For months, top tech companies have announced round after round of layoffs as the U.S. economy slows and fears of a recession grow. While the headlines look sad, labor economists say the layoffs don’t necessarily signal a major downturn in other industries.
So far this year, more than 41,000 workers have been laid off in the technology sector, according to data collected by Crunchbase. At the end of last month, Snap said it would lay off 20 percent of its employees after the company made a disappointing announcement earnings for the second quarter. Other large companies — including Netflix, Microsoftand Shopify — already this year they fired hundreds of employees. Google and Apple they also reportedly decided to freeze or slow hiring.
Economists and investors have become wary of a potential downturn in the labor market The Federal Reserve is raising interest rates to cool consumer demand and bring inflation under control. As people spend less on goods and services, the idea is that prices should fall. But that risks triggering a recession, as businesses could slow hiring or lay off workers in response to falling demand.
Along with the technology sector, layoffs in real estate the industry received headlines as mortgage rates are rising and home sales are falling. And according to an August survey by PwC, half of the surveyed American executives said they reduced the total number of employees although they were still concerned about recruiting and retaining talent.
But despite the troubling wave of layoffs in the tech industry, it could be in part a return to more normal employment levels. Many companies increased employment earlier in the pandemic as more people started working from home or organizing events online. And the overall labor market continues to look resilient. Employers added 315,000 jobs to the economy in August, a slowdown from July’s big surge, but a solid gain. And although it is the unemployment rate rose to 3.7 percent more Americans joined the labor force last month, and the rate rose only slightly from 3.5 percent in July, the lowest level in half a century.
Moreover, the aggregate data shows it layoffs are still low (about 1.4 million people were laid off or laid off in July, compared to nearly 2 million in February 2020). They also have new claims for unemployment benefits started to decline in recent weeks.
Some labor economists say layoffs in the tech industry have so far likely been too small to have a huge impact on overall employment data. And while they say the lag in government reporting may be an understatement of layoffs, overall demand for tech workers remains strong and fewer layoffs than usual in other industries, such as hospitality, may offset the losses.
Most tech workers being laid off don’t appear to be trying to find other job opportunities because of the tight labor market, economists say.
Julia Pollak, chief economist at ZipRecruiter, said the layoffs clearly signal a slowdown in the tech industry, but she didn’t expect it to necessarily be a leading indicator of hiring trends in the broader labor market.
“I think the consequences for the rest of the economy will be quite limited,” Pollak said.
While tech executives said they were concerned about the trajectory of the U.S. economy, tech companies also faced unique challenges as the economy returned to more normal conditions, she said.
Earlier in the pandemic, some tech companies “experienced explosive growth” and increased hiring, Pollak said. Now, some of those companies are starting to return to more sustainable levels of hiring and staffing. And how some companies are losing money due to falling valuations strong dollar eroding profits overseasthey need to become more conservative to increase profitability, she added.
“The once-in-a-lifetime conditions that fueled their growth have now kind of evaporated,” Pollak said. “People are going back to the gym and going back to the shops. Maybe they don’t rely as much on online shopping apps and Peloton.”
Technology workers are still in high demand
Although some in the technology sector have been laid off, workers are still in high demand, economists say. Pollak said she’s heard from recruiting teams at some companies who deliberately seek out laid-off workers because they want to “grab that talent right away.”
Employment remains strong. The the technology industry added 175,700 jobs so far this year, a 46 percent increase over the previous year, according to CompTIA, an information technology trade group. Total number However, job postings for technical positions began to decline.
Daniel Zhao, chief economist at Glassdoor, also said that many laid-off workers in the tech sector are recovering and finding new jobs easily because there are still plenty of job opportunities. In July, the total number of open jobs reached 11.2 million, according to data from the Ministry of Labour. In comparison, there were about 7 million job openings in February 2020.
Zhao said it didn’t seem like most tech companies were laying off workers or slowing hiring, based on anecdotal information, but it was hard to tell because of a lack of data. He said most tech companies, however, appear to be rethinking their hiring plans as the broader economy slows and the risk of a recession looms.
And while the tech industry’s hiring slowdown may not yet signal a dramatic shift in the broader labor market, it’s still not great for tech workers because it means they have less leverage with employers, Zhao said. This could mean that workers have to accept, for example, lower wages or job opportunities with fewer benefits.
“Even if laid-off workers are able to find work fairly quickly, it’s very stressful and means workers have less leverage to actually look for a job that suits them, whether that means it pays well or is a good use of their skills,” Zhao said.