The job cuts have now gripped technology — with no signs of abating
Another week and round of tech job loss announcements – a pattern that shows no signs of slowing down. The big name to cut jobs last week was Spotify, following the steps of Google-owner Alphabet, Meta, Microsoft and many others.
oth Davy and Goodbody have pointed out in recent days that the actual number of jobs lost in Ireland is relatively small.
Perhaps the real concern should be that layoffs are now seen as the right thing for companies to do.
Professor Jeffrey Pfeffer of the Stanford Graduate School of Business outlined last month how he believes some companies are enforcing copycat layoffs.
“Technology layoffs are essentially a case of social contagion, with companies emulating what others are doing. If you look for reasons why companies are laying off, the reason is because everyone else is doing it,” he claimed.
Maybe that’s the case for some — after all, many of the companies continue to make billions of dollars a year.
“Could there be a tech recession? Yes. Was there a valuation bubble? Absolutely. Did Meta overrent? Probably. But is that why they fire people? Of course not. Meta has a lot of money. These companies all make money. They do it because other companies do it,” said Pfeffer Stanford News.
But other companies like Spotify, which announced that 6 percent of its 9,800 employees would be laid off, had to question themselves. CEO Daniel Ek said last week, “I was too ambitious to invest ahead of our sales growth.”
But Spotify isn’t profitable yet, and the economic headwinds of the past year have caused investors to get back to basics — like making money. Spotify posted a net loss of €160 million on sales of €8.6 billion for the nine months ended September 2022 and has also invested billions in a plan to focus on podcasts.
But investors lost confidence in that strategy, and shares fell about 66 percent over the past year. Against this background, it seems unlikely that the company will be able to escape this wave of job cuts.
“Basically, the layoffs in the tech industry are an example of social contagion, where companies copy what others are doing.”
But you have to keep in mind that almost all tech company executives ask tough questions about costs (which are rising anyway) and no doubt many are wondering why Meta and Google are cutting headcount, why not? In fact, it emerged last week that an Alphabet shareholder, TCI, wants a 20 percent job cut, instead of the 6 percent previously announced.
While layoffs are a trend, Pfeffer argues that doing little to solve the problem, and experience has taught us that many of the former employees are in fact brought back as contractors.
“Layoffs don’t solve the underlying problem, which is often an ineffective strategy, a loss of market share, or a lack of revenue. Layoffs are generally a bad decision.”
He adds that the laid-off employees are often not doing well. Pfeffer also argues that it doesn’t necessarily help the company’s stock prices as it signals the company is under pressure. However, markets seem to be on the right track at the moment as some of the stocks are given a boost by job news.
Perhaps the continued resilience of the job market right now means the future is still bright for these laid-off tech workers. The layoffs are quirky in that no one doubts that the tech sector is where future growth will come from. Many companies that lay off employees continue to enjoy growth and success.
Ireland-based Stripe, for example, which was planning to lay off 14 percent of its employees before Christmas, has deepened its partnership with Amazon, which has also announced layoffs. Stripe told employees last week that it will be considering an IPO next year.
But in the short term, tech workers are already struggling to get mortgages. As we reported last week, employees whose jobs are ineligible may have to jump through additional hurdles to get a home loan. Banks are rightly nervous when a company has announced layoffs, but employers are also unlikely to issue letters of comfort during this time when the industry is in flux.
Realtors say it’s not uncommon for a couple making $100,000 each to now have to wait with home-buying plans.
“Layoffs do not solve the underlying problem”
This won’t last forever. Something similar happened for aviation workers during the pandemic, as well-paid potential buyers like airline pilots were unable to borrow.
In another bad timing, many tech workers are now also the subject of a crackdown on unpaid taxes related to stock programs. In December, Revenue announced that Sunday independent that the project would be active in 2023 and that the average payout to workers so far is €36,000.
Accounting sources said that technology workers have been particularly hard hit, some at companies where jobs are being cut.
In recent years, and especially during the pandemic, well-paid tech workers have been the envy of many in business.
The industry is now facing tougher times, but at least most of those who have been laid off can take comfort in the fact that the job market is still strong – and that their skills will continue to be in demand.
https://www.independent.ie/business/technology/job-cuts-have-now-taken-hold-of-tech-with-no-sign-of-it-letting-up-42317293.html The job cuts have now gripped technology — with no signs of abating