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Months of high-tech companies have announced job cuts as the U.S. economy falters and fears of a recession mount. As bad as the headlines may sound, labor economists say the layoffs don’t necessarily signal a major downturn in other industries.
More than 41,000 tech workers have been laid off this year, according to data compiled by Crunchbase. Late last month, Snap said it would lay off 20 percent of its workforce after the company reported disappointing earnings for the second quarter. Other big companies — including Netflix, Microsoft and Shopify — have laid off hundreds of workers this year. Google and Apple have also reportedly decided to stop or delay hiring.
Economists and investors are wary of a possible hit to the labor market as the Federal Reserve raises interest rates to cool consumer demand and control inflation. As people spend less on goods and services, the idea is that prices should fall. But that risks triggering a recession, as businesses may delay hiring or lay off workers in the wake of falling demand.
Along with the tech sector, layoffs in the real estate industry have garnered headlines as mortgage prices rise and home sales slow. And according to an August PwC survey, half of U.S. executives said they are concerned about hiring and retaining talent, but overall headcount is shrinking.
But while the wave of layoffs in the tech industry is troubling, it may be partly a return to normal hiring levels. Many companies ramped up hiring early in the pandemic as more people began working from home or hosting events online. And the overall job market still looks strong. Employers added 315,000 jobs to the economy in August, a slowdown from July’s big increase but strong gains. Although the unemployment rate rose to 3.7 percent last month, more Americans joined the labor force, and the rate rose slightly from 3.5 percent in July, a half-century low.
On top of that, aggregate data shows that layoffs are still low (about 1.4 million people were fired or laid off in July, and nearly 2 million in February 2020). New applications for unemployment benefits have begun to fall in recent weeks.
Some labor economists say the strike in the tech industry is too small to have a significant impact on overall employment data. Although government reports say the delay may have eased the job cuts, overall demand for tech workers is still strong and job cuts from other industries such as hospitality may be making up for the losses, albeit at a lower rate than normal.
Most tech workers don’t seem to be getting laid off because the tight labor market doesn’t seem like they’ll have a hard time finding another job, economists say.
Julia Pollack, chief economist at Zip Recruiter, said the layoffs clearly signal a slowdown in the tech industry, but she doesn’t expect them to be a leading indicator of hiring trends in the broader labor market.
“I think the fallout from the rest of the economy will be very limited,” Pollack said.
Although tech executives say they are concerned about the direction of the U.S. economy, tech companies face unique challenges as the economy normalizes.
Earlier in the pandemic, some tech companies had “explosive growth” and ramped up hiring, Polk said. Now, some of these companies are beginning to return to sustainable employment and workforce levels. And while some companies are losing money due to declining valuations and a stronger dollar eroding their foreign profits, they need to be more conservative to boost profitability, she said.
“The conditions that once encouraged their growth in life have now kind of dissipated,” Pollack said. “People will go back to the gym and go back to brick-and-mortar stores. They may not be as dependent on online shopping apps and Peloton.
Technology workers are still in high demand
Economists say there is still a high demand for workers in the technology sector, despite some layoffs. Polk has heard of some companies deliberately hiring laid-off workers because they want to “get that talent right away.”
Employment remains strong. The technology industry added 175,700 jobs this year, a 46 percent increase from a year earlier, according to information technology trade group CompTIA. The overall number of job postings for technical positions, however, has started to fall.
Daniel Zhao, chief economist at Glassdoor, said many workers laid off in the tech sector are simply returning and finding new jobs because there are still plenty of job opportunities. The total number of job openings rose to 11.2 million in July, according to Labor Department data. In contrast, there were about 7 million job vacancies in February 2020.
Zhao said it doesn’t appear that most tech companies are cutting or hiring because of a lack of data. Most tech companies, however, appear to be reevaluating their hiring plans as the broader economy slows and the threat of a recession looms, he said.
Although the tech industry’s hiring slowdown doesn’t reflect a dramatic shift in the broader labor market, it’s still not good for tech workers because it means less leverage for employers, Zhao said. That means workers may have to accept, for example, pay cuts or job opportunities with fewer benefits.
Although laid-off workers can find work quickly, it is very stressful and this means that workers have more options to find a job that pays well or suits them well. It’s about making the most of their skills,” Zhao said.
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