What is driving the big tech job cuts?
January 2023 will be remembered as a tough month for the global technology sector, with major layoffs and cut backs announced by some of tech’s biggest global names.
Crunchbase estimates the number of jobs cut in the US tech sector at 58,000, and that follows a massive wave of around 140,000 layoffs in 2022.
The likes of Microsoft, Google, Amazon, and more are all getting in on the act, announcing efforts to reduce global headcount citing a variety of reasons and causes, many linked to the global economic slowdown.
The truth is, many of these companies don’t “need the money” per say. At the same time as announcing layoffs believed to top the 10,000 mark, Microsoft revealed plans to plough $10 billion in OpenAI, the creators of the viral application ChatGPT.
Google’s parent company Alphabet is axing around 6% of its workforce (believed to be around 12,000 jobs) but is reportedly investing heavily to create its own AI platform to challenge ChatGPT.
But despite a willingness to invest in other areas, these firms, like many others in tech, come when pressures on the stock market are pushing executives to look for savings. January’s events continued a downward trend for tech over the course of 2022, during which Tesla’s share price fell by 65%, Facebook-parent Meta by 64%, Netflix by 51% and Apple by 27%.
Twitter also announced massive layoffs last year, although many of them came in the immediate aftermath of Elon Musk’s acquisition and it is unclear if they are related to the problems faced by other tech giants.
A study from Coingecko breaks down the tech sectors seeing the highest number of cuts, with the consumer sector leading the way at a cumulative 32,535, with 19,856 jobs cut in 2022 and 12,679 in January 2023. This ranked the consumer sector as the second hardest hit by layoffs in both the year of 2022, and in 2023 to date.
The retail sector was almost as badly affected, with a cumulative 30,918 number of employees laid off, of which 20,014 headcounts were cut in 2022 and 10,904 in January 2023. In other words, technology companies in the retail sector ended the year 2022 with the most layoffs, but ranked third in 2023 to date.
So what are the reasons behind the job cuts, and what could it mean for the enterprise tech market?
Though the Covid pandemic had a negative impact on global economies, some tech sectors benefitted. The shift to working from home opened an opportunity for many technology companies, while extra cash in people’s pockets meant online sales rocketed.
Tech companies — buoyed by record revenues — undertook a hiring spree during the Covid-19 pandemic, with salaries hitting record levels as competition raged for the top tech talent.
One of the companies that perhaps saw the most benefit was Amazon, who, according to CEO Andrew Jassy, “hired rapidly over the last several years” to deal with growing demand for deliveries and products. The Guardian claims Amazon’s workforce grew from 620,000 in March 2020 to over 1.5 million, growing to tackle shifting consumer spending habits.
Amazon has announced significant job cuts, with e-commerce giant set to cut its workforce by around 18,000 roles. Jassy added that an “uncertain economy” was a key factor, as pandemic-related corporate growth meets a US and global economic slowdown.
At Facebook, the company announced a major investment into the metaverse and VR at the end of 2021, but parent company Meta revealed plans to cut around 11,000 roles in November, with CEO Mark Zuckerberg admitting he had grown the company’s employee base on the assumption that online habits would continue post-pandemic, an estimate that had not borne out.
Salesforce also announced last month that it was laying off about 8,000 employees, or 10% of its workforce. Marc Benioff, its chief executive, said the company had overexpanded.
“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff wrote to employees.
A comprehensive study into the tech layoffs by 365 Data Science identifies some of the people and roles hit hardest by the tech firms’ decisions to make cuts. The figures are eye-opening.
The largest layoffs within these tech companies ironically did not come from tech specific roles. According to the study, which analysed 1,157 LinkedIn profiles of people laid off in the period November 2022 – January 2023, 27.8% worked in HR & Talent Sourcing. Software engineers were the second most impacted category at 22.1% while marketing employees followed them with 7.1%.
This makes sense, given the freeze on recruitment. But also a lot of HR and marketing functions within tech companies are being automated, meaning this could become a longer term trend.
365 also broke down the characteristics of those most effected by the job cuts, finding women – who make up just a third of the tech workforce overall – accounted for 56% of the latest cuts.
The layoffs also had a larger impact on millennials. Nearly half of those impacted by the layoffs (47.8%) were within the 30–40 age range. The second most-affected age group (35.9%) was 20–30. The average experience of those losing their job was around 11 years.
Any signs of recovery?
Overall though the market is bleak, with 68,500 new job cuts in January alone – almost half the number of tech jobs cut altogether in 2022. With recession looming, it seems inevitable there will be more to come.
Perhaps most worrying is that 365’s study found that just over 10% of the workers in its sample have found a new job as of January 2023. That reflects the fact that much of the normally-competitive tech sector is going through a freeze, as executives prioritise profitability and margins.
While that may be troubling, governments have taken steps to encourage tech investment, with the US Inflation Reduction Act including up to $369 billion in incentives and subsidies for tech investment, while in France, nation bank Bpifrance has announced €500m in cash for deep tech startups.
It is also too early to tell if this is a longer term trend or whether the falling costs of energy and wider inflationary pressures will see a major tech bounce back.
That’s why TechInformed will next week take wraps off a new jobs board, seeking to connect tech workers with the best tech roles. We will reveal much more soon!
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