First a trickle, then a stream, and now a torrent. US tech giants are shedding thousands of jobs almost every day. The darlings of the COVID-19 lockdown have seen their profits squeezed as life returns to normal after months of screen-staring.
During the times of the pandemic boom, Microsoft, Google, Amazon and Facebook parent company Meta saw their headcount grow due to overzealous hiring as demand for their products and services soared. But as decades of inflation took hold and operating costs skyrocketed, Silicon Valley had no choice but to cut the fat.
Tech companies have shed more than 330,000 jobs over the past 12 months, including nearly 90,000 since the beginning of this year, according to a tally by research platform TrueUp.
With inflation still stubbornly high, interest rates rising and growth slowing, the logical conclusion is that the tech sector’s woes will quickly spread to the broader US economy. However, economists have cited several reasons why further layoffs may be limited.
Spotify is among the tech platforms that have seen record growth during the COVID lockdownImage: Thomas Trutschel/photothek/picture alliance
Tech sector “overbusy”
“Technology employment is up about 8% from pre-pandemic levels, while overall employment is just above pre-pandemic levels,” Olu Sonola, head of US regional economics at Fitch Ratings, told DW. “This suggests that the sector has overhired in 2021 and 2022 … at the rate of about 200,000 to 300,000 jobs.”
High-profile names like Twitter, Spotify and Tesla represent the future trajectory of the US economy, making negative news more likely to grab headlines and distort public perception. But large numbers of workers in all sectors change jobs every day as the US has one of the most flexible labor markets in the world.
“The number of layoffs [across the US economy] about 1.5 million every month,” Karen Dynan, a nonresident senior fellow at the Peterson Institute for International Economics, told DW versus 30,000 a month in the tech sector. “The [tech] Layoffs have attracted a lot of attention, but their direct impact on overall US employment is limited.”
US consumer spending is still strong, but not enough to stop Amazon laying off workersImage: George Frey/Getty Images
Many tech companies are still hiring
While some tech companies have cut jobs, many others are still hiring aggressively thanks to a flaring job market that has left employers in several sectors struggling to fill vacancies and workers demanding higher wages.
A scan of TrueUp’s job boards on Friday revealed more than 179,000 open positions at big tech, startups and so-called unicorns — new private companies worth at least $1 billion. A ZipRecruit survey last month found that four out of five laid-off US tech workers found a new job within three months.
Eight of the top 10 jobs in the US are still tech positions — including developers, engineers, and machine learning — according to a ranking by Indeed.com, which ranks tech applicants as the best job prospects in any industry in 2023.
Many of the announced job cuts also affect employees outside the United States.
Despite inflation, the spending spree in the USA continues
Economists are divided on whether the US will enter a recession this year as consumer spending – which accounts for more than two-thirds of US economic activity – remains strong.
According to the US Department of Commerce, consumption fell slightly in November and December. Credit card debt is also rising – evidence that Americans need to borrow more to sustain spending levels, which is probably unsustainable.
A clear sign of a recession would be an increase in overall unemployment, but the number of unemployed fell by 0.2% to 3.5% in December. The number of people applying for unemployment benefits for the first time hit an all-time low of 190,000 last week.
Some job losses but no culling
“We are seeing some signs that the pressure on the labor market is easing in general – wage growth is slowing, the use of temporary workers is falling, the number of vacancies is starting to fall. So we’re likely to see layoffs picking up across the labor market,” Dynan said.
Fitch’s Sonola thinks the job market will cool “significantly” in 2023, but doesn’t expect layoffs in the tech sector to spread to the broader job market.
Few analysts are expecting the same rise in unemployment as during the 2007-08 financial crisis, when the US unemployment rate hit 7.5%.
“The most I can see is that US unemployment goes from the current historic low of 3.5 percent to 5 percent,” Karin Kimbrough, chief economist at LinkedIn, told CNBC.
Many companies in various sectors including education, healthcare and retail are still struggling to hire new employees. To tempt them, grocery giant Walmart said this month it would increase its wages to more than $17.50 an hour — having raised wages several times during the pandemic. In 2021, the retailer’s starting wage was $12.
Many US retailers have repeatedly raised wages to attract workersImage: AP
Labor market still tight
Rival chains Target and Costco have taken similar moves and are seen as unlikely to cut jobs as long as demand remains strong.
“Companies are very reluctant to lay off workers because they are struggling so much with staffing,” Rubeela Farooqi of High Frequency Economics told Agence France-Presse (AFP).
Despite all of the recent layoffs, most tech companies are still significantly larger than they were before the pandemic. Despite announcing 12,000 job cuts last week, Google-owner Alphabet has hired more than 100,000 employees since 2018. Amazon’s decision to lay off 18,000 employees is just a fraction of its 1.5 million workers worldwide.
The only outlier is Twitter, which after being acquired by Tesla’s billionaire CEO Elon Musk laid off around half of the social media platform’s 7,500 employees, saying the job cuts were necessary to secure the future of the loss-making platform.
Edited by: Uwe Hessler