Why are there so many tech layoffs, and why should we be worried?
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There are two, more obvious, reasons for layoffs.
1) The valuation bubble bursting is a big factor. Both high valuations and hiring decisions were made with a certain amount of growth in mind. Now that it's clear that the old level of growth is unrealistic going forward, valuations are coming down to reflect that, as is employee head count. Additionally, employees hired at the sky-high valuations are going to be disgruntled unless they're "made whole". Easier to just let most of them go and top-off the ones you want to keep.
2) There are two types of tech companies. The first is a company like Google, where their tech enables a step-function increase in human productivity. Google Search gave people a super power they never had before. This type of company is extremely valuable as they can capture the value of the productivity they unlock. The second type of tech company is something like WeWork. This type of tech company is essentially a digital version of something that existed previously. These companies can gain traction due to the convenience factor unlocked by the digital transformation, but there isn't much extra value to capture. When interest rates were 0, VCs and the market as a whole were valuing these companies the same as true tech companies. Now that investors are more discerning with their money, the valuations of such companies are popping. The valuations are lower because the true value of the company is low. If you have a low value company, you don't need thousands of employees all earning 6+ figures to run it.
What happened to the people? Did new jobs get created?
Student enrollment is going to start falling (demographics as well as more people questioning the value) and colleges are going to be in for a world of hurt because they don't know how to tighten their belts.
University Solution: Wipe out 1/4 of the available parking space to build a shiny new library, renovate the old library - turning it into a "student life center" nobody knew they needed, then triple the price for student parking permits and require all freshmen to live in the overpriced on-campus housing.
community college and public schools without dorming are ~3k a semester. california is $46/credit for 736 for 16 credits.
The economy is always changing - new more-productive ways of doing stuff get invented, relative prices change, consumer tastes shift. Layoffs & rehiring is the economy's way of redirecting employees away from unproductive, unprofitable work and into new careers that are better adapted to the times. Your mental model of what a career looks like needs to include leaving jobs (and if you don't do it proactively, it may be done for you) and shifting your efforts into new work that is more adapted to the times.
There were lots of search engines before Google. By many metrics they were better than what Google is today. They certainly showed fewer ads.
Lots of things I search for, result in a 1/2 page of "helpful google snippets", which quite often have no value, or are even completely wrong.
The next half, is then often SEO spam, pages just copying other pages, or mailing lists/forums.
This often fills the second page, too, along with the very links google pulled the snippets from.
This was sorta how Alta Vista was in the end days, page after page of junk.
I think Google is still better, but, it's a joke compared to over 2 years ago, and no, it's not SEO/spam.
They're just not putting effort into keeping up, and even benefit by ad placements on those pages.
Ads. Google's SERPs are about 75% ads above the fold on a laptop. They're horrible.
Privacy. Everything you do on Google is tracked up the wazoo. It's pretty much impossible to stop too.
Share-ability. You can't share a Google search because personalization means everyone gets different results.
API access. Yahoo in particular had a really good Search API. You could search via the API and do things with the results. Google only allows you to embed an iframe to their site to display the results their way, with their ads. You can't search programmatically any more unless you pay a lot of money.
The catalog/directory style sites were instantly made almost valueless by Google's better mousetrap. Google gave better search results than the previous leader, Altavista (IMO).
Whether Google results of 1998 were worse in some measures than Google results of 2023 doesn't say much about whether "giving great search" gave people a super power that they didn't have before. I think it did (though I agree that someone else would have eventually done so, obviously).
The pre-www search engines (gopher, Archie, jughead) were pretty sophisticated by allowing you to combine search expressions “and, or, near, phrase”, in essentially a regex style fashion, and they were getting better and better. Early www search engines followed the same approach, operating in the way that some library catalog systems still do. The problem is that they were easily gamed by bad actors.
This wasn’t an issue for some time, but the very instant making money become a possibility on the internet, everything changed. People remember google trouncing Altavista, but this was the broken Altavista that couldn’t defend against the scammers. The war had been going on for some time by then, with search engines starting well and failing once their weaknesses were discovered and exploited.
That google “topic + reddit” is now a thing says to me that the gamers have again won, and a new search approach is needed.
There's absolutely nothing available for my day job online, so you could say I've been living without Google for a decade. It's not as tough as you'd think. You just have to remember some basic syntax in your head or write it down in your notes, and look up APIs when you use them.
It doesn't honestly take much longer to do something sans-Google at work than it does to cobble web stuff together with Google and StackOverflow's help. It's OK
Certainly not everything is on the web with or without paywalls. And, as when I was doing software development at night pre-web, I could just have a library of books. But for a lot of things, you made do with taking longer, being more shallow, and making more mistakes.
I'll bite. Can you take take screenshots from some sample searches to prove this point? Because I don't find it an ad-rotten mess. It's still extremely functional, and fairly clean.
Then scroll down past 2 or 3 actual web links interspersed with adsense links - none of which apply. Then you have the wierd carousel with a bunch of unrelated vidos and a couple links interspersed with ads.
During your scroll you'll encounter several links/buttons labeled "more", and it's unclear which of those is actually for "more link results" rather than a switch to video search or whatever.
At some point (if you haven't given up in exasperation already) when you decide to refine your search terms, you get the exact same result page, completely ignoring the new terms (although occasionally the ads will change).
I guess its functional for extremely basic use cases, but if you ever need to find some deep knowledge, it's literally useless in 2023. In 2008 it was "you'll find it, but it might be on page 10" rather than "good luck not getting mislead on your way to find that page 10 is literally all bot spam".
20+ years ago, I could search for exactly what I wanted. Today's search engines often give me a page or so of irrelevant but popular results before I find what I need.
But since then google has fallen way down, and search is back to being awful and full of chaff. Whether that's because we have higher expectations, or because the chaff producers have adapted and google has failed to adapt to their adaptation doesn't change the fact that search is back to being a chore like it was in 1998.
You trying to say 1997 altavista was better than what google is today? I'm not a fan of google, but that's still a hard strech to make. "by many metrics" = what metrics?
Then COVID ended and now we’re going back to normal, and tech stocks are also going back to before
If you change your lifestyle because you got a $100k windfall, you are going to realize that your income never changed. Companies that hired because they thought their COVID-inspired valuation was permanent were mistaken
I’m currently working for a tech company that was negatively impacted by COVID, did not get a random influx of cash and so did not hire and so currently does not have to lay anyone off.
> Layoffs often do not cut costs, as there are many instances of laid-off employees being hired back as contractors, with companies paying the contracting firm. [...] Companies sometimes lay off people that they have just recruited – oftentimes with paid recruitment bonuses. When the economy turns back in the next 12, 14, or 18 months, they will go back to the market and compete with the same companies to hire talent. They are basically buying labor at a high price and selling low. Not the best decision.
Certainly it's a case-by-case basis, but I definitely remember companies such as Patreon doing layoffs in early 2020, only to be hiring again a few months later in the year.
But it really comes down to the company.
For example, Tesla’s valuation was probably more dependent on that kind of investment because their valuation was based on the idea that full self-driving AI was achievable. Whereas Google isn’t because no one is waiting for Google to do anything amazing
But I pointed out COVID specifically because it seems tech companies overall benefited from the pandemic. Even I invested extra in tech companies during the pandemic because every other industry was physically being impacted by the virus.
If everyone trips and falls during the race, you’ll get first place, but it wasn’t because you got any better. But wait long enough and everyone will catch up
2021: "we have to overhire! The economy is great and otherwise we'll lose future talent!"
2022: "we have to fire! The economy isn't great and everyone else is firing!"
(In writing this I realize the validity of said decision doesn't matter nearly as much as the perception of the person that made it. Much like Twitter, it isn't just what you say, it's who you are + what you say.)
There is no need for a toaster to be connected to WiFi, yet somehow, it's fast becoming the only option available.
What do people say they don’t have enough time to do? Work out
So people worked out. Exercise equipment became out of stock, but Pelotons I don’t think did. Hiking trails and campsites got packed too. People were doing all these activities that they never did before the pandemic. The market for exercise — and Pelotons — ballooned.
But obviously once the pandemic ended, people would get jobs back and it was likely that a lot of jobs would go back to the office. People will easily go back to prefer going out instead of working out (not making a value judgement here - you do you). Now no one has time to exercise anymore and the exercise market has shrunk back to “people who make time to workout and want to invest in doing it at home,” which is tiny. The subset of that market that is willing to “drop a few Gs on an exercise bike” is a sliver
Some people simply don't care if there is a value proposition because they are investing in market sentiment, not fundamentals.
Other people simply don't bother scrutinizing the value proposition because they dont care about their investment and are comfortable gambling.
I read their Series F pitch deck and the projections were clearly detached from reality. Targets were to basically capture more revenue than the entire gym sector and home equipment sector.
Folks who went for the series F pump and dump lucked out bigtime with the pandemic
Just like right now, we still have a war going on, US became the world's natural gas exporter because of the war, how supply chains are still recovering from COVID, and things like that. Suddenly, everything makes a lot of sense with context
This is obvious and extremely vague.
There are plenty of examples of managers who are simply bad at making good decisions.
Full disclosure: I've worked for a few.
At one company, two consecutive CEOs took the company from turning a fairly healthy profit into voluntary liquidation in a handful of years. The first one quit after a fractious meeting with shareholders, and was replaced with the second, who wasn't any better. I jumped shortly before the liquidation was announced, it came as a complete shock to most of the rest of the staff.
My view is that it's sophistry trying to claim all poor decisions were somehow justified at the time. Some people - including managers - are just inept!
People are still on a bell curve and most executives are somewhere in the “very average” area, like me and most people. And 50% of people are worse than average.
More trying to resolve the dissonance between high-status positions and the ability to discharge accountability.
Buy the stock low, sell it before it drops.
You’re usually investing in large public companies to make money, not “support the long term cause.”
Also it made sense for the time period. Say you already had $10,000 invested in a company that sells restaurant supplies. Are you going to keep it in the company for the entirety of COVID while your money evaporates or put it into a tech company temporarily and then move it back afterwards?
Of course this isn't the case, we're in 2022 and Amazon has expanded it's footprint. Your point is valid but the assumption is naive and incomplete.
Just because pandemic growth is now 0 doesn’t mean Amazon didn’t have actual growth too
tech valuations have come down because the Fed has raised rates which long duration stocks like growths tech cos are extremely sensitive to.
when borrowing money becomes more expensive, these companies can no longer fuel business expansion or stock buybacks with cheap debt, and at the same time facing a demand issue because consumers are facing the same phenomenon.
lower growth projections combined with expanding operating costs due to headcount are unsustainable for growthy tech firms that normally burn a lot of cash to fuel growth, so it becomes necessary for these firms to slow hiring and layoff workers to slow their burn and conserve cash.
The idea that Apple is "taking on debt to buy back stock" is pretty misleading. Sure, Apple has some debt - but it has net cash. Ditto for the rest of the megacap tech stocks.
and it’s not misleading at all. Apple and Meta are both known to sell bonds aka taking on debt for the primary purpose of buying back their own stock. that doesn’t have anything to do with their multibillion pile of cash.
Apple has many times. I don’t know why this is suddenly a conspiracy that some mega cap tech firms used cheap debt to buy back their stock. It’s not. It’s actually the primary way that these companies hid dilution from investors due to employee stock comp.
When risk-free rates of return increase, that harms the value of all growth companies by increasing the discount rate applied to future cash flows (while not giving a corresponding "credit" for near-term losses of cash)
Many of these companies were losing money and their future imaginary positive cash flows were wishful thinking given their business models. Higher interest rates accelerated loss in value as the speculative sentiment shifted to a more risk-averse posture once the market accepted the reality that was always there: these companies never exhibited the ability to make any money, plus they were cannibalizing themselves due to the extreme competition from other startups fueled by the huge amounts of money vc’s were able to gather during the zero interest rate mania.
Discounting future negative cashflows was always a foolish game.
If I have a company that will lose 100 units of currency this year and next year, break even the year after that, and then return 20 units of currency for each of the next 17 years, then vanish without a trace, that's worth positive 46 units of currency at a 3% discount, nothing at a 5% discount, and negative 37 units of currency at a 7% discount rate. (Whether you discount the initial losses changes the analysis by only a small amount.)
Initial cash flows weigh much more heavily than later cash flows, so initial losses in a cash flow series have a much larger impact on npv. Therefore, I disagree with the conclusion of your hypothetical.
the most talked-about layoffs right now are happening at salesforce, facebook, amazon, etc. I'm not sure what you are trying to convey or which hypothetical companies you are talking about, but these are printing money.
Why can't Apple buy its stock from Ireland without paying more taxes?
Interest rates play a role, but it's not the direct cause you're thinking of. The value of a company is related to the risk-free rate of return, i.e. interest rate set by the government. Lower interest rates produce higher valuations, and higher rates produce lower valuations. But just because a company's market value goes down as the interest rises doesn't mean the company was inherently overvalued at the lower interest rate.
What we saw in the tech market was that companies were overvalued. The change in interest rate was the catalyst for tech's value adjustment, but the companies were overvalued at the old interest rate, too, because their value was based in-part on unrealistic growth expectation. Also, ZIRP really messed with market dynamics. Look at crypto, which is something that has near-zero utility and thus should have near-zero value, especially all the random shitcoins. Many such shitcoins were worth many millions / billions of dollars. The market was clearly irrationally valuing many different types of assets.
It seems pretty obvious if interest rates are high, tech companies which make most of their profits far in the future were going to be worth less than value companies where most of their profits are in the short term.
Nobody can predict the future, not even you.
Obviously I can't know one way or the other, but I laid out my personal belief in the original post. Essentially, many "tech" companies are just digital versions or existing business and products. In such cases, there isn't as much value to capture compared to unlocking massive amounts of human potential like a company like Google. The market, however, was valuing these two types of tech companies the same. Peloton is a good example. Peloton is a great product and can really make a dent in the home-gym market. But the home-gym market is already relatively mature, so Peloton really shouldn't have been commanding such insane multiples on any metric (sales, revenue, cash flow, etc.)
It makes much more sense they just plugged in a higher discount rate to their models.
Peloton has fallen because they went from a company with rapidly growing revenue to one falling revenue.
Exactly. Their growth expectations were unrealistic. They were bringing a marginally better product to a saturated market under the guise of being a tech company. They could be a good business if run lean, but they’ll never realistically command insane multiples on revenue.
edit: no, you can't... post hoc correlation analysis is an exercise in obscurity. If there was internal logic to the movements looking back, there would be a possibility of forecasting them.
That's actually not accurate. NTM revenue multiples for software companies peaked at ~12.0x on average in October 2021. The first rate hike in this cycle happened in March 2022.
Big companies like Facebook aren't funding their operations with debt. They're absolutely flush with cash. Your claim that the fed raising rates is causing layoffs in these large, profitable companies does not hold water.
Does that help to explain a retreat in VC- and other debt-funded entities? Sure. But the headline layoffs we've seen are not in those types of companies.
Now, I do agree that growth projections were revised down, but the explanation for that is much simpler: A lot of companies assumed COVID was going to create a lasting impact on the world that would result in endless growth and revenues for companies like Peloton, Zoom, etc.
Well, that didn't happen, and they are now forced to cut back on staff after over-hiring due to those bad projections.
This pattern is visible across the industry. It's not in the least bit mysterious.
Discounting NPV of future cashflows affects stock price, and increased interest rates mean a greater discount. No argument there.
Okay.
So what?
Why would a dropping stock price motivate layoffs?
The GP's claim is that it's because it makes debt more expensive (which it does!)
> when borrowing money becomes more expensive, these companies can no longer fuel business expansion or stock buybacks with cheap debt
But unless you're funding your operations with debt, that just doesn't matter that much, and in fact it can have a positive effect because it makes stock buybacks cheaper (looking at you, Apple).
Now, you could make the argument that maybe shareholders see a dropping stock price and push for layoffs to protect their investment.
Okay.
Except a lot of these companies have dual-class shares. Meta can (and does) simply ignore their shareholders. If they're laying people off, it's because Zuck decided they should.
The best explanation I see is bad long-term projections of the fallout of COVID, combined with social contagion as tech would rather sell the idea that there's a major recession imminent and they're cutting proactively, rather than admit they just screwed up and over-hired.
https://seekingalpha.com/article/137623-how-interest-rates-i...
> First, assume that our opinion of future free cash flow doesn’t change so as to isolate the effect that the discount rate will have on value. You can think of the discount rate as the opportunity cost of investing in Stock A over Stock B or Investment C. If interest rates rise, so too should our discount rate since we would have more opportunities to do more with our money elsewhere. And since discount rates and present values are inversely related, value will decline, all else equal, as the result of a rise in interest rates.
https://www.graduatetutor.com/corporate-finance-tutoring/cas...
> The first way in which interest rates factor into a DCF model is through the discount rate. The discount rate captures the rate at which the value of money declines. Prevailing interest rates are a big factor in opportunity cost. And opportunity cost is an ingredient of the discount rate.
https://www.investopedia.com/terms/d/dcf.asp
> Calculating the DCF involves three basic steps. One, forecast the expected cash flows from the investment. Two, select a discount rate, typically based on the cost of financing the investment or the opportunity cost presented by alternative investments. Three, discount the forecasted cash flows back to the present day, using a financial calculator, a spreadsheet, or a manual calculation.
So DCF analysis doesn't actually say anything about company's actual future cashflows. It's about the value of those cashflows to the investor when weighing the value of that stock versus other types of investments.
Bringing us back to the topic at hand, that means higher interest rates should depress stock prices because of the increased opportunity cost versus investing in other assets.
That means businesses planning to, say, open a new factory or expand into a new market, might choose to delay or cancel those plans, and that can certainly impact growth projections.
But the tech megacorps aren't typically growing that way anymore. And even in the case of a company like Meta, which is investing heavily in their "metaverse" vision, they're funding that with cash because they're money printing machines.
what's weird to me is that this is happening at all kinds of companies, including ones with what I thought was pretty level-headed management. It's not just one company oops screwed up and over-hired, and "tech" is not really a monolith. Yet, they somehow all simultaneously screwed up and over-hired?
The idea is that many--especially very high profile companies--overhired, and the rest are following the leader.
Stir in media hysteria around purported recessions and you can understand why leadership might start to pull the reins.
The fact that it all played out just as I thought gives me an indication I was right.
Happening to Uber in my local market. A new startup (BluSmart) with an all-electric fleet and full-time driver employees showed up. Uber's service quality declined as they started squeezing drivers for profits. The new startup has stolen a big chunk of marketshare (and more importantly, mindshare) and Uber is now considering exiting this market altogether.
It's a game of musical chairs with the ultimate goal of dumping on retail investors. If not that, at least dump it on other VCs.
I've heard some horror stories about a rideshare rider paying inflated surge prices while the driver just gets the normal rate, for example. (not sure which service this was)
Theoretically it should be dirt cheap for Uber to leverage its customer service and app for any new market to compete on razor-thin margins, but in practice they could be wasting most of that money and leaving the door wide open to a really lean competitor
- Drivers are full-time employees, not contractors. They don't care about waiting or not showing up for short/long rides - they get paid either way.
- Currently, you can only schedule rides in advance. Rides are available in 15 minute intervals. Doesn't work for a lot of situations but is perfect for going to the airport - the drivers always show up on time and will happily wait (for a small per minute fee) as long as necessary. WAAAAY less hassle than booking an Uber.
- All vehicles are owned by the startup itself.
It's essentially a taxi company with electric cabs and a good app.
- Also no surge pricing. Pricing is fixed by a rate chart based on KM travelled.
The only issue right now is availability. From Delhi airport it is OK but when I tried to book one from the hotel to a friend's place the earliest availability was after 4 hours whereas Uber was 5 mins.
Perhaps you can edit to find a better example? There is no more technology in WeWork than there is in a corner sandwich shop.
This was the .com era all over; people believed that the first company to own “pet food.com” would somehow corner the market on pet food exclusively.
WeWork is not a digital version of coworking, it is a venture capital version. Without conjured money to make their business operations possible they fail and are currently approaching the end of their runway. Coworking operations that pay for their properties and operations with revenue from members are completely different in almost every way from the locations, the outfitting and maintenance of the spaces, and the various options for payment.
There’s another distinction to consider: WeWork, Uber, etc. have most of their costs scaling with every customer and limited competitive moat (people who travel heavily might value sticking with one global app, but locals don’t). Google or Facebook have costs to get started but their costs to go from 1M users to 10M aren’t linear, and that’s really what VCs are looking for. A lot of the bubble came from deliberately misrepresenting companies in the former group as having the revenue potential of the latter.
#1, you are spot on, with the free money, and ZIRP, it has created 1000s of zombie companies are a live because they have access to the money. There are two valuations to consider when talking about this bubble.
a. Companies that make zero $$$ or near to it, and worth billions. Those are the ones that are going to be worthless after the bubble pops. b. Companies that make money, just not enough to be profitable. There are few out there, but they are ones that will get effected the most. Some have valuations that should be significantly higher, but not. c. Companies that producing $$$ and can cover expenses. PE ratios are out of sync, they are too high for what EPS they give.
What is going to happen? If the ZIRP doesn't come back or too late, you are going to see a lot of money and zombie companies get hurt hard. I think this is necessary, so good companies can transverse to a correct risk vs reward.
The biggest problem people living in the west, US, is the multipolar world is coming. US is not prepared for it, and if anything, resisting. Imagine 50% of the world rejecting the USD. It is not far off. US is now 59% of all global trade. Getting below 50% will have devastating effects. Inflation as you see it now, will be hyperinflation. The world is going multipolar, and US is not prepared.
What explains why so many companies are laying large numbers of their workforce off? The answer is simple: copycat behavior, according to Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business
Since the answer is so simple I stopped reading the article. Obviously companies should not care about the their stock dropping massively in the last year, rates going up and consumer spending reducing. The layoffs is just copycat behavior. /s
Man, this guy must have predicted 50 of the last 2 recessions.
Edit: This is such a bad take I would expect to read it on r/investing in a most downvoted comment. A "scholar" should know rarely things are black and white. There isn't a simple to answer to literally anything in macroeconomics, or just in life in general really.
When I see these layoffs I see the exact same thing as the above. CEOs pretending that they know what they're doing, then other CEOs also imitating that, followed by driving off a cliff.
Instead of bashing the author and his credentials, maybe you should engage with the argument hes making instead?
I can cite the hiring frenzy, the stock evaluation, HUNDREDS of articles that disagree with his "SIMPLE" answer.
That and the panic from tech stock prices being decimated after 10+ years of growth. The layoffs felt like Boards and CEOs were smashing the controls until the numbers went back up again.
I hope you realize this is subjective, and the CEOs and boards obviously feel differently...
The FED has spoken. The market has spoken. The inflation is high. It is a risky environment, layoffs are extremely reasonable after the hiring frenzy we experienced.
This has to have had a somewhat self-fulfilling prophecy effect. When you start predicting 'downturn' and your solution is "lay people off", then yes... economic activity will slow (from your former staff) and... that spreads around. It can't not be having some impact, and as more and more places do it, it compounds.
So now they have to cut costs to be considered above this threshold, which makes shareholders happy among other benefits.
Sure there will be copy cats, but this just seems like some correlation equals causation rationale.
[0] https://www.mckinsey.com/industries/technology-media-and-tel...
> It doesn't even make sense to do layoffs today when you expect trouble 6-12 months later.
It seems like a lot of companies are perpetually hiring. However the unspoken part is that they're only hiring people who they can underpay and only if they're a perfect match for a hard to hire position.
> Obviously companies should not care about the their stock dropping massively in the last year, rates going up and consumer spending reducing. The layoffs is just copycat behavior.
I agree that the article seems overly dismissive about the macro changes, but I think your argument (like so many other comments dismissing the article itself in this thread) is orthogonal to its point, which is arguing against the concept of layoffs itself. If you actually read the article, its whole point is challenging that layoffs should be the hammer that companies reach for in the toolbox whenever recessions (or at the present, rumors of recession) loom.
The social contagion theory in the article applies both to whether there's a reason to do layoffs at all (which you and many others disagree with, that's fine) and whether layoffs are the appropriate response (which I'm not seeing many responses to, other than the discussion of doing company-wide compensation cuts as an alternative to layoffs).
If you actually read the article, it's mostly arguing against using layoffs even if there might be something to respond to:
> Academic studies have shown that time and time again, workplace reductions don’t do much for paring costs. Severance packages cost money, layoffs increase unemployment insurance rates, and cuts reduce workplace morale and productivity as remaining employees are left wondering, “Could I be fired too?”
> Layoffs often do not cut costs, as there are many instances of laid-off employees being hired back as contractors, with companies paying the contracting firm. Layoffs often do not increase stock prices, in part because layoffs can signal that a company is having difficulty. Layoffs do not increase productivity. Layoffs do not solve what is often the underlying problem, which is often an ineffective strategy, a loss of market share, or too little revenue. Layoffs are basically a bad decision.
And so on. The article definitely cites more than one source for that, even some of it is anecdotal, such as Southwest not doing layoffs after 9/11, or the words of this CEO or not. But the point is that your criticism misses the point of the article.
If I were to write an article about a current hot topic and the title is a question, such as "Why are there so many individuals abusing opiates, should we be worried?". Then, in the first paragraph I said, "the answer is simple, copycat behavior". I would not expect anyone read anything beyond that point.
The main question has been answered, in the worst kind of way. This isn't a black and white issue caused by a single thing. It is laughable really.
And it does feel convincing in the sense that it seems like many companies are choosing to respond to a problem in an identical way, which rather undercuts the tech industry's claims and culture of innovation and disruption and out of the box thinking.
1) Companies really, really don't want to be doing layoffs. It signals they are in a weak position. But when bunch of other companies do this it becomes a much more available option as there is something to blame ("Recession!")
2) Companies compete fiercely and up until recently they tried to hire as much people as they could. But now they are finding they onboarded a lot of people and possibly a lot of people they do not want to have and became less efficient in the process. Normally, it is pretty difficult to fire people and it takes a long time and resources to get them on PIP and then push them out. But, hey, there is a faster solution -- just blame recession!
I am looking closely at this recession as I am trying to navigate it financially and professionally and I came to conclusion that it is to a large extent fiction. It is mostly just a bunch of companies jumping on a bandwagon because it is convenient for them for one reason or another. There is no real underlying reason for all this. And if you are not convinced, other than couple tech companies that were just mismanaged and other than valuations, companies seem to be in a better shape overall than ever.
Their Q3 2022 results - “We had a solid quarter with revenue of $7.84 billion, up 14% year-over-year or 19% growth in constant currency, and record operating margin,” said Marc Benioff, Chair & Co-CEO, Salesforce.
- “We delivered another quarter of double-digit top and bottom line growth,” said Amy Weaver, President and CFO, Salesforce.
In my opinion, they're laying folks off because they can conveniently get away with it without too much blowback.
And best of all, their stock is up 6% in the past five days so the folks they're really catering to are happy as a clam.
The recession was essentially caused by the "OMG inflation!!" moves by the US Federal Reserve and companies just raising prices "because we can" while increasing massive profits.
That it will result in millions of workers getting laid off & companies exiting the market doesn't even matter to those captains of industry & economy.
It's very clear from history that managing the economy with short sighted principles ends in poor outcomes. Too bad the Fed didn't consider this when they were doing QE and ZIRP for years too long. Now we pay the price of that short sighted failure
To do that, it would require congress to actually legislate or the exec branch to issue some executive orders that addressed market conditions like price gouging other than the big interest rates switch.
ZIRP was a horrible policy and I'm glad it's not being continued.
Agreed that congress can do more to help though. Incentives are poorly structured to promote housing affordability.
it doesn't look like that: https://fred.stlouisfed.org/series/HOUST
I was under the impression that it's not too difficult, at will employment states like California.
It can be difficult to fire people in big layoffs because 1) you want to make sure they don't sabotage things (or just walk out with details that they didn't write down), and 2) because it's really easy to stumble into "protected class" issues, e.g. 10% of your workforce is POC but 30% of those laid off identified as POC, etc.
How is it difficult to fire people? These tech companies are using at-will employment agreements.
>In United States labor law, at-will employment is an employer's ability to dismiss an employee for any reason (that is, without having to establish "just cause" for termination), and without warning,[1] as long as the reason is not illegal (e.g. firing because of the employee's gender, sexual orientation, race, religion, or disability status). When an employee is acknowledged as being hired "at will", courts deny the employee any claim for loss resulting from the dismissal.
When money was cheap to borrow, borrowing against stock and increasing headcount was seen as a metric that could pump stock price. Hence, hire as much as possible (especially engineers since they drive the most value at many of these huge tech orgs). Problem is, money is no longer cheap to borrow and real revenue is king now - having excess headcount that isn't resulting in clear value (something these companies are exceedingly good at measuring) means layoffs to reach the prior equilibrium of "real revenue" generated per engineer.
Real revenue and no profit or real revenue that leads to profit?
The narrative seems to be that the day of awakening for "dump money with no expected ROI" style projects/companies is here when https://www.investing.com/economic-calendar/interest-rate-de... is 4.5-5%
If interest rates are 2% and inflation is 2% - borrowing money is free.
If interest rates are 10% and inflation is 80% - you get paid to borrow money - which seems cheaper than free.
We're obviously not in that situation - but we had interest rates at 2% with inflation at 10% - this was the cheapest money was in a long, long time.
Now we have (short term) interest rates at 4% - and inflation is >4%.
I get that it's not as cheap as 2021 - which would be necessary to maintain the asset bubble. But we still have negative real interest rates (at least short term). So money is still cheap, right?
You still have to generate that 10% return.
Early 2020 there was a covid recession
2007/2008 there was a severe "recession" (depression)
You started off your adult life in a pretty bad recession.
Maybe college insulated you from that.
2020 was shorter than 2001 - but MUCH worse. 2001 wasn't very bad unless you worked in tech in The Bay or invested your life savings in Internet meme stocks.
At the same time nobody seems to be paying attention to how rapidly the Fed raised rates this time compared to the build-up to 2006-2008, and while everyone talks about low rates for over a decade caused malinvestment nobody seems to be doing the very obvious math of what is going to happen when higher rates destroy it all.
Those who were in the Class of 2020 and above got FUCKED big time hiring wise.
Those who were in the Class of 2008-2011 got FUCKED big time hiring wise.
Everyone who started their career between 2012-2019 (like me) have had an amazing ride. We could jump companies at the drop of a hat and 1.5x-2x our TC, stocks were constantly rallying, and it is this group that started to enter middle management and/or build startups with YC. And it is this group that has never experienced a real recession.
PS. What is happenning in tech right now is nowhere near a recession. I've seen the stress my parents had during the Dot Com Bust and 2008. What's happening right now is nowhere near that bad.
I was very lucky to find a new (lower paying) position during that era and the company I joined subsequently barely got through some of the aftermath. But I knew a lot of people from technology companies who basically got out of the industry and, for at least some of them, their careers/finances never really recovered.
At least talking to people who went through 2001 and 2008, it looks like there are more opportunities across the board now. If you got laid off from $randomYCStartup as a SWE or SRE, you can still land a decent paying IC role at one of the 100s of upper market companies that exist. BoA, Honeywell, Target, etc are still hiring SWEs and paying decent salaries, as are the hundreds of upper market B2B tech companies (eg. Okta, Meraki, Oracle, etc). It may not seem sexy like working at Google or Meta, but it ain't a bad living either. Sadly, a lot of my peers have this sense of hubris that anything less than FAANG or a late stage startup spending tens of millions of dollars in PR is career suicide, which is honestly stupid in an industry as skill oriented as ours
Talking to the guy who got a job serving gelato next door and a guy who is about to start work 3rd shift at Blockbuster as a cashier. They've got masters degrees in CS but when the company closed up quickly, they had to find a job quickly that paid some of their bills (rent in Mountain View wasn't cheap).
Those were not happy times.
I was fortunate. My manager had previously worked at Apple in the bad years and at the first signs of future possible problems had gotten two open reqs for our team approved all the way up the chain to the C level. While the reqs were approved she really dragged her feet on writing up the job position and after a bit, HR got tired (I presume) asking her and then we had a hiring freeze and well, that was the end of that... except that we had two C level approved reqs that were unfilled. Then contractors weren't renewed... and then contracts were ended early. When the layoff happened she was told to lay off two people from a team of four. She laid off the open reqs and pointed out that if the director levels were to force her to lay off some from the team, she would immediately rehire them back in to those open reqs. So, our team survived intact. That was 2001. However, in 2009 she wasn't my manager anymore (and had gone to do other things).
Have anything to back that up?
There has been a semantic shift with the word boomer - for older people it means the baby boomer, but for much younger people (like Gen Z) it just means anyone 30 or above.
Younger is not a synonym for dumber.
There are young people who look up words and use them correctly, and there are old people who just ape other people's random shifts and misuses of a word in order to fit in.
You made a comment elsewhere in the thread saying that HN was full of boomers.
Now it is clear you just actually meant people over thirty, which makes it true. Your usage of "boomer" has not yet passed into the main stream; it is not comparable to "dumb". Google Books easily finds a 1930's reference for the usage of someone "getting dumber and dumber".
I'm not moralizing, by thew way; dumber isn't a moral flaw. (By the mainstream definition of moral; maybe you have your own version of that too).
Hate to break it to you, but it passed into the mainstream years ago.
Gonna be a lot of Gen X and Millennials, probably a disproportionate number of < 35 tech bros
There has been a semantic shift with the word boomer - for older people it means the baby boomer, but for much younger people (like Gen Z) it just means anyone 30 or above.
Generalizing 'boomers' as over 30 and giving a lecture about it while at the same time complaining about people not recognizing segments of other generations is an amusing lack of self-awareness.
So with the fed indicating they will keep raising rates in order to invert that statistic it would not be a good idea to incur massive amounts of debt you can not pay off when rate go more than inflation, which they will have to do
There's always risk - but I don't think it's as risky as you might think.
Even if times are bad because inflation is high and your business drops by ~50% - you'll still come out ahead.
That said: There will be opportunities if you can borrow at 10% and stay solvent to invest in something well through in this extreme case.
VCs and investors are not charities, they want to turn a profit on their investment. You only make a profit if the founder(s) succeed. Cutting costs increases the probability of success by giving a longer runway.
If you're on the board of directors, there are much easier ways to get founders to cut costs than talking about it on a weekly podcast.
> [Melissa de Witt] Do you think layoffs in tech are some indication of a tech bubble bursting or the company preparing for a recession?
> [Professor Jeffrey Pfeffer] Could there be a tech recession? Yes. Was there a bubble in valuations? Absolutely. Did Meta overhire? Probably. But is that why they are laying people off? Of course not. Meta has plenty of money. These companies are all making money. They are doing it because other companies are doing it.
This may be true, but I’m not sure how we escape this: The market has different expectations now, leadership has to be sensitive to the expectations of the market, etc.
“Making money” has a direct correlation with “risk taking”: When you have money pouring in it’s easy to allocate some to “moon shot” projects. Less money coming in and you can still make “improvements”. When money starts drying up you can only do “maintenance”.
Overhiring issues + popped bubble valuations + tech recession = you’re doing layoffs because you’re greedy? Really? It doesn’t add up.
It assumes there was some irresponsible multi-asset speculative boom in various markets including, government bonds, housing (gloally), crypto and stock valuations all conveniently around the same time in late 2020/ early 2021 when central bankers were doing trillions of QE and governments were injecting similar amounts of fiscal stimulus into the economy, fuelling a general demand boom and pushing the risk-free rate to near-zero. And top on of this central bankers were completely wrong / lying about the path of inflation and rate hikes in the coming years miss leading investors and businesses about the environment they would be operating in going forward.
I guess my point is that if tech companies "over hired" they only did so because the risk-free rate being near-zero devalues profits and incentivise growth. And meanwhile they had a massive demand boom to service caused by the insane fiscal stimulus. They were arguably just doing what they had to given the macro environment governments and central bankers created.
The "bubble" might as well have been government policy. Investors / businesses were just responding as you would expect given the economic conditions.
Were we to drop the risk-free rate to zero and pump $2T in the economy again this year exactly the same thing would happen again.
One thing that Lincoln Electric, which is a famous manufacturer of arc welding equipment, did well is instead of laying off 10% of their workforce, they had everybody take a 10% wage cut except for senior management, which took a larger cut. So instead of giving 100% of the pain to 10% of the people, they give 100% of the people 10% of the pain.
Companies could use economic stringency as an opportunity, as Goodnight at the SAS Institute did in the 2008 recession and in the 2000 tech recession. He used the downturn to upgrade workforce skills as competitors eliminated jobs, thereby putting talent on the street. He actually hired during the 2000 recession and saw it as an opportunity to gain ground on the competition and gain market share when everybody was cutting jobs and stopped innovating. And it is [an opportunity]. Social media is not going away. Artificial intelligence, statistical software, and web services industries – none of these things are going to disappear. “
If this was true, all that is missing is true leadership. Would people here take a 10% pay cut if it meant their colleagues weren’t fired?
Often times, the resulting team can be stronger than it was before. Particularly if the organization just went through an extremely ultra-fast hiring spree where it's likely low quality candidates were hired.
The "cut 10% of my pay to save my coworkers" works well if you have a high performing team/company. If you don't, the high performers may become resentful if they start to feel like they're subsidizing the salary of low performers.
The trick is identifying those low quality candidates. You can try to measure them, but once you measure them they become a target, and you get to the equivalent of the person who takes all the easy jobs from a queue because they then think they'll be higher in the value queue.
But then they can always walk, and be replaced by high performers who were axed at other companies.
Yet, in the US we have this almost Stakhanovite mythology where a single worker can pull an entire organization.
I have worked with individuals who had been pariahs in the previous org (got that info over beers with the individual) but were rockstars in our org. Also with so-called high-fliers from other teams/companies who just cratered when they joined our group.
Personally I think cutting 10% pay is preferable because a) the work doesn't go away - if 10% are let go, I'll probably end up doing 10%+ more work. b) it's a commitment by the organization and that shows they care enough to not unilaterally make a decision.
> Yet, in the US we have this almost Stakhanovite mythology where a single worker can pull an entire organization.
This is a common bias I experience in American corporate culture and it drives me nuts. Viewing things at the individual level makes it really difficult to understand and cultivate productivity in a sustainable way.
Often I find it more useful to look at productivity at the team level. It tends to have more explanatory power than at the individual level because it gets more into psychological safety, communication, attributes that are crucial for high performing teams but are difficult to suss out if you are just focused on individuals. Like you, I have seen way too many smart people stuck in situations where their skills and talents were completely underutilized. Vice versa there's way too many politically adept but inept individuals out there who have the companies that employ them in a stranglehold. All they do is empty these companies of resources, time and money while bringing nothing of value in return.
The company won't actually be able to identify these 10% you mention, or when it does they might keep them because they are cheaper than you.
In the end you are looking at good people or even yourself being affected by layoffs. I'd take the pay cut over the risk of losing my job or well performing coworkers.
And I was affected by a layoff just recently, but layoffs don't really hurt good engineers. You just find another job. My whole team was nuked back in November. But I found a new job within a month, and at a 25% pay increase. So taking a cut would have been a terrible deal. They say the market is bad, but I think that just means bad for bad engineers. Whereas quality really didn't even matter a year ago.
Yes, especially if the executives are taking disproportionately larger cuts. Knowing that the people up top aren't as sociopathic as more typical "leaders" who feel nothing when axing thousands while getting massive bonuses is going to boost my own morale a lot. Also, even if I survive the layoffs, the thought that I'm probably next is going to weight a ton on my psyche, like the article mentions
I knew a few people who went through this at the beginning of covid.
One case, a friend had just been hired in Feb 2020. March/April, everything went sideways. May, they announced a 10% pay cut to everyone (owners may have taken larger cut), with promise to get back to original pay by end of 2021. That seems a long time, but at the time of that plan, there were just so many unknowns.
They did end up getting rid of a couple of folks later in 2020, but they were sort of 'on the cards' before covid, and they weren't wanting to fire folks right as this pandemic was starting. Small company (~50 people, IIRC) and it just felt too personal at the start of the pandemic.
They also got everyone back to original pay by Q2 2021 - ahead of schedule.
Other was family member - CFO-level. Company had everyone take 10% pay cut - SVP and C-suite took 30% cut. They rode that out for more than a year, and I think got 'back' to early 2020 levels by end of 2021.
Neither of those are great options, but we had a pretty big global problem going on that few could escape.
Would I do it? If I knew it was 10% across the board (and/or even more for C-level), yes, I'd support that sort of a move, to prevent layoffs. I would also like to know the timeline that was in place.
I freelance, and early 2021, a client 'slowed' down work. I'd been ~20/hrs/week - that go reduced to ~5, but... there was no communication (to me) about expected timeline. Had I known it was only scheduled for a quarter, I would have relaxed a bit. I didn't, and took on other work, then initial client ramped back up and I was... overwhelmed. A bit of communication goes a long way.
My own partner accepted getting cut down to only two workdays a week at 40% of her pay, for over six months, before she finally found another job. She would have been better off furloughed like most of the rest of the company (they were in the events industry, the company made almost $0 revenue in 2020) because she would have been eligible for the extra unemployment.
But I think a 10% across the board wage cut is risky when you're not in the midst of a big recession/depression. You'll have your best employees that could have probably left and gotten a 10-20% increase elsewhere already, have now lost 10% of their wages at your company and now can get a 20%-30% bump if they leave.
People won't be loyal and stay just because you're hurting the company evenly. Speaking from experience, at a previous company we had frozen raises and removed 401k match and worse healthcare and we saw steady and significant attrition just from that. Cut salary by 10% would probably have similar results.
I generally agree that it's not something most people would be on board with most of the time. Extreme/national/global circumstances, yeah. If few are hiring, everything's paused, etc... taking 10% pay cut seems reasonable. If the cuts are just because the company isn't run very well... yeah... move on to something else if you can.
Keep in mind that SAS is privately held and seems to mostly ignore conditions that make publicly-traded companies go a little bonkers.
The second is that I don't think it's a good idea to signal that they can keep 100% of the labor for 90% of the pay. Firstly, it signals that this is something workers will accept, which is a dangerous line. Secondly, it means workers are assuming some of the risk the business is exposed to without a commensurate benefit.
The company needs to have a tangible and commensurate pain as well. A 10% decrease in pay for a 10% decrease in working hours is a maybe. Changing 10% of my salary over to company stock at a preferential rate (to compensate for risk) is a maybe. Some kind of contract stipulating that employees will be paid back double what they lost in pay is a maybe.
I'd rather roll the dice on layoffs than send the message that risks in the market can be offloaded onto employees.
> Could there be a tech recession? Yes. Was there a bubble in valuations? Absolutely. Did Meta overhire? Probably. But is that why they are laying people off? Of course not. Meta has plenty of money. These companies are all making money. They are doing it because other companies are doing it.
When stock prices and earnings are down one of the surest ways to boost earnings is reducing head count. This has been true forever. It doesn't matter how much money Meta (or whoever) has, it's the quarterly numbers that matter to investors, and companies act accordingly.
Interesting links to a report that has US Job cuts back to 1989:
https://omscgcinc.wpenginepowered.com/wp-content/uploads/202...
https://www.challengergray.com/blog/the-challenger-report-jo...
When more cash is readily available, companies spend more freely. When it's less available, companies tighten spending. The "social contagion" here is a basic understanding of finance.
Why is this significant and what was the race of the other students?
Facebook in 2019 had 44k employees, 71k in 2022. Google went from 118k to 160k over the same timespan, and I don't really see for what reason. If anything I'd say the agressive hiring was the herd behavior, the layoffs seem more like a justified course correction. Tech companies are always crazy paranoid about slurping up talent, I don't think they're too keen on paying severance for people they just hired.
Those are insane numbers. Imagine the chaos internally with so many newcomers.
Excluding the consequences of being laid off, the author’s opinion is that the tech layoffs are strictly a copycat move. Since others are doing it, we might as well. One would expect an establishment as such to provide better evidence or support for its claim.
Historically layoffs occur due to unforeseeable labor market situations, reduced spending and economic constraints.
No one rolls the dice when it comes to potentially saving money and going under. Some economists are saying that we’re only at the beginning of a recession here in the US.
All of these tech companies are releasing legions of capable, experienced people into the market who will end up becoming their competitors. The layoffs are so large that entire networks of interconnected professionals are being released in one go. Many potential new start ups.
In a few years, many of these companies may wish that they had had cut back on other stuff (including the shareholder expectations) rather than releasing all of these people to become their competitors.
As the other commenter in this thread said - there would be many among them who have enough runway to try something for a few years. Couple this by the many already well-off employees who resigned since the great resignation started, you have a lot of potential small startups.
Moreover, remote work is well established now. People don't have to cram into expensive urban locations like SF and have to shoulder outrageous real estate and living costs. Also the cloud provides easy way to build scalable apps now, they are also well covered in respect to startup infra.
What's left is ideas, reaching to the right audience and iterating. With many tens of thousands of people being laid off, there will eventually be startups that hit big on various things and take market share from their earlier employers.
OTOH, it might be that these big companies select for people who'll jump through the hoops for interview rituals and KPIs/OKRs/promotions while leaning on company inertia, and so be unfamiliar with startup-like thinking and skillsets. (I mean the kind of startup that has to ship and sell and operate viable product, until the VC party resumes -- not the kind of startup that can just play along with a VC investment scheme by manufacturing signals of "growth"/potential.)
And layoffs are a bad idea? Always? Even when sunsetting multiple large projects and downsizing your speculative endeavors? There are whole teams at these companies who's jobs just simply aren't needed anymore. It sucks for them, but to say it's a bad idea for a company to lay off people is just nonsense, there are times when you have to unfortunately.
> Even when sunsetting multiple large projects and downsizing your speculative endeavors?
Those same data-reliant companies initiated those projects!
"according to the U.S. Bureau of Labor Statistics, there’s plenty to go around. The Bureau finds that openings for software engineers and similar jobs are projected to grow 22 percent from 2020 to 2030 – much faster than the average for all occupations – estimating about 189,200 new openings every year on average.
The Bureau also estimates that in 2020, there were 1.4 million more software development jobs than applicants who could fill them."
So I guess who cares if the industry shrinks by 10-20%? Isn't there still a vast shortage?
I went on the US Bureau of Labor statistics (BLS) and found this page(1). There is no mention of 1.4 million unfilled software jobs. To me this doesn't pass the smell test. There are currently 1.6 million developers according to the BLS. Can someone really say with a straight face there should be 2x that? If that were true there wouldn't be 4 rounds of leetcode and system design for every generic developer job.
1. https://www.bls.gov/ooh/computer-and-information-technology/...
The problem is, there ain't no such thing as a free lunch. Now we're reaping the predictable contraction.
(Not speculating on whether it's wise, just that it's feasible in the short term.)
It's worth noting that advertising spend tracks GDP pretty well. In a recession, GDP shrinks and so does ad spend. Companies like Google and Meta are highly dependant on ad revenue so a recession quite literally signals a reduction in revenue is coming.
But here's why this is all so much posturing. Meta laid off what? 17,000 people? Assuming an average of $300k pa each (they're not all engineers) that's around $5 billion a year in savings or $1.25B a quarter on revenue of $17B+ and net income of $4B+. So the cost here isn't zero but it's certainly a cost the company could bear if they wanted to. It's a choice to get rid of these people.
Also remember that while these people were costing $5B/year, they were still obviously producing something too. It's not like this was 17,000 people sitting around doing nothing. That value is also gone.
Lastly, for Meta in particular, they're spending a literal fortune on the Metaverse, something that's unproven in any kind of product-market fit and doesn't seem to be a thing anyone actually wants. That's costing way more than the laid off workers.
If Meta really was batoning down the hatches, they'd kill the metaverse and cut down their expenses to support their core businesses: IG, FB, WA and ads for all of these.
So copycat? Kinda. Posturing and virtue signalling? Absolutely.
I think you mean that employment is too high.
If you can say "18 months from now, the world will look like this", you can plan for this, good or bad.
Maybe you get to "we will run out of money" (or whatever) and have to let people go.
Maybe you get to "everything will be great" (or whatever) and you decide to hire despite things sucking now.
It is only partially relevant what the world looks like right this second. It depends what you can float, the risk of floating, etc.
But with things relatively volatile, you have to plan for unpredictably bad scenarios, or repeatedly lay people off if reality gets worse. Even if you have some idea "the economy will get bad", that isn't enough when the error bars are so high.
In these situations it is usually better to overshoot than undershoot - overshooting is painful but "understandable" . Undershooting causing repeated layoffs is usually not.
Source: https://www.economist.com/graphic-detail/2022/12/14/after-a-...
The strange thing is I believe the economy is better than it is being portrayed as.
The unemployment rate indicates that the economy is strong. And going into 2023, most of the headwinds like ukraine war and energy inflation don’t look so bad.
And China is turning a bit less crazy and opening borders.
These are all good.
I think perhaps having all these big tech companies over hire and over spend on talent is prematurely screwing smaller businesses and startups.
Powell and his big business friends are highly aligned to scare employers and give them air cover for agressive lay offs.
I believe 2023 will be far better economically than people think, and that the situation is not as bad as it is being portrayed.
They want to scare you into laying off to increase economic dynamism which is better for everyone.
A lot of people are getting paid way too much and afraid to ever quit because they can’t get a better job. That prevents innovation and growth.
The solution to scare everyone into firing helps everyone.
I remember being in high school and some girl freaked out about not getting the grades to get into Stanford etc... Guess what, that anxiety spread through the class and it was never the same again.
As smart as we are, we do not think for ourselves and let social cues manipulate us.
From the article:
"What are some myths or misunderstandings about layoffs?
Layoffs often do not cut costs, as there are many instances of laid-off employees being hired back as contractors, with companies paying the contracting firm. Layoffs often do not increase stock prices, in part because layoffs can signal that a company is having difficulty. Layoffs do not increase productivity. Layoffs do not solve what is often the underlying problem, which is often an ineffective strategy, a loss of market share, or too little revenue. Layoffs are basically a bad decision.
Companies sometimes lay off people that they have just recruited – oftentimes with paid recruitment bonuses. When the economy turns back in the next 12, 14, or 18 months, they will go back to the market and compete with the same companies to hire talent. They are basically buying labor at a high price and selling low. Not the best decision.
People don’t pay attention to the evidence against layoffs. The evidence is pretty extensive, some of it is reviewed in the book I wrote on human resource management, The Human Equation: Building Profits by Putting People First. If companies paid attention to the evidence, they could get some competitive leverage because they would actually be basing their decisions on science.
"
The most trotted reason for layoffs (“market conditions have changed”) isn’t really being justified with any kind of numbers so I find this argument unconvincing. While I understand layoffs may be required for companies that aren’t profitable and low on financing it makes little sense for highly profitable ones like Meta.
We have tech layoffs because even the tech giants are reliant on new startups. Startups in general are suffering because leverage is no longer cheap, and startups are extremely cash hungry. Demand destruction affects everything and not just consumers
That's the nature of this beast. Companies get bullish on the future and over hire, then they have to layoff. Completely new bet-the-company projects get launched and then turns out to be a bigger bite than the company could chew. It happens.
The rule-of-thumb I was always taught growing up in tech (and I started in the mid'80's) was expect to be laid-off at some point in your career and always make sure you have six months of expenses on hand to weather a layoff. It was good advice then, and it's good advice now.
The people being laid off are >80% green cards. https://www.wncw.org/2022-12-07/sweeping-tech-layoffs-are-hi...
The majority of the people I'm sure aren't even a threat; but I guess nobody really wants to talk about the xenophobic reality of national security.
“Yes. Was there a bubble in valuations? Absolutely. Did Meta overhire? Probably.”
Could that have been the result of overly loose monetary and fiscal policy?
Only an ostrich would think otherwise.
“and soon Google” links to a complete unsupported fluff piece from November, drawing a loose connection to an activist investors letter.
Which is why the forced layoffs because of overwrought COVID fears were so destructive, and the "cure" was worse than the disease.
On average, the quality of devs, PMs, designers, etc has gone down in my experience. Companies expanded massively and when we ran out of seasoned employees, we started to hire people with very low qualifications.
I think a lot of these layoffs are driven by correcting not only for increased headcount, but for decreased quality. A lot of tech companies are looking to up their average employee by culling the bottom performers.
I work at a MAANG company that, for the past 5-10 years, has been hiring like OpEx was free and spending money without organizational budgets. This is an unsustainable cultural attitude using capital inefficiently by promoting lavish expenses and unbounded CapEx projects, neither of which necessarily translate into business value (or investor returns). Hiring or spending on assets with hockey stick trajectory doesn't necessarily translate into "build it, and they (customers) will come (and spend money)".
There is a reasonable balance between a budget process that is overly strict which hamstrings productivity and spending money without any cost controls.
The knee-jerk tendency to cut staff and budgets in perceptions of macro downturns in business may be harmful to current and future operations, especially if done without proper priorities such as sabotaging current and future cash cows.
TL;DR: Don't cut staff or budgets because everyone else is out of fear. Look at the numbers, and explain to equity owners the decision analysis of to cut or not to cut, and where and why.
PS: Obliquely, Stanford University enacted blanket budget cuts in the past to "virtue signal" an image of fiscal responsibility to peers and donors, but their finances and endowment were such that they were unnecessary.
In the USA. It stresses people because they suddenly lose their health care and income with no safety net. In most civilized countries, it's far less stressful because the employee knows they can still get health care, they can still get food, they probably won't lose their home, etc.
Companies are hiring people as fast as they can! I am writing from Poland.
Something had to be done.
One year later, the situation is the opposite: employees are “lucky” to have a job.
The economy is working well. For the people who run it.
I personally believe that Big Tech put on lots of flab during the pandemic. Now they need to get rid of it to weather the downturn.