Layoffs and hiring freezes are rocking the tech industry. If Silicon Valley is feeling the pinch, what does this mean for the American economy more broadly? Here's everything you need to know:
What's going on?
In a move made instantly infamous, new Twitter CEO Elon Musk recently fired nearly half of the company's staff via email. But many other big firms are also facing cuts. Amazon laid off 150 people and implemented a hiring freeze that will last the "next few months," per Amazon's senior vice president Beth Galetti; The New York Times reported the company plans another layoff of 10,000 starting as soon as mid-November.
Facebook's parent company Meta also confirmed that 13 percent of staff will be laid off, with CEO Mark Zuckerberg explaining, "Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I'd expected."
Ride-hailing company Lyft said it will cut 13 percent of its workforce or roughly 700 jobs, The Wall Street Journal reports. The company's co-founders John Zimmer and Logan Green said in their announcement that "Lyft has to become leaner." Snapchat parent company Snap is facing massive job cuts, and Apple is reportedly implementing a hiring freeze.
Why is Big Tech bleeding jobs?
Many tech companies saw a huge boost in traffic and revenue during the pandemic as consumers were stuck at home looking for entertainment. The unusually high demand encouraged the industry to hire and expand more than it should have. But now, the tide is turning. While the job market has been relatively robust in recent months, Federal Reserve Chair Jerome Powell says it remains "overheated." Since there are now more jobs than workers, employees are demanding higher pay, which in turn is driving up inflation.
In an attempt to cool the job market, the Fed raised the interest rate another 0.75 percent in October, with Powell hinting at more hikes in the future. Meanwhile, Americans are cutting back on non-essential goods and services, also known as discretionary spending. Many major tech companies fall into this category and are taking a hit. In October, Google reported a decline in profits, while advertising revenue for social media companies like Meta also decreased, The New York Times reports. Amazon's value dropped below $1 trillion for the first time since 2020.
Do these layoffs indicate a recession is here?
Maybe. The trend "could be a bellwether for the larger economy," writes Fortune, adding that a recent survey found 90 percent of U.S. CEOs believe a recession is around the corner.
But look at the big picture, says Bledi Taska, chief economist at research firm Lightcast. "While it is important to follow some of the high profile tech layoffs, they are not indicative of the overall trends in the labor market, or even in the tech sector," Taska tells CNBC.
Indeed, the tech industry only makes up a small portion of jobs, not enough to influence larger employment data. These layoffs just indicate a lowering of demand in the tech industry after an unnatural boom. "The once-in-a-lifetime conditions that fostered their growth have now kind of evaporated," says Julia Pollack, chief economist at ZipRecruiter. "I think the fallout for the rest of the economy will be pretty limited."
Plus, these wounds are somewhat self-inflicted. The tech industry moves notoriously quickly with a rapid-fire of new innovations. This turnover makes it easy to fall behind, and some of the biggest companies were already struggling to stay relevant, the Times says. For example, YouTube, owned by Google, as well as Facebook and Instagram, owned by Meta, have seen a downturn in profits due to the meteoric rise of TikTok. And Musk's unpredictable behavior at the helm of Twitter has seen many advertisers distance themselves from the platform, undoubtedly reducing revenues.
"Negative productivity can be hidden when everything is going great," remarks Mark Stoeckle, chief executive of Adams Funds. "It is easier to protect your margins when revenues are going up, but when they are stopping or going up slower, then you have to look at where you are spending your money."
Where will all the laid-off workers go?
They're already being snatched up, Vox reports. One startup CEO says about half of the applicants he's reviewing for job openings are recently laid-off tech workers. In fact, the cuts at the tech giants like Amazon and Meta are helping spread the talent wealth to smaller, early-stage companies, which "have largely been spared the impact of higher interest rates, persistent inflation, and disrupted supply chains," and are therefore in a good position to hire, The Wall Street Journal notes.
"There's an abundance of talent right now, because of these layoffs," Kathy Zhu, co-founder of startup Streamline AI, tells the WSJ. "A few years ago, there was no way we could've attracted candidates like this."
Experts say layoffs are only a problem if workers cannot get re-hired, but it's clear tech workers remain in high demand: Data shows that the industry has no shortage of jobs, adding more than 175,000 this year alone.
Update Nov. 15: This piece has been updated to reflect the latest layoffs in the tech industry.
