What tech layoffs could mean for the economy
For months, tech companies announced round after round of layoffs as the U.S. economy slowed and fears of a recession grew. Although the headlines sound dismal, labor economists say the layoffs don’t necessarily signal a major downturn in other industries.
So far this year, more than 41,000 tech workers have been laid off, according to data compiled by Crunchbase. Late last month, Snap announced it would lay off 20% of its employees after the company reported disappointing second-quarter results. Other big companies, including Netflix, Microsoft and Shopify, have already laid off hundreds of employees this year. Google and Apple have also reportedly decided to freeze or slow down hiring.
Economists and investors are wary of a potential slowdown in the labor market as the Federal Reserve raises interest rates to cool consumer demand and tame inflation. As people spend less on goods and services, the idea is that prices should fall. But it risks triggering a recession, as companies could slow hiring or lay off workers in response to lower demand.
Along with the tech sector, layoffs in the real estate sector have grabbed headlines as mortgage rates rise and home sales fall. And according to an August PwC survey, half of U.S. executives surveyed said they were cutting overall headcount even though they remained concerned about hiring and retaining talent.
But despite the worrying wave of layoffs across the tech industry, they may be, in part, a return to more normal hiring levels. Many companies stepped up hiring earlier in the pandemic as more people started working from home or hosting events online. And the overall job market still looks resilient. Employers added 315,000 jobs to the economy in August, a slowdown from July’s strong increase, but a solid gain. And even though the jobless rate hit 3.7% last month, more Americans joined the labor force, and the rate rose only slightly from July’s low of 3.5%. a half-century.
On top of that, aggregate data shows that layoffs are still low (about 1.4 million people were laid off or laid off in July, compared to almost 2 million in February 2020). New jobless claims have also started to fall in recent weeks.
Some labor economists say layoffs in the tech industry have likely been too low so far to have an outsized impact on overall employment data. And while they say delays in government reporting could understate layoffs, overall demand for tech workers remains strong and fewer than normal layoffs in other industries, such as hospitality, could compensate for losses.
And most tech industry workers who are laid off don’t seem to have trouble finding other job opportunities because of the tight labor market, economists say.
Julia Pollak, chief economist at ZipRecruiter, said the layoffs clearly signal a slowdown in the tech industry, but she didn’t expect it to necessarily be a leading indicator of hiring trends in the labor market. at large.
“I think the fallout for the rest of the economy will be quite limited,” Pollak said.
Although tech executives have said they are worried about the trajectory of the U.S. economy, tech companies have also faced unique challenges as the economy returns to more normal conditions, he said. she declared.
Earlier in the pandemic, some tech companies “had explosive growth” and ramped up hiring, Pollak said. Now, some of those companies are starting to return to more sustainable hiring and staffing levels. And as some companies lose money due to falling valuations and a strong dollar eroding earnings overseas, they need to become more conservative in order to increase profitability, she added.
“The unique conditions that favored their growth kind of evaporated,” Pollak said. “People are going back to the gym and going back to physical stores. They may not be so reliant on online shopping apps and Peloton.
Tech workers are always in high demand
Even as some in the tech sector are laid off, workers are still in high demand, economists said. Pollak said she’s heard of recruiting teams at some companies deliberately looking for laid-off workers because they want to “capture that talent right away.”
Employment remains strong. The tech industry has created 175,700 jobs so far this year, a 46% increase from a year ago, according to data from CompTIA, an information technology trade group. The total number of vacancies for technical positions, however, has started to decline.
Daniel Zhao, senior economist at Glassdoor, also said many laid-off tech workers are bouncing back and getting new jobs easily because there are still plenty of job opportunities. In July, the total number of job openings reached 11.2 million, according to data from the Labor Department. By comparison, there were around 7 million job openings in February 2020.
Zhao said it didn’t look like the majority of tech companies were laying off workers or slowing hiring, based on anecdotal reports, but it was hard to say due to a lack of data. He said most tech companies, however, seem to be reassessing their hiring plans as the broader economy slows and the risk of a recession looms.
And while the slowdown in hiring in the tech industry doesn’t yet signal a sea change in the broader job market, it’s still not great for tech workers, because it means they have less sway over employers, Zhao said. This could mean that workers have to accept, for example, pay cuts or job opportunities with fewer benefits.
“Even if laid-off workers are able to find a job fairly quickly, it is very stressful and means that workers have less means to find a job that suits them, whether that means it pays well or is a good one. using their skills,” Zhao said.