The tech company with the most layoffs was Amazon with 18,000 layoffs as of 4 January.
Remarks made by tech corporations announcing their most recent layoffs have an unsettling consistency, reports have found, amid spike in job dismissals that have emerged since the pandemic.
As of January 2023, the tech company with the most layoffs was Amazon, which recorded 18,000 layoffs as of 4 January, 2023. It was followed by Meta, which announced 11,000 job cuts on 9 November, 2022, according to Statista.
Overall, due to the coronavirus pandemic, layoffs plagued all industries in 2020, peaking in the tech sector last year. Around the world, more than 150,000 workers had been let go by the end of that year.
The effects of this pervasive downsizing have been seen across all industries, including retail, banking, and education. However, as of mid-December 2022, there had been about 20,000 especially recorded layoffs in the consumer tech startup sector.
The majority of job losses occurred in the United States, home to tech giants like Amazon, Meta, and Twitter.
Reports say it seems as though tech organisations are laying off employees because other tech companies are laying off their employees.
None of such businesses are in danger of reaching bankruptcy, reports said, adding that rather they have recently even profited. Additionally, it is typically not about performance either. Hence, reports have asked, “why a company might make job cuts that don’t seem especially necessary.”
According to Michael Cusumano, the deputy dean of the MIT Sloan School of Management, the reason is that investors have altered the way they evaluate businesses.
Profits are typically unimportant when businesses are expanding rapidly, such as when revenue soars by 20% or 30% annually, according to Cusumano.
Investors are being more wary, though, as a boom phase does not seem to be looming the economy.The similar pattern picked up by reports is evident through the layoff statements released by some of these companies.
Meta justified the layoffs by saying: “At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected.”
As for Google, the explanation differed.
“Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today,” it said.
Microsoft said: “As we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimise their digital spend to do more with less.”
Tech companies have “tens of billions, often hundreds of billions of dollars, collectively, in reserves,” Cusumano says.
“But they don’t really use that to support operations.”However, such reserves are not what an investor is considering when they read an earnings statement, reports detailed. Revenue per employee is one metric used to assess the investment worth of tech companies and as a result of the pandemic’s hiring boom, revenue per employee has dropped.
According to Cusumano, software corporations like Microsoft should make at least $300,000 to $500,000 each person.
“It could be higher than that, but when it starts to get below that, you start to worry that they’ve got too much headcount. So that’s something people look at on a yearly or even quarterly basis,” he said.
Even if severance pay outs initially cost millions or even billions of dollars, the assumption behind layoffs is that they result in financial savings for the organisation. The theory lies in the notion that through cutting pay, the business can continuously operate at a cheaper cost. Cusumano however was uncertain of his claim’s empirical validity.
According to another expert layoffs probably do not save costs. In reality, Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business claims, there is little empirical evidence that layoffs increase profitability and some evidence to the extreme contrary.
“Oftentimes, companies don’t have a cost problem,” Pfeffer says. “They have a revenue problem. And cutting employees will not increase your revenue. It will probably decrease it.”
There is conflicting evidence in the literature regarding whether layoffs genuinely increase stock price.
A study found that businesses that closed plants and conducted layoffs gained better returns than those that merely just did layoffs.
Layoffs during the 2020 coronavirus pandemic had no impact at all on stock values.
However, according to Statista, with the Covid-19 pandemic in 2020, which put entire cities on lockdown and restricted mobility, layoffs in the technology sector began.
The Russia-Ukraine war, the decline in Chinese manufacturing, and the rise in inflation had also a substantial impact on the tech industry and continue to be important issues for tech businesses even after restrictions were lifted in 2021.