#NewsBytesExplainer: What is causing the 'layoff season' in tech world?
What's the story
Layoff season is here. After over two decades of booming stocks and high-paid jobs, the tech industry is now in the middle of a rough patch. Amazon, Meta, Twitter, Microsoft...the list of companies that laid off employees is a long one. A reckoning is underway, and it seems that there's no escaping it. Here, we take a look at what's behind the layoff season.
Stats
Over 200,000 employees have been laid off since pandemic
There have been too many tech layoffs this year that a website called layoffs.fyi has popped up. According to the website, 1,351 companies have laid off employees since the pandemic. This year alone, 814 companies have fired their employees. Since COVID-19, 224,856 employees have been axed, while 128,865 have been laid off this year alone.
Pre-pandemic
People were confined to their homes during the pandemic
We saw the numbers. Now, let's take a look at what is causing this. To understand the current layoff season, we have to go a little backward in time. To be specific, the time when the world was grappling with COVID-19. Remember how it was? Everything was shut. People were confined to their homes. The pandemic made spending time outside the house a memory.
Impact
Online lives became our only lives during the pandemic
The pandemic changed the way the world worked. People were pushed online, as it was impossible to do anything offline. COVID-19 made our online lives our only lives. Tech companies saw an opportunity in this. Netflix, Prime, Amazon, Instagram...they became our everything. Date nights, shopping, get togethers, and movies, among others, moved online.
Increased demand
How did the pandemic help tech companies?
Sure, the world was in turmoil during the pandemic, but the surge in online activity spelled good for tech companies. There was a big leap in demand for online shopping, streaming, and social media, among other services. Almost all businesses went online. This increased demand brought in record levels of revenue for tech companies. More revenue resulted in more profit for tech companies.
Hiring frenzy
Tech companies went on hiring frenzy to deal with demand
Many tech companies got caught up in the pandemic bubble and believed what they saw during the pandemic is the new normal. To deal with the increased demand, they went on a hiring frenzy. Engineers, developers, and other tech workers were offered big salaries. Companies expanded their teams and created new ones. The requirement for built-in redundancy meant more people were hired than required.
Surplus
Demand for online activities decreased after pandemic
Post-pandemic, things haven't gone as planned for most tech companies. The world is (almost) back to what we knew before COVID-19. People are engaged in outdoor activities. Bars, restaurants, cinemas, schools, offline shopping etc. are bustling again. This resulted in a dip in demand for online activities. What does that mean for tech companies? Well, they hired more than they needed.
Economic prospect
Pandemic was followed by soaring inflation
The layoffs by tech companies, especially the big ones, indicate that they hired more than the required redundancy. This wouldn't have been a problem if the company's economic prospects were great. However, that's not what happened either. The soaring inflation that followed the pandemic kicked the hopes of a new normal right out of the door.
Inflation
Federal Reserve increased interest rates to curb inflation
Inflation in the US reached record rates this year. It can be mainly attributed to the supply-chain crisis, itself a creation of the pandemic. The war between Ukraine and Russia amplified this further. This collided with an unusually high demand, which resulted in businesses raising prices. This, in turn, resulted in the Federal Reserve increasing interest rates.
Cost cutting
Spending on digital ads has come down drastically
High inflation in the US meant that consumers began spending less. This affected the spending on digital ads by advertisers. Digital ads are one of the main sources of income for almost all tech companies. The reduction in ad revenue, coupled with increased interest rates and a looming recession, meant only one thing - cost cutting.
Layoffs
Layoff is an inevitable outcome of post-pandemic issues
Throughout 2022, major and minor tech companies have been testing various measures to cut costs, including hiring freezes, dismantling certain teams, and focusing more on certain products. However, with the inflation staying high and the Federal Reserve not easing the interest rates, it meant that layoffs are inevitable one day or the other. And that's what we are seeing right now.