams have become obsolete. It also hints that jobs are beginning to be automated. The layoffs came in part as tech organizations planned to invest in artificial intelligence and automation. Tech giants like Microsoft and Google have announced their plans to invest more in AI-powered solutions like ChatGPT.

So far, the layoffs have extended far beyond Silicon Valley, with banking giant Goldman Sachs making its biggest layoffs since the 2008 financial crisis, while Morgan Stanley and Credit Suisse also cut staff. And while the media industry isn’t far from layoffs, major companies including Disney, NBC and CNN have also cut large chunks of their staff.

What happens over the next few months will depend a lot on the macro environment and investor sentiment — how well inflation is under control, how deep the recession may be, and how much investors continue to demand yield during this period. In addition, geopolitical tensions will continue to hamper the global economy.

The labor market is evolving at a constant pace, with some positions becoming obsolete due to improvements in technology and automation. However, new opportunities are emerging. But to succeed in today’s competitive market, it’s vital to have the ability to adapt and stay abreast of the latest innovations. Digitization will continue to permeate industrial sectors beyond technology and consumer goods. While we may not see a surge in overall hiring, employment rates may continue to rise, and some industries (like AI) will show excess growth.