Life beyond the US technology layoffs

The tech industry is among the most high-profile—three of the top 10 companies in the Fortune 500 list are from here—and tech workers are among the highest paid. However, the cutbacks here don’t reflect in the overall numbers since other segments are growing. The US added 315,000 jobs in September and 261,000 in October, and unemployment rate was 3.7% in October, against 14.8% in April 2020.

The main reason for the layoffs can be traced back to the sector’s over-hiring. The top five companies—Facebook (Meta), Apple, Amazon, Netflix and Google (Alphabet), also known as FAANG—increased their headcount by over 80% between 2019 and 2021. They are now correcting for their optimism. Meta CEO Mark Zuckerberg said its increased investments in the company “did not play out the way (he) expected.” Former Twitter CEO Jack Dorsey tweeted he “grew the company size too quickly”. Stripe’s co-founders wrote they overhired, adding that, “we were much too optimistic”.

Layoff lull

When covid-19 hit in early 2020, many economies, including the US, faced a recession (defined as a fall in GDP for two successive quarters) due to the lockdowns. It also led to layoffs. In Q2 of 2020, about 60,000 tech workers were laid off across 428 companies, according to layoffs.fyi. However, it was followed by large-scale adoption of digital. Demand for remote working tools such as Zoom, at-home entertainment options such as Netflix, and remote delivery, including e-commerce, picked up.

Revenues of digital companies rose too. Interest rates dropped, increasing the flow of money. Venture capital investments beat previous records. Layoffs in the tech sector dropped and were replaced by a war for talent. The demand for tech talent extended to non-tech companies also. When CompTIA surveyed HR managers across the US economy in 2021, it found 40% of companies hired tech staff during the pandemic. The layoffs in the current quarter match Q2 of 2020.

Growth pangs

However, this year, a number of coinciding factors dampened the tech party. The US central bank tightened money supply. Russia invaded Ukraine. And, most importantly, demand for digital dropped as workers returned to offices and economic activities started shifting to the physical world. Revenue growth of FAANG companies has consistently dropped in the past few quarters. There were also segment- or company-specific issues—for example, a change in Apple’s ad policies dented Meta’s revenues.

The pain was felt beyond FAANG too. In the most recent quarter, Microsoft faced its slowest growth rate in five years. Tech companies are facing growing pressure from investors to contain costs. Recently, activist investor TCI Fund Management demanded Alphabet trim its headcount and salary expenses. Meanwhile, new owner Elon Musk is pushing Twitter to perform with a fraction of its previous headcount. If he succeeds, that could turn investor pressure on other tech companies also to cut costs.

Attrition woes

Indian tech companies also saw a similar surge in demand for online products and services during the pandemic. Many are under pressure to cut costs now, amid a VC funding winter. From Byju’s to Udaan to Zomato, Indian startups have laid off workers in the recent past to offset over-hiring.

However, in the traditional software services segment, the largest employer of tech talent, employment is stable. Beyond performance-related firing, employees haven’t faced layoffs. Many of these companies faced the brunt of the war for talent in the last few years. According to a September 2022 report by Teamlease, the IT industry saw a 23-25% attrition rate through 2021. It expects the trend to continue in the near future. While layoffs might have been a result of hiring decisions the firms made, it could spiral with a harsher economic slowdown.

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