Tech layoffs in 2023 have already exceeded half of 2022’s total, but here is why the industry would be fine

The brutal wind of layoffs rocking the global tech industry has crept into 2023, as tech giants — Google, Amazon, Meta, and Microsoft –have made large-scale layoffs since the beginning of the year amid a global economic downturn.

The tech industry has laid off 108,346 workers so far in 2023, per data from Layoffs.fyi, a website that tracks job losses in the tech sector. This represents about 67.2% of the total amount of tech layoffs recorded last year: 160,997, according to the layoff tracker.

And not only does the tech winter kick thousands of people out of jobs, but layoffs also come with negative health effects on the affected workers. Research has found that layoffs increase the odds of suicide by two and a half times. Job cuts equally increase people’s stress.

Big Tech is battling a “midlife crisis”

At the forefront of these layoffs are Big Tech companies in a trend that has been described as a “midlife crisis”, an allusion to how rising inflation and a tumultuous stock market have forced tech companies to axe their workforce, which had increased significantly due to the accelerated growth occasioned by the pandemic.

For one, the COVID-19 lockdown sparked a tech buying spree to support remote work and an uptick in e-commerce. But the story has changed, as Big Tech firms now grapple with declining revenues.

“Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition and ads signal loss have [led to lower-than-expected revenue],” Meta CEO Mark Zuckerberg wrote last year when he announced the layoff of employees.

Four days into 2023, Salesforce announced it would lay off approximately 10% of its employees, i.e. around 8,000 workers, based on its most recent reported headcount. On January 10, Coinbase confirmed it would make massive cuts – around 950 employees, or 20% of its workforce. 

On January 20, Alphabet, Google’s parent company, announced that it plans to lay off 12,000 of its workforce, as the almost 25-year-old company faces “difficult economic cycles”. Days earlier, Microsoft had said it would lay off 10,000 employees, representing about 5% of the total employee base of over 220,000.

The same month, Amazon announced a fresh round of job cuts in what’s expected to become the largest workforce cuts in its 28-year history. CEO Andy Jassy said the layoffs would affect more than 18,000 employees, primarily in human resources and store divisions.

Streaming giant Spotify announced plans to axe 6% of its global workforce. According to a note from the company’s CEO and Co-founder, Daniel Ek, Spotify’s current growth trajectory was unsustainable in the long run. Also in January, the New York-headquartered International Business Machines Corp. (IBM) said it would lay off 3,900 employees, 1.5% of its global workforce of 260,000.

On the last of January, PayPal joined the league of companies participating in the layoff spree after Dan Schulman, the president, and CEO of the payments giant, announced that the company has decided to cut down its global workforce by approximately 2,000 full-time employees. The cut represents about 7% of its workforce, as a 2021 Statista report puts PayPal’s total employees at about 30,000.

Earlier this month, Financial Times reported that Meta is preparing a fresh round of job cuts, expected to occur in March, though the number of affected remains unknown. The company recently gave poor performance reviews to thousands of employees, raising fresh fears about the layoff. Last November, Meta laid off 11,000 employees, about 13% of its global workforce.

Read also: Layoffs continue as PayPal cuts 2000 employees.

Copycat behaviour plays a part in layoff trend

The string of layoffs shaking up the global tech industry is largely attributed to uncertain economic conditions. Analysts have also said that the job cuts are a form of belt-tightening for companies that hired aggressively in the wake of the pandemic.

“Over the past two years, we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today,” Alphabet and Google CEO Sundar Pichai said in an email to employees.

But Jeffrey Pfeffer, a Stanford Graduate School of Business professor, argued that workforce reductions are tied to “copycat behavior” among tech companies.

“The tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing. If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it. Layoffs are the result of imitative behavior and are not particularly evidence-based,” he said in an interview.

Layoffs are contagious across industries, and within industries, Pfeffer said. “The logic driving this, which doesn’t sound like very sensible logic because it’s not, is people say, ‘Everybody else is doing it, why aren’t we?'”

Read also: We curated a list of the 5 biggest tech casualties of 2022. Here is why they flopped.

Tech layoff trend may not be as bad as it seems

While tech layoffs are worrisome, experts say Big Tech accounts for a relatively small share of the entire tech workforce because small and mid-size companies make up the bulk of the industry. Jennifer Lee, a senior economist at BMO Capital Markets, told Bloomberg that the tech layoffs are not a “bellwether of the entire labor market”.

The tech unemployment rate is falling despite the current acceleration in job cuts at high-profile companies.

According to CompTIA’s analysis, the tech unemployment rate fell to 1.5% from 1.8% in December, indicating that many laid-off workers were re-hired and absorbed into the labour market.

“Despite the unusual backward revision by the BLS and the routine fluctuations in monthly labor market data, much of the big picture tech employment picture remains the same,” said Tim Herbert, chief research officer of CompTIA. “Undoubtedly some companies over-hired and are now scaling back. The low tech unemployment rate and steady hiring activity by employers confirms the long-term demand for tech talent across many sectors of the economy.”

Similarly, the report states that there has been an increase in job postings for tech roles since the start of the year. Among industries, the highest volumes of job postings for tech positions were reported in the professional, scientific and technical services (40,712), finance and insurance (30,576) and manufacturing (24,269) sectors.