After years of unprecedented growth, the tech industry has recently come to a slowdown and some of the biggest tech companies have announced hiring freezes and job cuts. On November 2nd, 2022, Amazon decided to halt new incremental hires in their corporate workforce for the next few months in face of the “unusual macro-economic environment.” On November 7th, Lyft announced they planned to cut “13 percent of its employees” – nearly 700 of its 5,000 workers – as it anticipated a recession next year and rising “rideshare insurance costs.” Elon Musk, who recently acquired Twitter with a $44 billion deal on October 27, ordered job cuts across the company – from top executives, including the chief executive and chief financial officer, to divisions such as the engineering and machine learning units as well as the sales and advertising departments. No specific number was given, but the scale of layoffs was estimated to be roughly half of the social media platform’s workforce–approximately 3,700 employees. Meta also expects to begin large-scale layoffs as part of the company’s plan to cut expenses by at least 10% in the next few months.
The recent wave of tech sector layoffs has generated worry for the future of the world economy, which signal that a recession is looming. Many companies are seeing a decline in profits in recent quarters and expecting more downward trends, especially amid high inflation and rising interest rates. Notably, Meta’s profits in the most recent quarter were down more than 50% from last year, as the company struggles to restructure around its emerging immersive digital world of the “metaverse.” Google’s parent company, Alphabet Inc., also reported its fifth consecutive quarter of slowing sales growth, while it has also slowed hiring and required some employees to apply for new jobs. Snap, the maker of Snapchat, also suffered from slowed economic growth, and according to its third quarter report, the company experienced its slowest-ever rate of revenue growth. The slowdown is not limited to social media giants, and is being felt across the tech industry. For example, semiconductor companies are cutting manufacturing expenditures as sales of smartphones and appliances continue to decrease.
Amid the tech industry’s stagnation and persistently high inflation worldwide, economists and businesses have contradicting forecasts about the coming year. Many warn there is a high likelihood the U.S. economy is headed for a recession, but others have been more optimistic. Those who are more confident include JPMorgan’s Chief Financial Officer, who say they have not seen “a crack” in their financial health, and Delta Air Lines’ Chief Executive, who announced that the travel sector “is going to be very strong through the quarter and into the New Year.” Indeed, the October jobs report published by the U.S. Department of Labor seems to show that the labor market remains strong, despite unemployment rising to 3.7%.
While many other signals indicate a cooling economy and justify worries of a coming recession, the recent wave of layoffs from tech companies are not a major indicator of recession. The layoffs in the tech industry, though unprecedentedly large-scale and conspicuous, account for only a small part of the overall labor force. Employers across a variety of other industries, such as food services and entertainment, are actively hiring to restore their workforce from pandemic job cuts. Tech companies have seen huge growth in the past three years. Employees moved to remote work and students attended classes online, which drove up computer sales, cloud storage, and online shopping. But it is improbable they will maintain this growth as the Covid-19 pandemic begins to pose less of a public health crisis. Though tough days for the world economy are expected, the recent tech-layoffs could also be an unavoidable result of the tech industry cooling down from Covid-related expansion.