Tech Giants in Trouble?

Published On: December 5, 2022 09:49 AM NPT By: Hari Prasad Shrestha

Why Are US Tech Companies Laying Off Workers?

There is a speculation that in the next 6 to 12 years around 50 percent of jobs could be laid off in tech companies.

Currently, layoffs have been extensive in the US tech sector. The widespread downsizing has been driven by high hiring during the Covid-19 pandemic and the concerning economic headwinds ahead.

Amazon has announced to lay off a massive 10,000 employees. This comes off the back of Meta letting go 11,000 workers last week and Elon Musk in Twitter already laying off 3700 jobs.

The Prime Video streaming service Echo Smart Speakers, the Alexa voice technology would lay off in high numbers as it had an operating loss of more than $3bn, this was the highest accounted for by Alexa and related devices and was the largest among all of Amazon’s business units.

It would be quicker to list the companies that have not laid off workers this year, but the ones that have included many other big names like Uber, Airbnb, Zillow, Coinbase, Netflix, Shopify, Peloton, Stripe and Robinhood. As a result of a slowdown in the tech industry, around 100,000 workers in Silicon Valley have lost their jobs in 2022.

A layoff or downsizing is the temporary suspension or permanent termination of employment of an employee or, more commonly, a group of employees for business reasons, such as personnel management or downsizing an organization.

Downsizing in companies became a popular practice in the 1980s and early 1990s as it was seen to deliver better shareholder value as it helps to reduce the costs of employers. Research on downsizing in the US, UK, and Japan suggests that downsizing is being regarded by management as one of the preferred routes to help declining organizations, cutting unnecessary costs, and improving organizational performance. Usually, a layoff occurs as a cost-cutting measure.

Why are so many companies in the tech sector, even the ones still generating big profits, laying off so many people?

Employees who are laid off are let go through no fault of their own and are typically eligible for unemployment. Layoffs have a widespread effect in the workplace, on the employee, and on the economy. Based on current trends, the unemployment rate in the US is expected to rise in the months to come.

During the pandemic years, people were highly dependent on online services. They were forced to stay home and spend a lot more time online. Online shopping became not just a growing retail outlet but the only retail outlet. Netflix, Amazon Prime and the other myriad streaming services took the places of not just the cinema but also nights out at restaurants, workday lunch breaks and date nights.

Despite the global disruption, this increase in online business led to a boon for tech companies. They earned record levels of revenue, which created record profits and fueled a ‘hiring-mania’ that offered big salaries and benefits for engineers, developers, and other tech workers.

Tech companies recruited too many people including highly experienced software engineers and developers earning low to mid-six figure incomes.

Moreover, the generous benefits, facilities and even stock options are included as part of the package. Some level of overstaffing for removal is necessary, but in many companies, this process has gone too far, the highest in company history.

After the post-Covid reality, bars and restaurants are full again, weekend sports have resumed, vacations are back, and people are more interested in these things after two long years of abstinence. A decline is noticed in online business. Moreover, the issue is that the short-term future is not looking too rosy. For a couple of months, it was in the news and now that the US is heading into a recession.

A recession would mean lower consumer spending and, most importantly for many tech firms, lower advertising spending. At the recent quarterly earnings call, big US tech companies mentioned this specifically, stating that they expected advertising revenue to be softer than it has been in the next quarter and early 2023. With these headwinds on the horizon, tech companies need to survive in their spending to ensure they get through the volatile period safely. Decline in GDP, layoffs only in big tech companies and volatile stock markets are primary indicators of recession, however, they are not signs of complete recession.

For the biggest companies, a big payroll does not cause concern over whether the company will survive, but simply how much profit they will make. There is a speculation that in the next 6 to 12 years around 50 percent of jobs could be laid off in tech companies. However, the good news is that other than technology companies are employing people at a satisfactory level.

It is difficult to attract investors in the tech sector, especially for startups or growth-phase companies. It means that commanding tech investment has become more challenging than ever. Still many companies are in a situation of waiting and seeing to reorganize their workforce structures. And it is hard to say which companies are laying off as part of the normal business cycle and which ones are facing prime challenges to their business.

According to the US immigration law, many former employees, who do not have permanent residency and who lost their jobs, have 60 days after the date of their official termination to find another job to sponsor their visas, or they will have to leave the country and start the process anew.

The most adversely affected workforces are Indian nationals who make up 74.5% of all H-1B petitioners, the largest group by far according to data from the US Citizenship and Immigration Services. The next are mainland Chinese nationals, who make up 11.8%. These two countries' people are being employed in high numbers compared to the people of other countries.

This immigration policy is not supportive to huge numbers of workforce laid off by the tech companies. The uncertainty exposes the frustration at the center of US immigration policy for the tech industry, and these layoffs have the potential to turn tech-specialized immigrants off from coming to the US for work, and workers are less likely to choose the US as a destination for working in the tech sector, experts say.

As a result of layoffs, thousands of new talents in the labor market would look for new jobs in the tech sector, and other countries hoping to build up their own companies by taking advantage of this situation.

Other countries are seeing the workforce disorder in the US, and some are capitalizing on the situation. For instance, Canada is expanding its immigrant workforce to take the tech industry away from the US and establish it in Canada to be the next Tech Hub. The US tech industries are certainly losing valuable workforce, which would affect the national economy and capable technical manpower would think twice to join companies in the US.

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