6 Reasons Why Tech Companies Are Laying Off So Many Employees

Mass layoffs from tech behemoths have been making headlines since the second half of 2022, and it seems as if the worse is far from over. After Elon Musk slashed nearly half of Twitter’s global workforce, Meta and Amazon followed suit with job cuts that saw thousands unemployed just before the holidays.

The tech industry is notorious for ruthlessly firing workers. This latest round of layoffs brings back memories of the dot-com era, which left thousands without jobs. Why were many tech employees fired recently? Here are five reasons.

1. Economic Uncertainty

6 Reasons Why Tech Companies Are Laying Off So Many Employees

Layoffs are a company’s emergency strategy when demand for its products and services dwindles. Sadly, employees are among the first to go when you need to cut costs.

Dave Limp, Senior Vice President of Devices & Services at Amazon, mentioned “an unusual and uncertain macroeconomic environment” that led to its decision to lose “talented Amazonians.” The New York Times reports that Amazon has since pared back its workforce to almost 80,000 from April to September, with thousands more expected to be laid off in the coming days.

Debates about whether the U.S. is in a recession escalated after data from the U.S. Bureau of Economic Analysis in July 2022 showed a shrinking economy for the second straight quarter. You can’t confidently say that the future looks rosy. The International Monetary Fund (IMF) states that economic conditions hang in a balance, depending on the course of the war in Ukraine, monetary policy, and the pandemic. You can conclude that layoffs are a company’s way to survive uncertain times.

2. Decrease in E-Commerce Activity

hand refusing a shopping bag offered by another hand coming out of a computer screen

The pandemic drove many businesses online as they adapted to lockdowns. You might remember staying home all day in your pajamas while wearing tops more appropriate for the office for your Zoom meetings. Online shopping, Netflix, and remote work became the new way of life. You might have thought it would stay this way forever, with tech firms hiring left and right for IT roles.

Some tech firms embraced online work, with a few high-rated companies on Glassdoor offering fully remote or hybrid work. But not everyone was eager for the Metaverse to happen so suddenly. Some companies demanded that employees troop back to their cubicles full-time, and tips for a successful return to the office proliferated on the internet. Consumers emerged from lockdowns as well, and online spending decreased.

Research from the IMF, Mastercard, and Harvard Business School shows that e-commerce activity is at or below pre-COVID-19 trend levels in the United States and other advanced economies. The mass tech layoffs are partly the result of the world returning to pre-pandemic normalcy. Companies might have hired rapidly during the pandemic, but they have no use for these workers now.

3. Pressure From Investors

illustration of businessman cowering while hand points at him

Layoff threats become more real as investors push for job cuts to lessen expenses. After a tech boom in 2021, venture capitalists have become concerned that companies will be less profitable this year. Some companies facing pressure from investors are Alphabet (Google’s parent company) and Meta.

CNBC reports that an investor from TCI Fund Management, one of Alphabet’s shareholders, called on the company to “take aggressive action” and reduce headcount. As per the latest report, Alphabet is planning to lay off approximately 10,000 poor-performing employees.

Meanwhile, Altimeter Capital CEO, Brad Gerstner, made similar calls to Meta. In an open letter to Mark Zuckerburg written on October 24, 2022, the Meta shareholder criticized the company for drifting into “the land of excess.” Citing hard-hitting stats, Gerstner emphasized the need for Meta to “get its mojo back,” reduce employees, and lessen expenses. It looks like the letter worked. On November 9, Meta posted Zuckerberg’s decision to let go of 11,000 employees.

4. Declining Revenue

If you’re following the Twitter saga, you might have caught Musk’s November 4 tweet blaming activists for Twitter’s “massive drop in revenue.” His rant came a day after he laid off thousands of employees following a $44 billion acquisition.

However, Lou Paskalis, who serves on the Advisory Council on Twitter, tweeted a clarification on the same thread. He responded that advertisers were concerned about brand safety or suitability after Musk fired 75% of its moderation team.

Regardless of why revenues went down, Twitter is in trouble with a massive $13 billion debt. Clear skies seem far off for the blue bird as talks of more layoffs make the rounds. And with employees resigning after Musk pushed for “extremely hardcore” Twitter in a midnight email, we’re not surprised if users are searching for Twitter alternatives worth considering.

5. Signs of a Mature Industry

Are tech layoffs just part of a company’s natural growth? Yorlin Ng on Channel News Asia seems to think so. An industry “matures” or becomes more stable after its initial growth stages. At this point, it’s only natural for a tech company not to have new customers. It might consider diversifying its products or expanding to other countries. But when these strategies fail, it has no choice but to lay off workers.

6. Ingrained Mentality That Layoffs Increase Profitability

box labeled brain covering person's head while a hand drops the word

Experts at Knowledge at Wharton point to an ingrained mentality in most companies that equate layoffs with profitability regardless of economic conditions. The reasons above support this. In an uncertain economy, layoffs are the purported cure. But even if the economy is doing well, companies still use layoffs as an excuse to improve profits.

While there seems to be no evidence that layoffs work, it has become the short-term, go-to strategy. Sadly, employees have to take the fall. You can stay productive if you’re one of those impacted by this layoff culture. Consider taking time off or upskilling. Plan and organize your next steps before you apply to your next company.

From Tech Boom to Tech Gloom?

External and internal economic factors play a part in ongoing layoffs. The six reasons that compel tech companies to lay off so many employees all have one goal—to cut costs so that a company won’t sink. The pandemic and mass layoffs showed us that economic conditions could quickly change; not even the CEO and the most stalwart of companies are immune from layoffs. One day, you might have your job. The next day, you might be receiving a goodbye email from someone like Elon Musk.

However, the future doesn’t have to be gloomy for tech professionals. While some assume that these layoffs spell out the end of the big tech era, it’s not the end of your career. If you have grit and skills and love tech, stay your course. Even with tech layoffs happening simultaneously, the future of work is still connected to technology.

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