Ask HN: Why Are the Layoffs Happening? | Hacker News Reader

Ask HN: Why Are the Layoffs Happening?

I've been fortunate enough to have a good enough job security that I'm not too worried about being let go. However, there seems to be a lot of people without this job security.

As we all know, many tech giants are laying of thousands of workers. I'm probably missing something obvious here, but could someone explain this situtation clearly to me?

The companies are making more money, with more customers, but they are shrinking their workforce. Two reasons I've found that could be the case is (a) they overhired during the COVID pandemic, and (b) investors are pressuring them into laying off workers for greater margins.

Also, for whatever reason this is happening, will it ever stop?

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This is somewhat simplified but basically it's variations on the Startup / MBA cycle:

* Smart people make things that work.

* Smart money helps make thing that works scale.

* With money comes MBA's to manage budgets.

* Thing that works eventually reaches natural scale.

* MBA's only know money, not how to make new things that work and grow.

* Investors need compounded returns so only fast future growth is interesting.

* So given that profits are steady but fast growth has stopped and MBA's don't know how to create new growth there is now only one option to keep growth going: Cut costs.

* First wave of cost cutting is company community participation.

* Second wave are any project or product making less money than the most profitable product.

* Then goes worker perks & treats.

Finally, the only place left to cut costs is in the salary budget i.e. jobs.

At this point the company goes into long-term maintenance mode and smart money starts looking around again at what everyone who left or got laid off has been doing with their spare time.

Wow, this really explains a lot. Thanks!

Too much unproductive money was dumped into the industry during the pandemic. This was a monetary policy to keep the world employed and paying bills; tech and gaming and media had a rally because of the remote, online world we were forced into—many people believed society would change forever to be more remote and online.

Because this money printing and investing didn’t produce sustainable results, the businesses can’t afford to carry the payroll they hired with the invested capital.

So the bubble popped and layoffs are one of many negative consequences from having the distortion of the pandemic. Another consequence for instance is that people don’t necessarily know if they were good or bad at their jobs during this time because cash flow was disconnected from productive value; and I think that is a shame because it will mess up a lot of people for years.

ps. The tech rally had actually begun in 2016. It got supercharged in 2020. It’s unclear where things will settle.

> they overhired during the COVID pandemic

Over-hiring has been happening for a long time since interest rates were low.

As long as the new hire earned more than the cost it was great. Now that everything costs more it's no longer the same.

There are more companies hiring than firing, they just aren’t getting as much attention.

It's cyclical. Yes, COVID and the end of zero interest rates are the current triggers, but tech has been through many cycles of boom and bust and will continue to do so.

Musk laid off like half of Twitter and the website did not fall apart(edit: from a technical standpoint), contrary to the predictions of some people on this site. All the Valley VCs / tech CEOs looked at that and said " Surely we can replicate at least some of that".

Institutional investors really like the "revenue per worker" number. If you have 10 workers making you a 100 dollars(10 per worker), firing 2 people and still making a 100 dollars means you now make 12.5 per worker, i.e your "management" delivered a 25% productivity increase.

Another maybe underdiscussed reason is the (coming?) tax law change that would make developer salaries capitalized instead of expensed. I think this one will probably get cancelled(as it will seriously mess up tech business economics) but some are already preparing.

The Interest rate bubble popped due to inflation.

Preparation for the coming AI wave.

> Also, for whatever reason this is happening, will it ever stop?

layoffs will never stop... hirings also probably won't.

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