In 2022, large tech companies fired over 154,000 employees, 60,000 of which occurred during November and December.
Twitter led the layoff charge that immensely shook the economy, as Twitter’s new owner Elon Musk released 50% of the entire workforce. Halfway through the year, the employee count sat at 7,500; by the year’s end Musk slashed that number down to 3700. However, Twitter was only the tip of the mass amounts of layoffs.
Less than a week after Twitter started layoffs, Meta laid off 11,000 employees. This had shaking impacts, as it fired 13 percent of their workforce. Amazon followed close behind with nearly 18,000 layoffs, or six percent of their corporate workforce.
The tech layoffs did not begin with Twitter. Starting in May 2022, nearly 20,000 employees in the tech industry were laid off every month. This dropped in September with only 10,000, but spiked in December with nearly 60,000 employees.
There are many speculated reasons for these huge layoffs. Some believe that the mass hiring spree during the pandemic is too difficult to maintain and large companies need to return to a sense of normalcy to offset the impacts of inflation.
However, Jeffery Pfeffer, Professor of the Stanford Graduate School of Business disagrees. He states that “social contagion” is the reason behind these mass layoffs.
Social contagion is the idea of businesses mindlessly copying other businesses. Pfeffer believes that these tech layoffs generally are initiative-based, not evidence-based. However, Pfeffer does believe that Meta over-hired and needed to recover.
Pfeffer also addresses some popular myths about layoffs. Primarily, they do not actually cut costs. This is because severance packages are expensive and difficult to upkeep in times of economic hardship. In addition, those same employees are often hired by contracting firms and work the same job. Also, layoffs do not increase productivity and often contribute to further stressing remaining employees.
Pfeffer suggests that a better alternative to layoffs is wage cuts. This is because they spread the effects of inflation or other economic hardships to everyone, rather than unlucky individuals who get laid off. Lincoln Electric, a world-wide manufacturing corporation based in OH, did this quite well; rather than cutting employees, Lincoln cut everyone’s pay by ten percent. While it was a cutback, this still preserved the well-being of all of their workers and kept stress levels from surging.
While the tech sector has been shaken, these massive layoffs are not spreading to other industries. In fact, unemployment is nearing an all time low for non-tech companies. At the height of the layoffs, the unemployment rate was 3.5%. This is because employees are being hired quickly after being laid off.
The layoffs are likely to continue into 2023 and will only stop once major tech corporations decide that they have cut enough people and potential for social contaigion slows.
Source: https://news.stanford.edu/2022/12/05/explains-recent-tech-layoffs-worried/