© Nick Kouri/Bloomberg headquarters in San Francisco, 28 October.
Layoffs at tech companies are not expected to trigger a tsunami of job losses in other industries, but economists say they are another sign of a broader cooling of the economy.
Facebook’s parent company, Meta, has announced the layoffs of more than 11,000 employees. Amazon has announced about 10,000 job cuts. Twitter is cutting about half of its workforce, or about 7,500 jobs.
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While layoffs could hit other sectors as well, economists say job losses in tech, driven by unusual events like Elon Musk’s purchase of Twitter and overtime due to the pandemic, are not a harbinger of catastrophic layoffs elsewhere. chapter
“There’s always a sort of ripple effect,” said Jason Fuhrman, a professor of economics at Harvard University who served as an economic adviser to the Obama administration. “If people lose their jobs, they spend less money in the area where they live. But I think the direct ripple effect is much smaller than traditional mass layoffs, for example, in manufacturing.”
The layoffs in Silicon Valley marked the end of the big tech era.
Other economists agree with this. Ian Hatzius, chief economist at Goldman Sachs, wrote this week in a note to clients that “technology layoffs are not a sign of an impending recession,” adding that the unemployment rate will rise 0.3% less, even though most tech companies have lost. workplaces. And Nella Richardson, chief economist at payroll firm ADP, said the Twitter and Meta layoffs were “one-off corporate events unrelated to the broader job market.”
The labor market has contributed to a quick recovery from the pandemic, although the economy has shown signs of slowing recently. Employers added 261,000 jobs in October, beating economists’ forecasts. With almost two vacancies for every unemployed, dynamic workers across all sectors are demanding higher wages and better working conditions from employers facing chronic labor shortages.
In addition, technology cuts have not yet led to a significant drop in weekly jobless claims. Jobless claims last week fell by nearly 4,000 from the previous week, according to the Labor Department.
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While the Federal Reserve raised interest rates to calm the economy, signs of strength remained. In October, compared to the previous month, consumers increased retail sales by 1.3%. In addition, inflation, measured by the consumer price index and producer price index, showed signs of decline in October, although it remains at a long-term high level.
But there are many signs that interest rates are cooling the economy as a whole, both inside and outside of technology. On Monday, FedEx’s shipping division announced voluntary licenses in response to falling demand. Disney Plus, the entertainment giant’s streaming service, announced layoffs and layoffs last week. Advertising and media companies, as well as major law firms, have also cut jobs.
This follows a slowdown in other rate-sensitive sectors such as real estate, finance and construction as mortgage rates hit a 20-year high, discouraging homebuyers.
“I think tech cuts are a function of [higher interest rates] that will slow job growth in the economy,” Furman said.
While experts are generally aware that a recession is likely to be as severe as the Great Recession of 2007-2009 or the pandemic-driven recession in 2020, there is growing awareness that the economy will experience a deeper recession. coming years.
But tech layoffs could hurt industries that depend on technology and its workers to make a living. Local economies like San Francisco and Seattle could feel the impact as many tech workers left those metropolitan areas during the pandemic and never returned. Some small business owners in San Jose have already expressed concerns about looming financial difficulties.
“There are a lot of weak local economies — Seattle, the Bay Area, Austin, Denver,” said Aaron Terrazas, chief economist at Glassdoor. “Technology is overused in these communities. They’ll get cold.”
Tech companies typically rely on various contract security guards, bus drivers, janitors, and cafeteria workers, which can also lead to job cuts. Officials at Unite Here Local 2, a union that represents hospitality workers in Silicon Valley, say Facebook has yet to fire cafe workers, but the company has started to freeze jobs there.
“During Covid, low-paying service jobs in high-paying areas have been hardest hit,” said Julia Pollak, chief economist at ZipRecruiter. “Maybe we see the same thing. Well-paid techies who spend $20 a day on lunch will be back.”
As tech companies drastically cut costs, other local businesses and services may face cuts.
“Companies are cutting back on ad spend, and that’s reflecting on media companies and other tech companies that rely on ads,” Pollack said. “During Covid, all tech companies have canceled subscriptions to stock photos. The entire range of services and subscriptions that are based on technology companies has been reduced, but this time it will not be as big. The nuclear bomb didn’t explode.”
Several economists have noted that layoffs at Meta, Twitter and Amazon may be relatively isolated events, more to do with their own corporate restructuring than with the broader economic outlook.
The Twitter layoffs are largely in response to Elon Musk’s $44 billion leveraged purchase of Twitter, leaving the social media giant saddled with nearly $13 billion in debt. The layoffs at Meta come as the company attempts to develop a new product, the Metaverse virtual world, at a time when ad revenue is declining and it faces competition from other social media platforms like TikTok. Amazon, which has been hiring heavily during the pandemic, has also seen a drop in sales this year as consumers shifted some of their shopping habits to in-person shopping.
The companies said the layoffs were mostly related to human resources, recruiting and advertising, areas that typically expand during periods of growth. On Twitter, however, layoffs were widespread.
Justin Wolfers, an economist at the University of Michigan, said layoffs at Amazon, Meta and Twitter are a problem in the labor market as a whole. Wolfers noted that the most recent data shows that nearly 5.7 million American workers have quit or lost their jobs in the past month. Meanwhile, almost 20,000 jobs have been cut in the tech industry in the past two weeks.
“That’s about a third of the 1% of all breakups per month,” Wolfers said. “High divorce rates are actually the norm in the American economy. I think the human brain tends to look for order even in chaos.”
Economist ADP Richardson said the information services sector, which includes technology, makes up about 2% of the US workforce.
However, the cuts come as tech investors are less likely to take on financial risks as borrowing costs rise, marking the end of the industry’s boom. Over the past decade, low interest rates have allowed venture capitalists to invest in startups.
And this year, tech has seen the most layoffs since the Great Recession. After a frenzied hiring spree earlier this year, with the industry already cutting 100,000 jobs, tech companies are competing hard with huge bonuses and seven-figure salaries for a limited supply of talent. The change in the fate of the coaching staff happened quickly.
“Here you have a lot of drastic cuts in big companies that put them back [into a position] even more important than they were two years ago,” Furman said. “During the dot-com era, there were a lot of cost overruns and companies were going bust. Does not look like it”.
Some economists take a more optimistic view, noting that industries in dire need of technological innovation, such as government, retail, manufacturing, healthcare and education, could benefit from new access to job-seeking engineers and data scientists. In the past, they couldn’t compete with the salaries and packages offered by tech companies.
“I take the opposite view and will say that I think it will benefit the rest of the economy,” said Eric Brynjolfsson, an economist at Stanford University. “I think technician salaries were unrealistic. Now there are many good coders and engineers for the rest of the economy, where they are needed much more.
