For months, major tech companies have been announcing round after round of layoffs as the US economy slows and fears of a recession have grown. Although the headlines look grim, labor economists say the layoffs may not necessarily signal a major downturn in other sectors.
More than 41,000 workers in the tech sector have been laid off so far this year, according to data collected by Crunchbase. Late last month, Snap said it would lay off 20% of its employees after the company reported disappointing second-quarter earnings. Other large companies, including Netflix, Microsoft, and Shopify, have laid off hundreds of employees this year already. Google and Apple have also reportedly decided to block or slow down hiring.
Economists and investors have become wary of a potential labor market downturn as the Federal Reserve raises interest rates to cool consumer demand and keep inflation in check. As people spend less on goods and services, the idea is that prices should go down. But that risks triggering a recession, as companies could slow hiring or lay off workers in response to falling demand.
Along with the tech sector, layoffs in the real estate sector made headlines due to rising mortgage rates and declining home sales. And according to an August PwC poll, half of US executives surveyed said they were reducing overall headcount even as they remained concerned about hiring and retaining talent.
But despite the worrying wave of layoffs in the tech sector, they could, in part, be a return to more normal hiring levels. Many companies increased hiring at the start of the pandemic as more people started working from home or hosting events online. And the job market in general still looks resilient. Employers added 315,000 jobs to the economy in August, a slowdown from the big July hike but a solid gain. And although the unemployment rate rose to 3.7% last month, more Americans joined the workforce and the rate rose only slightly from 3.5% in July, a half-century low.
Furthermore, the aggregate data shows that layoffs are still low (around 1.4 million people were laid off or discharged in July, compared to nearly 2 million in February 2020). New jobless claims have also started to decline in recent weeks.
Some labor economists argue that layoffs in the tech sector have probably been too small so far to have a huge impact on overall employment data. And while they say delays in government reporting could underestimate the layoffs, overall demand for tech workers remains strong and fewer layoffs than normal in other industries, such as hospitality, could offset the losses.
And most tech workers who get laid off don’t seem to have a hard time finding other job opportunities because of the tight labor market, economists say.
Julia Pollak, chief economist at ZipRecruiter, said the layoffs clearly signaled a slowdown in the tech sector, but she didn’t expect this to necessarily be an important indicator for hiring trends in the overall job market.
“I think the fallout for the rest of the economy will be quite limited,” Pollak said.
Although tech executives have said they are concerned about the trajectory of the US economy, tech companies have also faced unique challenges as the economy returns to more normal conditions, he said.
As the pandemic began, some tech companies “experienced explosive growth” and increased hiring, Pollak said. Now, some of these companies are starting to scale back to more sustainable hiring and staffing levels. And as some companies lose money from falling valuations and a strong dollar eroding overseas profits, they must become more conservative to increase profitability, he added.
“The once-in-a-lifetime conditions that favored their growth have now somewhat evaporated,” said Pollak. “People are returning to the gym and brick-and-mortar stores. They may not be as addicted to online shopping apps and Peloton.
Technological workers are still in high demand
While some in the tech sector are laid off, workers are still in high demand, economists said. Pollak said he heard of recruiting teams at some companies deliberately looking for laid-off workers because they want to “grab that talent right away.”
Employment remains strong. The tech industry has added 175,700 jobs so far this year, a 46% increase from a year ago, according to data from CompTIA, an information technology business group. The total number of job postings for tech positions, however, began to decline.
Daniel Zhao, a chief economist at Glassdoor, also said that many laid-off workers in the tech sector are recovering and getting new jobs easily because there are still a lot of job opportunities available. In July, the total number of job vacancies jumped to 11.2 million, according to data from the Department of Labor. By comparison, there were around 7 million job vacancies in February 2020.
Zhao said it didn’t look like most tech companies were laying off workers or slowing hiring, based on anecdotal information, but it was hard to tell due to a lack of data. He said that most tech companies, however, appear to be reevaluating their hiring plans as the overall economy slows and the risk of a recession looms.
And while the slowdown in tech industry hiring may not signal a dramatic shift in the overall job market, it’s still not great for tech workers since it means they have less influence over employers, Zhao said. This could mean that workers have to accept, for example, wage cuts or job opportunities with fewer benefits.
“Even though the laid-off workers are able to find a job fairly quickly, it is very stressful and means that workers have less leverage to actually go and find a job that is suitable for them, whether it means that it pays well or is a correct use of their skills, “Zhao said.