No, the tech layoffs are not actually a crisis

After years of tech companies being the undisputed rulers of the stock market (and arguably the economy in general), their recent rash of layoffs is a bit alarming. January is not even over yet, but already this year Google has let go 12,000 employees, Microsoft 10,000, and Amazon 8,000.

Bad as that sounds, however, it doesn’t hold a candle to last year’s layoffs. 2022 saw a steady trend that peaked in Quarter 4, when 500 tech companies gave the axe to a combined total of around 80,000 employees:

Most of the CEOs involved have chalked this up to the overzealous hiring that happened when everything went digital during the pandemic. According to them, things returned to normal faster than expected, and now they find themselves with too many people on payroll.

No one trusts corporate PR statements, of course… so what is really going on behind these fearsome figures? Is Big Tech cutting costs in the wake of rising interest rates? Does this reflect a more fundamental weakness in the industry? Or worst of all: is it yet another harbinger of recession?

A firing for every hiring?

Full disclosure: there are far too many variables involved for me to say what these layoffs mean (let alone fit it into a few paragraphs!). But I did find some data that reveals what they do not mean – and that is revealing in itself.

Take another look at the chart above. Between the peak periods in 2022 and early 2020, layoffs stayed consistently low. This makes sense, as demand for digital services skyrocketed during this peak-pandemic time and tech companies responded by expanding and hiring.

But the data shown in that chart gives zero clues as to how much hiring went on in that period.

10,000 or 12,000 layoffs sounds like a ton to most of us, true… but we are not CEOs of the world’s largest companies. To get an idea of how serious these layoffs really are, we need to look at the firing and the hiring. So here is how the current cuts compare to pandemic-era growth, at least for the top 5 offenders:

Downsizing by 10% or 15% is no laughing matter, of course… but compared to 60% or even 100% growth, it is hardly a sign of desperate cost-cutting either. It is not even a reversal of the pandemic-era hiring spree – at most, it is giving it a trim.

Again, I cannot say what the motive behind these layoffs is. But I can say that, at least from the big-picture perspective of tech giants, they are not nearly as big a deal as the commentary makes them out to be. Just because the tech sector (or the economy overall) is no longer expanding at breakneck pace, does not mean it is now teetering on the edge of recession.