Big Tech is laying off employees by the thousands. Why? and how worried should we be?

Big Tech is laying off employees by the thousands.  Why?  and how worried should we be?

Tech companies are always in the news, often touting the next big thing. However, the tech news cycle recently hasn’t been dominated by the latest gadget or innovation. Instead, layoffs are making headlines.

Last year, more than 70,000 people around the world were laid off by major tech companies – and that’s not counting the downstream effect of contractors (and other organizations) losing business as budgets tighten.

What exactly led to this massive shake-up? And what does that mean for the industry and for you? What’s the harm? Since the end of the pandemic hiring spree, large numbers of employees have been laid off at major tech companies, including Alphabet (12,000 employees), Amazon (18,000), Meta (11,000), Twitter (4,000), Microsoft (10,000) and Salesforce (8,000).

Other household names share the spotlight, including Tesla, Netflix, Robin Hood, Snap, Coinbase and Spotify – but their layoffs are significantly smaller than those mentioned above.

Importantly, these numbers do not include downstream layoffs, such as ad agencies laying off staff as ad spend is reduced, or manufacturers downsizing as orders for tech products decline — or even potential layoffs yet to come.

And let’s not forget the people who voluntarily leave because they don’t want to go into the office, hate their managers, or don’t like Elon Musk’s “hard work” philosophy.

The knock-on effects of all of the above will be felt in the consulting, marketing, advertising and manufacturing spaces as companies reduce spending and redirect it towards AI innovation.

So what is driving the layoffs? The Canary in the Coal Mine reduced advertising spend and revenue. Many tech companies are funded through advertising. So while that revenue stream was healthy (which was especially the case in pre-COVID years), so was staff spending. As advertising revenue declined last year – in part due to fears of a global recession triggered by the pandemic – it was inevitable that layoffs would follow.

Apple is an exception. It has strongly resisted increasing its headcount in recent years and, as a result, does not need to reduce headcount (although it has not been immune to headcount losses due to work-from-home policy changes).

What does this mean for consumers? While the headlines may be surprising, the layoffs won’t mean much to consumers. Overall, work on technology products and services is still expanding.

Even Twitter, which many predicted to be dead by now, is looking to diversify its revenue streams.

That said, some pet projects, like Mark Zuckerberg’s Metaverse, are unlikely to develop in the way their leaders initially hoped. The evidence for this is in layoffs, which focus (at least at Amazon, Microsoft and Meta) on these big innovation bets made by senior leaders.

In recent years, low interest rates coupled with high COVID-related consumption have given leaders the confidence to invest in innovative products. Except in AI, that investment is waning or dead.

What about the people who lost their jobs? Layoffs can be devastating for affected individuals. But who is affected in this case? More often than not, the people who lose their jobs are educated and highly employable professionals. They are receiving severance and support packages that often exceed minimum legal requirements. Amazon, for example, specifically indicated that its losses would be on the technology team and those who support them; not in warehouses.

Having a Big Tech employer on their resume will be a real plus as these individuals move into a more competitive job market, even if it doesn’t seem as heated as many feared.

What does this mean for the industry? With seasoned tech professionals looking for work once again, salaries are likely to decline and higher levels of experience and education will be needed to secure employment. These corrections in the sector are potentially a sign that it is falling into line with other, more established parts of the market.

The recent layoffs are attention-grabbing, but they won’t affect the economy much as a whole. In fact, even if Big Tech laid off 100,000 workers, that would still be a fraction of the tech workforce.

The reported numbers may seem large, but they are generally not reported as a proportion of overall wages or, indeed, general personnel spending. For some tech companies, they are just a fraction of the huge amount of new hires initially acquired during the pandemic.

Big Tech is still a great employer and its great products will continue to impact many aspects of our lives.

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