Tech Turbulence: Unveiling the Unsettling Wave of Layoffs in 2024
In 2023, the technology sector witnessed a period of uncertainty and change. Even major players in the industry encountered unexpected challenges, resulting in inevitable workforce reductions, namely, layoffs. One crucial aspect to consider is understanding the broader impact of layoffs, particularly those affecting entry-level positions, on workforce dynamics, beyond the layoffs initiated by industry giants.
The primary reasons for layoffs include post-pandemic economic uncertainties, changes in consumer demands and industry needs, companies’ restructuring efforts and strategic realignments, and technological advancements reshaping workforce dynamics. These factors underscore the fragility of employment stability in the technology sector.
Actually, taking a look at the historical development of layoffs over the past five years would provide us with valuable insights into understanding the underlying dynamics of layoffs.
In 2020, technology companies, which had experienced robust growth until the early days of the pandemic, felt the initial impacts of the pandemic as a significant disruption due to factors such as high inflation, increased interest rates, uncertainties in foreign exchange, and the strain caused by excessive staffing in recent years.
In March 2020, the Federal Reserve (Fed) of the United States lowered its policy interest rate by 50 basis points to a range of 1–1.25% due to increasing concerns about the economic impacts of the novel coronavirus (Covid-19) pandemic, ahead of the Federal Open Market Committee (FOMC) meeting on March 17–18.
This marked the first interest rate cut by the Fed between 2008 and 2020. The rate cut in 2008 was made in response to the collapse of Lehman Brothers, which was then an investment bank. On March 3, however, it was made due to the “emerging risks to economic activity” posed by the coronavirus.
Lowering the rates by half a percentage point to 1–1.25% was a bold move but did not instill confidence in investors. Not even the comments made by Federal Reserve Chairman Jerome Powell during the press conference managed to convince them. Powell stated, “We are aware that a rate cut will not reduce the rate of infection,” adding, “A rate cut will not fix a broken supply chain. We understand this. We don’t think we have all the answers. But we believe that the step we are taking will provide meaningful support for the economy.”
In 2022, following a two-day meeting of the Federal Open Market Committee (FOMC), the Federal Reserve of the United States implemented a 50-basis point interest rate hike.
As expected, the Fed raised its policy interest rate to a range of 0.75–1.00%. With this decision, the Federal Reserve made its most extensive interest rate increase since the year 2000.
Most of the world’s largest technology companies had to confront significant realities during the pandemic period. The producer-consumer balance was disrupted because consumers are more than just buyers; they are also social beings. Consumers interact with their surroundings and try to understand the uncertainties created by their environment and solve the problems they perceive.
The pandemic reshaped the physical and digital interactions of consumers and changed everything about human life, including shopping patterns and working conditions.
By the time 2023 arrived, giants like Meta, Alphabet, Yahoo, and Amazon carried out extensive layoffs, resulting in the termination of over 240,000 individuals. The largest layoff chain of the post-pandemic era commenced in 2022 with Meta laying off 11,000 employees.
Meta laid off a total of 13% of its workforce in one go. Alongside this decision, Mark Zuckerberg also released a message stating that all hiring activities would be frozen.
Today, I’m sharing some of the most difficult changes we’ve made in Meta’s history. I’ve made the decision to reduce the size of our team by approximately 13%, resulting in the termination of over 11,000 talented employees.
Additionally, in our efforts to become a leaner and more efficient company, we are taking a series of additional steps by cutting discretionary spending and extending our hiring freeze until the first quarter.
I want to take responsibility for these decisions and how we got here. I know this is tough for everyone, and I’m especially sorry for those affected by this situation.(5)
The article titled “Remembering the Startups We Lost in 2022,” written by TechCrunch authors Brian Heater, Kyle Wiggers, Mary Ann Azevedo, and Natasha Mascarenhas, serves as an important source of data for layoffs between 2020 and 2022.
In the third quarter of 2022, investors significantly reduced their investment pace as the downturn in public markets extended into the third quarter.
According to an analysis by Crunchbase News, venture capital funding amounted to $81 billion in the third quarter of 2022, representing a decrease of 53% from the previous year and 33% from the previous quarter. Although funding in the last quarter of 2022 slightly increased with the disclosure of undisclosed private funding in the early months of 2023, it is considered a period of the most significant decline in funding compared to previous quarters.
Global early-stage financing reached $34 billion in the third quarter of 2022, marking a quarter-over-quarter decrease of 25% and a year-over-year decrease of 39%.
Series A funds were the least affected in the early stage, experiencing a decrease of 23% compared to the previous year, while Series B funds dropped by 54% during the same period.
Reference: https://airtable.com/appjTTwuvyXruDxj5/shrbuEz6dGc6wk1x9
Global layoffs pushed many individuals towards the idea of starting their own startups. Each year, over 305 million startups are launched worldwide, but most of them fail to thrive. Factors such as Covid-19 impact and the ongoing process contribute to the high failure rate of startups, making it challenging for newly established companies to find their place in the market, compete with established competitors, and generate profits.
Looking at the statistics post Covid-19, the grim reality for startups is as follows:
- 9 out of 10 startups fail.
- 38% of startups fail because they run out of cash.
- 35% of startups fail because they can’t find the right market.
- 81% of startup owners don’t see borrowing for their businesses as a concern.
- 60% of startups fail between the seed and Series A financing stages.
- Approximately 35% of Series A startups fail before reaching Series B.
- About 80% of technology and e-commerce startups fail.
- 25–30% of VC-backed startups fail despite additional funding.
Failing startups are part of a project related to the large-scale layoffs by global giants and the multitude of people left unemployed. At the onset of the pandemic, entrepreneur Roger Lee launched a website called “layoffs.fyi,” an electronic catalog featuring approximately 450,000 individuals.
According to Nick Bloom, an economics professor at Stanford University, “If you have government data on the state of technology, you don’t need a site like Roger Lee’s. However, if such data is not available, Layoffs.fyi becomes very valuable.”
No government publishes statistics on layoffs that occur within companies in their own country. Such data leads to significant prestige loss for both the sector and the industry, as well as for governments. Therefore, the value of Roger Lee’s work is immense.
According to data from layoffs.fyi, in 2022, 1,064 technology companies conducted layoffs, resulting in 165,269 employees being laid off.
According to data from layoffs.fyi, in 2023, 1,191 technology companies conducted layoffs, resulting in 263,180 employees being laid off.
According to data from layoffs.fyi, since the beginning of 2024, 229 technology companies have conducted layoffs, resulting in 57,505 employees being laid off.
As we reach 2024, there is a rapid acceleration in the scale of layoffs compared to previous years. Globally, 57,505 employees lost their jobs in 2024 across 229 technology companies (source: https://layoffs.fyi/, accessed on April 3, 2024).
Many large companies continue to conduct layoffs to cut costs, increase efficiency, and adapt to the uncertain labor market. Many startups have laid off 100% of their employees and are shutting down.
Since the beginning of 2024, a total of 27 companies have laid off all of their staff.
Frontdesk, which manages over 1,000 furnished apartments across the United States, laid off its entire workforce of 200 employees after unsuccessful attempts to raise more capital. The mass layoff occurred just seven months after the Milwaukee, Wisconsin-based company acquired its smaller rival, Zencity. See: Short-term rental provider Frontdesk lays off entire staff, on the verge of shutting down
Project Ronin, a cancer-focused software venture founded by Oracle Corp. chairman Larry Ellison, has shut down. In a note sent to its employees, the company said it would make a permanent mass layoff associated with the closure of the company. Ronin had approximately 150 employees.
The categorized data of companies that laid off 100% of their staff is as follows:
- Consumer: 1 company
- Data: 1 company
- Finance: 5 companies
- Food: 2 companies
- Healthcare: 2 companies
- HR: 2 companies
- Logistics: 1 company
- Media: 3 companies
- Real Estate: 2 companies
- Transportation: 4 companies
- Travel: 2 companies
According to Layoffs.fyi, the final total of layoffs in 2023 reached 262,735. Technology layoffs in 2023 were 59% higher than the total in 2022, and while 2024 hasn’t reached the peak of layoffs seen in the first quarter of last year, it seems to have started off challenging.
In the first quarter of 2024, the layoff statistics by month are as follows:
- January 2024: 19,350 employees were laid off. See: TechCrunch — January 2024 Layoffs
- February 2024: 15,589 employees were laid off. See: TechCrunch — February 2024 Layoffs
- March 2024: 7,322 employees were laid off. See: TechCrunch — March 2024 Layoffs
The most interesting news in April was at Apple. Apple first began working on the automotive project known internally as “Project Titan” in 2014. It is known that there are approximately 5,000 employees involved in this project. However, Apple has made significant changes to the project and changed its direction multiple times over the past decade. In recent years, it had embarked on the path of creating a fully electric and autonomous vehicle, aiming to compete with Tesla.
Finally, in January, Bloomberg reported that senior executives and the board of directors at Apple were putting serious pressure on the Project Titan team to find a way to bring something to the market as soon as possible.
Over the years, Apple has assigned numerous high-profile automotive executives to the Titan Project, including, most notably, former Tesla executive Doug Field (who later joined Ford) who led the project for a significant period. Apple also recruited executives from Lamborghini and Ford.
Recently, Apple announced during an internal team meeting that it is discontinuing the project it has been pursuing for years. In the coming days, a significant wave of layoffs is also expected at Apple.
What are the reasons behind layoffs?
There are multiple factors contributing to layoffs, particularly in the tech sector. “There are numerous factors at play in tech,” explains Jeff Shulman, a professor at the University of Washington’s Foster School of Business, who closely monitors the tech sector. “Layoffs drive up stock prices. Therefore, these companies conduct layoffs to boost their stock value.”
Especially with startups or small to medium-sized tech ventures struggling to generate resources due to cash flow issues and the end of an era of easy money, it’s believed that they face difficulty in sourcing funds, leading to workforce reductions.
However, experts suggest that recent layoffs in many large and publicly traded tech companies aim to appease investors. (Due to resource efficiency and operational challenges).
Another reason for imitative layoffs is highlighted by Jeffrey Pfeffer. When executives see their counterparts in other companies conducting layoffs, they often follow the same path like robots. This practice, dubbed “imitative layoffs” by Stanford University professor Jeffrey Pfeffer, explains the majority of mass layoffs that plagued the technology (and media) sector in 2022 and 2023!
In his statement to Stanford News in December 2023, Pfeffer remarked, “Layoffs in the technology sector are essentially an example of social contagion, where companies mimic what others are doing.” He continued, “If you look at why companies lay off employees, you’ll see that it’s because everyone else is doing it. Layoffs are a result of imitative behavior and are not evidence-based.”
Are layoffs an indicator of a declining economy for the United States?
In fact, this is one of the most important questions that need to be addressed. Everyone is seeking answers regarding how companies, the ecosystem, and the economy are being affected.
In a detailed study conducted by Sandra J. Sucher and Marilyn Morgan Westner from the Harvard Business Review in 2022, various dimensions of these impacts are discussed.
Research has long shown that layoffs have a detrimental effect on both individuals and corporate performance. The short-term cost savings provided by layoffs often result in poor reputation, loss of knowledge, weakened loyalty, and decreased innovation — all of which are not profitable in the long run. In the current economic turmoil, leaders need to understand what is different in today’s broad social landscape in order to make smart and humane staffing decisions.
Research indicates that being laid off ranks seventh among the most stressful life experiences, following divorce, sudden and severe hearing or vision impairment, or the death of a close friend. Experts note that overcoming the psychological trauma caused by job loss typically takes an average of two years.
For healthy employees without pre-existing health issues, the likelihood of developing a new health problem within the first 15 to 18 months after being laid off increases by 83%, with the most common illnesses being stress-related conditions such as hypertension, heart disease, and arthritis.
It is assessed that the psychological and financial pressure caused by layoffs could increase the risk of suicide by 1.3 to 3 times. The risk of depression doubles for laid-off employees, while the risk of substance abuse quadruples, and the risk of engaging in violent acts, including spousal and child abuse, increases sixfold. The stress resulting from layoffs is also considered to potentially adversely affect the development of the fetus in pregnant women.
Another study is an investigation into the financial impacts of downsizing in Fortune 1000 companies over a five-year period characterized by continuous economic growth.
Key financial metrics such as asset profitability, profit margin, earnings per share, revenue growth, and market value were measured annually between 2003 and 2007. Repeating previous longitudinal studies, this research demonstrated that layoffs did not generally result in immediate financial improvement.
Companies that conducted layoffs exhibited lower performance than those that did not for the first two years, achieving comparable performance in asset returns, profit margins, and economic growth indicators in the third year. The authors concluded, “The competitive advantage for downsizing firms to outperform their rivals takes longer to materialize.”
References
- https://www.economist.com/finance-and-economics/2020/03/02/americas-central-bank-acts-to-offset-the-impact-of-covid-19
- https://www.chathamfinancial.com/insights/fomc-accelerating-rate-hikes
- https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/meet-the-next-normal-consumer
- https://www.cnbc.com/2022/11/09/meta-to-lay-off-more-than-11000-thousand-employees.html
- https://about.fb.com/news/2022/11/mark-zuckerberg-layoff-message-to-employees/
- https://techcrunch.com/2024/01/02/short-term-rental-provider-frontdesk-lays-off-entire-staff-on-the-verge-of-shutting-down/?guccounter=1
- https://techcrunch.com/2018/08/09/apple-doug-field-car/
- https://theweek.com/economy/1021000/what-are-copycat-layoffs
- https://hbr.org/2022/12/what-companies-still-get-wrong-about-layoffs
- https://pubmed.ncbi.nlm.nih.gov/11463874/
- https://www.jstor.org/stable/43489371
- https://www.npr.org/2024/01/28/1227326215/nearly-25-000-tech-workers-laid-off-in-the-first-weeks-of-2024-whats-going-on
- https://layoffs.fyi/
- https://stlawyers.ca/blog-news/layoffs-in-canada/
