Mass Layoffs: Terror in the Tech Industry

In yet another  attempt to salvage their budgets, more and more technology companies have begun laying off their employees. In January, Microsoft laid off approximately 4% of its workforce, while Alphabet Inc. (Google) laid off 6%. This month, Zoom laid off 15% of its employees, and even Disney got rid of 3% of theirs. But why are so many companies laying off their staff, and what could it mean for the economy? 

In order to understand why layoffs happen, you need to know what they are. When companies “lay off,” they are essentially firing a certain amount of their workforce, even if they had been performing well. Companies often resort to layoffs when they desperately need to cut their spending and nothing else has worked.

The layoffs happening right now are a result of several things that happened during the pandemic. As the world shifted online and people began relying on technology, tech companies experienced significant growth in their revenues. Stimulus checks from the government ensured that there was plenty of money in peoples’ pockets, resulting in greater spending on e-commerce, new laptops and phones, TV subscriptions, etc. The pandemic marked a high in the tech industry’s history, but also caused companies to hire beyond their budgets to meet rising demands. So as people transitioned back in-person and interest rates on money went up, companies had costs exceeding their budgets and hundreds of extra employees they could not afford to pay. 

First, companies tried to cut their spending by reducing advertising. This cut their costs down slightly, but their revenues also plummeted alongside it, since companies like Google rely heavily on advertising for profit. When other measures failed as well, they had to begin laying off portions of their workforce. 

The repercussions of layoffs are rippling throughout the economy and the public. Those laid off are struggling to find new jobs within an increasingly conservative industry. With no source of income, they are struggling to support their families and keep up with their own costs. Meanwhile, those still employed are worried that they will be targeted in the next round of layoffs, causing them to perform short of their full potential due to all the stress they now face. Companies also lose some money with layoffs, since they provide some salary and benefits to alleviate the difficulties facing laid off workers for a few months. A vicious cycle of people and companies tightening their budgets and stopping their spending can push us into a recession, since other industries begin to be affected once those laid off begin to conserve money more. Uncertain times are prevailing in the economy and the layoffs within the tech industry are just a part of the dark path to a recession.