Big tech is bleeding thousands of jobs, but here’s why the economy will ‘soak up’ industry layoffs very easily

Big tech is bleeding thousands of jobs, but here’s why the economy will ‘soak up’ industry layoffs very easily

Amazon CEO Andy Jassy has confirmed reports that the e-commerce giant will make layoffs in 2023, following a New York Times report that the company plans to lay off about 10,000 employees across its industries technology and business.

“Leaders across the company are working with their teams and looking at their workforce levels, the investments they want to make going forward, and prioritizing what matters most to customers and the long-term health of businesses. our businesses,” Jassy said in a statement on Thursday. “This year’s review is more difficult due to the fact that the economy remains in a tight spot and we’ve been hiring rapidly in recent years.”

The news comes about a week after Meta confirmed it was laying off around 13% of its staff.

While news of Silicon Valley’s sweeping layoffs has added to recession fears, some experts say they are merely indicative of a transition in the economy. Tech stocks may have plummeted, however, there has instead been a surprising rebound in the manufacturing industry.

“There are those who think this is representative of a major shift from a sort of high-growth technology-based economy to a more manufacturing economy,” says Christopher Kayes, a professor of management at the George Washington University School of Business.

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Big tech companies are shedding employees in an effort to cut costs

If Amazon’s layoffs were as extensive as the New York Times reported, they would be the largest job cuts in company history. But it’s the timing of the move that particularly surprised analysts. Not only did the e-commerce giant recently more than double its maximum pay for tech workers due to the “particularly competitive job market,” it also tends to price stability ahead of the holiday season.

But with the threat of a looming recession, many big tech companies have been forced to streamline operations. Meta CEO Mark Zuckerberg said in a letter to employees on Wednesday that he expected sustained revenue growth and significantly increased the company’s investments following the onset of the COVID-19 pandemic.

“Not only has online commerce returned to previous trends, but the macroeconomic downturn, increased competition, and loss of advertising signal have meant that our revenues are much lower than I expected,” Zuckerberg wrote.

Meta reported a second consecutive decline in third-quarter earnings in October and forecast another decline for the fourth quarter as well.

Other tech giants are facing similar problems and are freezing hiring or cutting staff in an effort to cut costs. Twitter is estimated to have laid off half of its workforce, while Apple and Amazon have suspended hiring for many roles.

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Kayes notes that some of these companies may have previously hired too much due to aggressive growth expectations that “never materialized.” Big tech has seen increased profits over the past decade, but high inflation, interest rate hikes and recession fears may have cooled demand among customers this year.

“I think it’s a game changer in the growth of the tech industry,” Kayes says. “Growth expectations in many of these tech stocks — Metaverse, social media — were just skyrocketing. And now those expectations are really coming back to Earth.”

The combined value of mega-cap tech companies plummeted by a whopping $4 trillion in 2022, according to Bank of America.

What does this mean for the US economy?

Kayes doesn’t believe that layoffs and the slow growth of big tech necessarily indicate a recession, but adds that if there is an economic downturn, it may not be reflected in the job market.

“Some would suggest that technology will be the first domino to fall and that will be representative of the broader economy,” Kayes says. “I tend to think that the economy will absorb these jobs very easily.”

He points out that the job market is still strong — the latest government data shows the US added 261,000 jobs in October — and there are plenty of opportunities for laid-off tech workers to apply.

However, he also believes that the market could change gears, with higher demand for production. The manufacturing sector grew by 32,000 jobs last month and now provides 137,000 more jobs than before the pandemic.

“There have been several chip makers announcing very large investments in the United States. That will be 50,000 to 60,000 jobs in the next 5 to 10 years.”

IBM and Micron both announced multibillion-dollar investments in manufacturing this year. The former plans to develop and manufacture semiconductors, mainframe technology, artificial intelligence and quantum computing, and the latter has pledged up to $100 billion for chip manufacturing in New York.

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This article provides information only and should not be construed as advice. Comes without warranty of any kind.

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