Putting the Tech layoff announcements in perspective
It’s hard to get away from all the headlines about layoffs in the Technology sector these days. The most recent was Yahoo, which announced they were laying off 20% of its workforce, about 1,600 people.
The firm, Challenger, Gray, and Christmas, Inc., tracks layoff announcements and their most recent report was titled “Jan ’23 Recession or Correction?”. They reported that the Tech sector announced cuts of 41,829 in January alone, which amounted to 41% of all announced layoffs. That was the second highest for the sector on record and represented a massive 158% increase over the 16,193 reported in December. Contrast that to January 2022, when there were just 72 announced layoffs in the sector.
Between November 2021 and January 2022, Tech sector layoff announcements totaled 110,793.
Tech went on a hiring spree over the last decade.
I looked at employment in 25 top Technology firms representing about 25% of the S&P 500 index. My list includes Amazon, Google, Meta, and Netflix – which are not classified as Technology companies, but most people think of them as Tech companies.
Total employment at these 25 firms grew at a torrid 10% annual pace between 2015 and 2019. That pace surged even more after the pandemic hit. By the end of 2022, employment at these firms was 9% above the already hot pre-pandemic trend! That translates to about 345,000 more jobs than you’d expect if hiring remained on trend.
And here’s a look at the top 4: Apple, Microsoft, Alphabet, Meta.
Perhaps it shouldn’t be surprising that these companies are now retrenching.
A sharp contrast to the rest of the economy
As mentioned above, employment across those 25 Tech firms grew at a hot 10% annual pace before the pandemic. Contrast that to a yearly job creation pace of 1.6% across the economy – which is not shabby.
Then the pandemic hit, and we saw massive job losses even as Tech companies boosted hiring. The good news is that the last two years were amongst the best on record with respect to economy-wide job creation, with 7.3 million net jobs created in 2021 and 4.8 million in 2022.
Yet, employment remains 3% below the pre-pandemic trend. That translates to 4.5 million fewer jobs than you’d have expected if the pandemic hadn’t hit.
Layoffs are common, even when hiring is strong.
The Tech sector looms so largely in our minds, which is why their layoff announcements make the headlines. However, layoffs number more than a million each month across the entire economy. Just in December, the BLS reported 1.47 million layoffs. And across 2022, employers laid off about 17 million workers!
At the same time, they estimated net employment to have risen by 4.8 million in 2022 – the second-best year on record for job creation since 1940.
So, keep in mind that when companies announce layoffs, they’re not really telling you whether these are “net,” as in whether these layoffs are net of any hiring they’re doing. Or whether they’ve frozen hiring altogether.
The good news is that the employment market looks really strong even as the Tech sector reverses the hiring spree it went on over the last few years.
In our latest Facts vs. Feelings podcast, my colleague Ryan Detrick and I discussed the gangbuster January payroll report and its implications. Have a listen below (and don’t forget to subscribe and rate if you enjoy it).
