Exploring the paradoxical nature of layoffs by technology companies
Layoffs in the Technology Industry
Getting ghosted by recruiters, having technology sponsored university events being postponed or getting canceled recurring? The massive tech company layoffs last year are worsening in 2023, with Amazon, Meta, Google and amongst other tech giants engaging in sweeping job cuts, to even smaller fintech start-ups following the movement. More tech employees were laid off in 2022 than in 2020 and 2021. What is causing the phenomenon for this particular job sector, and are layoffs really effective for companies?
Over hiring During the Pandemic
The COVID19 pandemic brought a new way of living, where technology dominated our lives as everything shifted online. From people working remotely, online shopping or even getting their groceries delivered to their doorsteps, this sensation instigated a hiring frenzy for tech companies as record-level profits were made. Tech companies thought this would become the new normal. However, as a lot of activities are shifting back to how they operated prior to the pandemic, such as hybrid work or study schedules, technology demand isn’t as high and hence there is less need for new hires. A prime example of the consequence of over-hiring during the pandemic was made by Meta, having nearly doubled its employees from 48,268 in March 2020 to over 80,000 by September 2022. In November 2022, the company announced it was dismissing 11,000 of its staff.
Economic Downturn
Anxieties of an upcoming recession is very much up in the air as the US faced a shrinking economy in July 2022 for the second straight quarter. Many other factors threaten the economy’s health, such as the ongoing Russian-Ukrainian war, continuing supply chain issues, government debt ceiling and inflation spiking whilst interest rates skyrocket as well.
Inflation soared to 9.1% in June 2022 for the US, recording their highest inflation rate in 40 years as compared to its 2% threshold for steady inflation. Thus, technology corporations faced price increases for services. Businesses then had to look into cutting costs to cover their increased expenses resulting from inflation. Laying off employees is normally the first action to take as it makes up the most amount of company expenses. Companies such as Meta, Google adopt business models which rely on advertisement revenue, and so cutting back on advertising will reduce revenue.
Furthermore, higher interest rates mean borrowing comes at a greater cost. These higher rates impact venture capitalists and other funding platforms as they do not wish to invest in risk when the projection of economy is uncertain. Economic uncertainties hence make companies re evaluate their hiring and growth approaches.
Paradoxical Effects of Layoffs?
However, Stanford business professor Jeffrey Pfeffer does not see potential benefits in laying off workers, but only negative repercussions. He claims that layoffs are essentially a bad choice, as it often does not increase stock prices as the mere action signals that the company is facing some troubles. Moreover, layoffs do not increase productivity, and in cases does not solve what usually is the underlying problem for a company, whether that be a loss of market share or slow growth. Companies also sometimes lay off freshly recruited candidates, which usually includes recruitment bonuses. But when the economy improves and hiring restarts, they will return to the market and compete for very similar if not the same talent. This essentially means labour is being bought at a high price and sold low, which is not profitable.
Additionally, research has presented negative effects of layoffs. Layoffs further the chances of suicide by two and a half times. They also escalate mortality by 15-20% over the next 20 years. Unsurprisingly, layoffs worsen the stress levels of people. Unhealthy stress can then lead on to various behaviours such as smoking, increased drinking, drug use or overeating which all can be detrimental to health.
Pfeffer argues that the string of tech company layoffs is a social contagion. Companies are only laying off their workers because others are doing the same. There have even been people who have approached Pfeffer knowing the harmful effects of layoffs to the wellbeing of employees and the company, yet still continue it due to the social contagion and their boards asking why layoffs aren’t occurring.
Pfeffer’s insights raise many questions for tech companies. Are there other more effective strategies rather than laying off workers to increase growth? There have not been this drastic labour cuts in other industries, maybe looking into how others have overcome their issues might be valuable. The overall expected growth in IT spending this year is moderate, and so companies may wish to trial different strategies to boost profitability. It is time to place greater importance on human life.
Layoffs in the Technology Industry
Getting ghosted by recruiters, having technology sponsored university events being postponed or getting canceled recurring? The massive tech company layoffs last year are worsening in 2023, with Amazon, Meta, Google and amongst other tech giants engaging in sweeping job cuts, to even smaller fintech start-ups following the movement. More tech employees were laid off in 2022 than in 2020 and 2021. What is causing the phenomenon for this particular job sector, and are layoffs really effective for companies?
Over hiring During the Pandemic
The COVID19 pandemic brought a new way of living, where technology dominated our lives as everything shifted online. From people working remotely, online shopping or even getting their groceries delivered to their doorsteps, this sensation instigated a hiring frenzy for tech companies as record-level profits were made. Tech companies thought this would become the new normal. However, as a lot of activities are shifting back to how they operated prior to the pandemic, such as hybrid work or study schedules, technology demand isn’t as high and hence there is less need for new hires. A prime example of the consequence of over-hiring during the pandemic was made by Meta, having nearly doubled its employees from 48,268 in March 2020 to over 80,000 by September 2022. In November 2022, the company announced it was dismissing 11,000 of its staff.
Economic Downturn
Anxieties of an upcoming recession is very much up in the air as the US faced a shrinking economy in July 2022 for the second straight quarter. Many other factors threaten the economy’s health, such as the ongoing Russian-Ukrainian war, continuing supply chain issues, government debt ceiling and inflation spiking whilst interest rates skyrocket as well.
Inflation soared to 9.1% in June 2022 for the US, recording their highest inflation rate in 40 years as compared to its 2% threshold for steady inflation. Thus, technology corporations faced price increases for services. Businesses then had to look into cutting costs to cover their increased expenses resulting from inflation. Laying off employees is normally the first action to take as it makes up the most amount of company expenses. Companies such as Meta, Google adopt business models which rely on advertisement revenue, and so cutting back on advertising will reduce revenue.
Furthermore, higher interest rates mean borrowing comes at a greater cost. These higher rates impact venture capitalists and other funding platforms as they do not wish to invest in risk when the projection of economy is uncertain. Economic uncertainties hence make companies re evaluate their hiring and growth approaches.
Paradoxical Effects of Layoffs?
However, Stanford business professor Jeffrey Pfeffer does not see potential benefits in laying off workers, but only negative repercussions. He claims that layoffs are essentially a bad choice, as it often does not increase stock prices as the mere action signals that the company is facing some troubles. Moreover, layoffs do not increase productivity, and in cases does not solve what usually is the underlying problem for a company, whether that be a loss of market share or slow growth. Companies also sometimes lay off freshly recruited candidates, which usually includes recruitment bonuses. But when the economy improves and hiring restarts, they will return to the market and compete for very similar if not the same talent. This essentially means labour is being bought at a high price and sold low, which is not profitable.
Additionally, research has presented negative effects of layoffs. Layoffs further the chances of suicide by two and a half times. They also escalate mortality by 15-20% over the next 20 years. Unsurprisingly, layoffs worsen the stress levels of people. Unhealthy stress can then lead on to various behaviours such as smoking, increased drinking, drug use or overeating which all can be detrimental to health.
Pfeffer argues that the string of tech company layoffs is a social contagion. Companies are only laying off their workers because others are doing the same. There have even been people who have approached Pfeffer knowing the harmful effects of layoffs to the wellbeing of employees and the company, yet still continue it due to the social contagion and their boards asking why layoffs aren’t occurring.
Pfeffer’s insights raise many questions for tech companies. Are there other more effective strategies rather than laying off workers to increase growth? There have not been this drastic labour cuts in other industries, maybe looking into how others have overcome their issues might be valuable. The overall expected growth in IT spending this year is moderate, and so companies may wish to trial different strategies to boost profitability. It is time to place greater importance on human life.
