After a year of abundant spending and rapid hiring, the U.S. tech industry faces a reckoning.
Just this month, Meta Platforms Inc. announced it was cutting 11,000 jobs, while Amazon.com Inc. axed 10,000 and Twitter Inc. slashed 3,700. More than 25,500 tech employees have been laid off so far in November, about double the number in October. More than 120,000 employees at tech startups have lost their jobs in 2022, up from just 81,000 throughout all of 2020, according to Roger Lee, creator of Layoffs.fyi, a website that tracks the tech jobs market.
The layoffs come as the momentum behind Big Tech's boom is losing steam. Meanwhile, the broader job market continues to defy the Federal Reserve's attempts to slow the economy by raising benchmark interest rates, with nearly 3.6 million jobs added so far in 2022 and a near-record number of job openings. The stark contrast signals that the tech sector's problems may be a poor bellwether for the economy as a whole.
"This is going to be very localized," said Peter Mueser, an economics professor at the University of Missouri.
Tech problems
The tech sector has recently sputtered through weaker third-quarter earnings, with Amazon warning of disappointing holiday sales, Meta losing 80% of its market cap amid a steep decline in digital advertising revenue and instability surrounding Elon Musk's takeover as Twitter's new CEO.
"Tech companies went on a hiring spree in 2021, fueled by pandemic-related growth as people increasingly turned to technology to work, shop and socialize," said Lee with Layoffs.fyi. "The Fed's easy monetary policy also enabled tech companies to raise capital and invest in growth."
Both of these trends have sharply reversed in 2022, Lee said, as forecasts of a looming recession and the Fed's most aggressive rate hikes in decades have pushed some of the biggest tech companies to slash staffing numbers.
Right-sizing
While the job losses in tech might be an early sign that Fed policy is starting to cool the wider economy, Big Tech's trends do not easily translate to the job market as a whole, economists said.
"The slowdown that we're seeing in the tech sector is a good signal that trends in the labor market are turning, but the speed and the magnitude of the correction in the tech sector is probably not a great gauge for the overall economy," said Greg Daco, chief economist for EY-Parthenon.
The recent layoffs are likely a matter of "right-sizing" as staffing at major tech companies ballooned during the COVID-19 pandemic, said Shannon Seery, a Wells Fargo economist.
"It is still our baseline expectation that the economy falls into a modest recession by the second half of next year, and we'll see an accompanying layoff cycle at that time," Seery said. "I do not anticipate this is the start of that cycle."
The layoffs at major tech companies were mostly relatively highly paid workers largely in specialized fields. These job cuts are likely to have little impact on a labor market, which has been imbalanced since joblessness rates initially spiked early in the pandemic. In addition, the job losses are likely to be focused largely in Silicon Valley.
The tech layoffs are "not a sign of an impending recession," Jan Hatzius, chief economist at Goldman Sachs, and other economists, wrote in a Nov. 15 note.
The tech sector makes up a relatively small share of the overall labor market. If, for example, every worker in the industry the U.S. Bureau of Labor Statistics classifies as internet publishing, broadcasting and web search portal were to immediately lose their job, the U.S. unemployment rate would rise by less than 0.3%, Hatzius wrote.
Adding up the four largest industry categories of tech jobs accounted for less than 4 million of the nearly 152.6 million jobs in 2021, according to the BLS.
The domestic job market has yet to significantly respond to the Fed's 375 basis points worth of rate hikes since March, with the unemployment rate at 3.7% in October, up just slightly from its pre-pandemic level.
Job openings
Tech job openings remain well above pre-pandemic levels, likely improving laid-off workers' odds of quickly finding new jobs, Hatzius wrote.
A record 279,000 job openings were reported in the information sector in April and 214,000 openings at the end of September, according to the latest government data.
Overall, there are still about 1.8 job openings for every unemployed worker in the U.S., just below the 2-1 ratio of jobs per worker unemployed in March.
"It's too elevated to suggest recent layoffs will meaningfully disrupt the labor market with a continued imbalance between the demand for a supply of workers," said Seery with Wells Fargo.