The Great Reduction? We don’t think so!

February 9, 2023

It’s been a month since we’ve entered 2023 and 234 tech companies have laid off nearly 80,000 people. And in 2022, ~160,000 people were let go according to layoffs,fyi.

The layoff numbers are changing daily but the U.S. Market keeps adding jobs. With 10.5 million jobs currently open and other economic indicators like the employment rate remaining low at 3.5%, leaves us wondering, what is actually going on with all of the tech layoffs?

With so much market speculation, there are many different reasons for tech layoffs emerging and it can be hard to cut through the noise. We’ll walk you through some of the evolving news stories and what it means for job seekers today.

‍

The rise of boom bust hiring cycles.

After decades of steady scale and growth in silicon valley and beyond, it’s safe to say we are watching history unfold. It’s been nothing short of a wild ride as boom bust cycles in the tech labor market seem to be the new norm.

We’ve seen the tech market weather the pandemic market freeze and bounce back. Then we saw tech jobs really bounce back in post pandemic recovery and an intense war for top talent develop as a result.

The golden era of tech success around 2020 brought a golden era of hiring and companies couldn’t fill their open roles fast enough! But news of more layoffs are updated nearly every day and the once seemingly untouchable tech giants like Meta, Amazon, Microsoft and Google have all made some of the largest cuts in the industry in recent weeks.

So what’s going on? We think boom bust hiring cycles could be the result of overshooting headcount projections and now the market is correcting.

‍

Inflated valuations, record compensation packages and short-sided hiring practices.

As a part of the boom bust cycle in hiring, we also saw a similar pattern in tech stocks. In 2020, many tech stocks saw strong gains and historic highs but by 2022, those prices were slashed and trading below pre-covid highs.

Valuations weren’t the only thing that was inflated. Remote work trends and intense hiring demand put the ball in the candidates court big time, especially in regards to compensation. Companies were shelling out record amounts of cash and hefty stock packages in the race to hire technical talent.

Over-hiring + over valued stock + above market compensation = layoffs? It’s a possibility that many companies got over zealous, like Mark Zuckerberg stated in his reasoning for Meta layoffs in November, in their hiring practices in the race to win the best talent during the post covid recovery boom.

However, the thing to note here is that big tech isn’t really in trouble right now. Many companies are still sitting on piles of cash, according to NPR.

‍

The pandemic market was weirder than anyone could have forecasted and tech remains an anchor of the U.S. economy.

Covid highs did not actually represent a long term hyper-acceleration of the tech market. More like a bubble, according to the Atlantic.

Tech companies employ nearly 9 million people, add $1.8 trillion to the economy and make up half the nasdaq index. So when the bubble popped and tech stocks performance started affecting market wide fluctuations - it makes sense to think that many are playing it safe.

A looming global recession could certainly explain why many tech companies are choosing to be conservative in the short term while the potential impacts of whatever is coming are largely unknown. But even though tech stocks took a dive, experts are still optimistic about the overall long term value created by companies like Amazon, Apple, Alphabet and Microsoft.

So while many smaller and mid sized tech companies have had to tighten belts and lighten operating costs perhaps by necessity - the reason companies like Meta & others are partaking might be different than their colleagues whose pockets aren’t quite as deep and insulated.

‍

The domino effect. Tech CEOs might be navigating uncertainty by following the crowd.

Big tech can still afford to play ball. They might have over-hired and still be subject to market conditions like everyone else - but why layoffs to cut costs when they’re still extremely profitable?

One interesting take from Derek Thompson at the Atlantic is that it’s to keep a strategic edge because everyone else is doing it, and getting rewarded by the market for doing it (The Atlantic). Hmm.

‍

Psst.. There are still companies hiring right now! So what can you do to be prepared as a job seeker during this time?

It can feel overwhelming to be a job seeker right now and we don’t blame you! But there are still many reasons to stay positive.

The truth is there is always a need for tech skills and especially as other industries like energy evolve. One piece of advice from a tech CEO with skin in the game is to understand how a company makes money and stay close to core projects and products right now(technical.ly). Forbes also reported that nearly a third of all the layoffs took place across HR departments and there is still a war for talent over hard to fill technical roles such as software engineers (Forbes).

As we see it, the economy is still adding jobs, many companies are still hiring and candidates still have great options!

One quote from Index.dev CEO Sergiu Matei sums it up nicely: “But as our economy sorts itself out after this historic pandemic, Matei expects the new economic normal to appear in the next six-to-eight months. Most tech workers will still be in demand.” (technical.ly)

Working with a well connected staffing firm like Intelletec can give you an edge as well. Recruiters have their pulse on the market, can give you great advice and present opportunities to you that you might not have found job searching on your own.

If you’re looking for a new role, contact one of our recruiters today!

‍

Resources: