At first a trickle, then a stream, and now a torrent. American tech giants are cutting thousands of jobs almost every day. Dears of the COVID-19 lockdowns have seen their earnings squeeze as life returns to normal after months of staring at screens.
During the pandemic booms, the number of employees of Meta parent Microsoft, Google, Amazon and Facebook has grown due to overstaffing as demand for their products and services increases. But with decades-old inflation rampant and operating costs skyrocketing, Silicon Valley had no choice but to cut back on fat.
Tech companies have collectively cut more than 330,000 jobs over the past 12 months, according to a tally by research platform TrueUp, including nearly 90,000 since the start of this year.
As inflation continues to rise, interest rates rise and growth slows, the corollary is that the technology sector’s problems will quickly spread to the broader US economy. But economists cited several reasons for limiting layoffs.
Technology sector ‘outgrown’
“Employment in the tech sector is up about 8% from pre-pandemic levels, while total employment is just above pre-pandemic levels,” Olu Sonola, head of US regional economics at Fitch Ratings, told DW. “This indicates that the sector has been hired in 2021 and 2022 … to reach about 200,000 to 300,000 jobs.”
High-profile names like Twitter, Spotify, and Tesla represent the future path of the US economy, so any negative news is likely to make headlines and distort public perceptions. But large numbers of workers in all sectors change jobs every day because the United States has one of the most flexible labor markets in the world.
The number of layoffs [across the US economy] It’s about 1.5 million each month, “versus 30,000 a month in the technology sector,” Karen Dinan, a non-resident fellow at the Peterson Institute for International Economics, told DW. [tech] Layoffs have received a lot of attention, however, their direct impact on public employment in the United States is limited.”
Many tech companies are still hiring
While some tech companies have downsized positions, many others are still hiring aggressively thanks to an inflamed job market that has left employers in many sectors struggling to fill vacancies and workers demanding higher wages.
A survey of job sites by TrueUp on Friday found more than 179,000 vacancies in big tech companies, start-ups and so-called unicorns — new privately owned companies worth at least $1 billion (0.92 billion euros). A ZipRecruit survey last month found that four out of five American tech workers who have been fired have found a new job within three months.
Eight of the top 10 ranked jobs in the United States are still technical roles—including developers, engineers, and machine learning—as ranked by Indeed.com, giving tech applicants the best job prospects in any industry in 2023.
Many of the reported job losses also affect employees outside the United States.
Despite the inflation, the US spending spree continues
Economists are divided on whether the US will enter a recession this year as consumer spending – which accounts for more than two-thirds of US economic activity – remains strong.
Consumption decreased slightly in November and December, according to the US Department of Commerce. And credit card debt is on the rise—evidence that Americans are having to borrow more to maintain spending levels, which is likely unsustainable.
A clear indication of recession is an increase in the unemployment rate overall, but the unemployment rate fell by 0.2% to 3.5% in December. The number of people claiming unemployment benefits for the first time reached a historic low last week at 190,000.
Some job losses but not executed
“We’re seeing some signs of easing pressures in the labor market broadly – wage growth is moderating, hiring of temporary workers is declining, job creation is starting to decline. So we’ll likely see layoffs picking up in the overall labor market,” he said. Dinan.
Fitch Ratings’ Sonola believes the job market will “cool down significantly” through 2023, but it doesn’t expect layoffs in the technology sector to spill over into the broader job market.
Few analysts expect the same rise in unemployment as occurred during the 2007/8 financial crisis when the US unemployment rate reached 7.5%.
“At most, I see unemployment creeping up to 5% from the current historic low of 3.5% in the US,” Karen Kimbrough, chief economist at LinkedIn, told US television station CNBC.
Many companies across multiple sectors, including education, healthcare and retail, are still struggling to hire new workers. To entice them, grocery giant Wal-Mart said this month it would raise its wages to more than $17.50 an hour — after it had already increased several times over during the pandemic. In 2021, the retailer’s starting wage is $12.
The job market is still tight
Rival chains Target and Costco have made similar moves, and are seen as unlikely to cut jobs while demand remains strong.
“Companies are very reluctant to let go of workers because they have suffered a lot in terms of hiring,” Rubila Farooqui, a high-frequency economist, told AFP (AFP).
Even with all the recent layoffs, most tech companies are still a lot bigger than they were before the pandemic. Despite announcing 12,000 job losses last week, Google owner Alphabet has hired more than 100,000 employees since 2018. Meanwhile, Amazon’s decision to lay off 18,000 people is just a fraction of its global workforce of 1.5 million.
The only ban is Twitter, which culled about half of the social media platform’s 7,500 employees after it was acquired by Elon Musk, the billionaire CEO of Tesla. The downsizing has drawn criticism and praise, with critics warning of lower standards of content moderation under Musk. He said the job losses were necessary to ensure the future of the loss platform.
Edited by: Uwe Hessler
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