Why So Many Tech Companies Are Laying Employees Off

In the 2010s, companies including Google, Amazon, and Facebook were some of the biggest market movers in history. At the same time, tech jobs grew by an average annual rate of 4.4%- three times the rate of expansion in the rest of the economy- according to a Brookings study. 

During the early days of the pandemic, the combined annual revenue of tech’s big five- Amazon, Apple, Google, Microsoft, and Facebook- hit a record-high of $1.2 trillion. But the tech industry’s rise did not last and spiraled into contradiction nearly two years later. 

Now, tech companies are facing major layoffs as the industry faces the biggest downturn in nearly two decades. For example, cryptocurrency exchange company Coinbase recently stated that it was cutting its workforce by 18%, or about 1,100 people. 

“We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter and could last for an extended period,” Brian Armstrong, Coinbase CEO and co-founder, said in a June 2022 press release. 

“While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment,” Armstrong continued. 

Other major tech companies, including Netflix, Robinhood, and Glossier, slashed numerous jobs this year. And in June, cryptocurrency company BlockFi, which grew sixfold in 2021, announced that it was laying off nearly 250 people. 

At the same time, privacy and marketing company, OneTrust, let go of 950 employees.

These are just some of the dozens of technology companies that have notably trimmed their headcount this year. Specifically, technology companies globally have laid off a total of 35,000 workers this year alone. And many other companies are abruptly reversing their hiring plans. 

Investor Pressure, Overstaffing 

From investor pressure to change in business direction, there is a wide range of reasons behind the considerable amount of tech company layoffs in 2022. 

Investors like to see that the company in which they invested takes initiative and is not passive in the face of the crisis. At the beginning of 2022, tech companies were forced to halt their business and quickly recalculate their route. 

Israeli company OpenWeb, whose executives sit in the United States, is one example of such pressured layoffs. 

In November 2021, OpenWeb raised $150 million. Although the company did not lack money, it still recently laid off 14 research and development workers and reduced its workers' salaries by about 20%.

The main factor, in this case, was the physical presence in the United States, where the level of panic is much higher than that of Israeli funds. A quick layoff move is evidence that the company has "a hand on the pulse" and can reassure investors.

Additionally, giant American fund Sequoia demanded that companies start making immediate cuts and adjust to the current setback. Therefore, high-tech companies in the United States fired about 20,000 workers in just a few months. 

Online trading platform Robinhood fired thousands of employees in one day. Other giant technology companies, including Meta and Intel, announced a freeze on recruitment.  

The heap of recent tech company layoffs is also a result of tech companies acquiring some “fat” in recent years. This means that marketing departments were unnecessarily filled with employees, consultants, assistants, and content people. 

Tech start-ups also hired workers even when there was no immediate need for them because of the crazy demand and competition for quality workers. 

Because these companies grew from very few employees to hundreds in a short amount of time, many expressed difficulty in building an organizational culture or assimilating orderly work processes. 

The Issue With Tech Stocks 

Tech stocks are another central factor in the recent country-wide layoffs. In May 2022, tech stocks responded negatively to the Federal Reserve’s tightening monetary policy to combat rising inflation through higher interest rates.

Tech stocks generally do not fare well in uncertain economic environments with high-interest rates and rising prices. During times like these, investors tend to turn to more secure ‘safe-haven’ items, while more high-risk stocks like tech are rejected.

Other factors, such as the war in Ukraine and ongoing global supply chain issues, have added to the uncertainty. Tech stocks have been the worst hit and might be the warning for a prolonged market downturn.

Guy Berger, a LinkedIn principal economist, stated that a rise in unemployment might soon be in the cards. A key indicator will be whether the current trends repeat themselves in more areas of the country.

Berger believes that this is something to keep an eye on potentially. “Is it spreading? Is it bigger companies that start laying off people in tech? Is it non-tech companies or a few anecdotes here and there? At what point do anecdotes start turning into something else?”