What Mass Tech Layoffs Might Mean For Economy
When Elon Musk took over Twitter a few months ago, his first order of business (after bringing a symbolic kitchen sink into headquarters, of course) was to gut the company by instituting massive layoffs. By the first week of December, Twitter had let go about half of its 7,500-employee workforce. The suddenness and abrupt nature at which the layoffs were happening made it a derisive move at the time and the celebrity billionaire was heavily criticized.
But layoffs in the tech sector have been rampant both before and after the Twitter news. In 2022, 140,000 jobs were slashed from both public and private organizations in the industry. Amongst the biggest layoffs in 2022 was Google and Amazon as well as Insurtech firm Doma, cryptocurrency exchange Kraken, and delivery service DoorDash. In 2023, 77,000 tech jobs have already been shed. Just last week alone, Dell and Zoom both had a round of cuts that contributed over 8000 lay-offs to that total.
The reasoning behind these cuts varies. For Twitter, inefficiency, lack of technical skill, and departments that did not align with the new regime’s view of the future were largely cited as the contributing factors. But for the majority of the cuts the general sentiment is that companies are feeling the squeeze of the current inflationary period and battening down the hatches for a possible recession. Companies also have cited overstaffing during the months following COVID shutdown due to missed estimates of where the economy would be at this point.
These don’t seem too out of the ordinary, especially for an industry that is sensitive to macro-economic pressures. But other sectors, even those which typically feel similar pressures during low economic tide, have not been hit with this type of retraction. The leisure and hospitality sector, for example, is experiencing continued growth in 2023, adding 128,000 jobs in January. The entertainment industry specifically has also continued to add jobs as it has yet to return to pre-pandemic employment levels.
Overall, the job market is in a really confusing place right now. With inflation on the rise and a recession still looming, it would be expected that workers would be suffering. But that isn’t necessarily the case. January’s jobs report crushed estimates with an addition of 517,000 jobs. Additionally, unemployment dropped to 3.4%, a 53-year low.
But, Fed Chair Powell remains steadfast in his rate hikes. At the beginning of the month, he announced another interest rates raise, pushing it up 25 bps to set the fed funds rate at 4.75%. As it stands, the Feds inflation busting has been working. Inflation has been brought down over half a percent last month, indicating that the economy is improving. Add in the strong jobs report and Americans can be cautiously optimistic. But this success also means that Powell will continue on his plan of a slow road to recovery as he aims for his coveted “soft landing”. Which will mean some more economic pain for the consumer before things can be returned to normal.
It is undeniable that the economy is in a fragile place and the mass layoffs are an indication of that. Our initial reaction when seeing these big brands cutting their workforce is to panic. With some economic context, however, we can be hopeful that recession is not a foregone conclusion. Whether the workforce scale back will remain contained to tech or will spread to the rest of the economy in 2023 is something to look out for as the country aims to claw back to normalcy.
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