Why have there been so many layoffs in Big Tech?

In recent months, the world’s biggest tech companies laid off more than 150,000 employees. In a bid to control costs during an intensifying economic crisis, Meta, Alphabet, Microsoft and Amazon have all cut jobs, leaving us wondering if this signifies a marked shift towards a new world of work. Did giant tech companies hire too quickly during the pandemic boom? Are we finally seeing a mass exodus of jobs which are being taken over by AI? Or were these layoffs really just a means to cut costs during increased economic strain? 

Were tech companies too quick to hire over the pandemic?

As society stood still and we were confined to our homes over the pandemic, most tech giants saw a spike in the use of their products and services. As a result, many hired intensively to keep up with their demand. The ten major tech companies collectively increased their workforce by 875,000 employees.

Although the large swath of layoffs may signify a slightly overzealous hiring spree, the recent layoffs are still only a small fraction of of these pandemic hires so cannot entirely be blamed on this period.

Jason Foster, CEO at Cynozure, says: “As demand for digital services grew during the pandemic as people were spending more time at home and unable to access physical services, the workforce required to support that grew. I believe that many in the technology sector thought we were entering into a paradigm that wouldn’t see us go back to how it was. 

“This led to many taking on vast numbers of people, not only to meet the current demand but on the assumption that demand would sustain. The reality is that the period over the pandemic was an outlier and whilst some increased demand has remained, largely we’ve seen this dampen and return to levels pre-pandemic. This has resulted in a sharp drop in demand and therefore layoffs ensue.”

John Paul Caffery, Founder and CEO of RAMP Global, comments: “The technology sector has seen unprecedented levels of investment at eye watering valuations which brings with it the requirement to hire and build effective teams rapidly and at scale. Essentially, many of the big technology companies that have been required to expand and hire haven’t seen the expected revenue generation, therefore creating a structure that’s not sustainable for long term growth. The costs have ultimately caught up with these companies, which is one of the primary drivers of the layoffs.”

Fast hiring can also have the consequence of improper training, which could be a part of the reason for layoffs.

 “The other point to note is that when you’re hiring at velocity, it’s very difficult to implement a proper onboarding, training, and development programme for your workers. So, you end up with lots of individuals and teams coming in to make a genuine impact but not necessarily the right structure for them to excel in their respective roles and add real value to the business. Then, when businesses inevitably doesn’t see the expected output, they are more likely to make mass layoffs in response,” Caffrey continues.

An AI takeover?

With the rise of Chat GPT, many are concerned about the potential of AI to replace jobs currently performed by humans. Despite this, Caffrey feels that a more a more likely threat to tech jobs is the ability to seek talent from cheaper countries.

Caffery comments: “A final point worth mentioning is that global tech companies are realising that, while they may have hired or over-hired in a particular country or region, they are realising they can hire the same talent in a different location at a cheaper cost. There are now a lot of providers making it simpler for global employers to find, hire and pay workers anywhere, so some of the layoffs taking place may well result in re-hiring in different locations for lower costs.”