Hiring freezes and layoffs are hitting the tech sector as Silicon Valley prepares for a predicted recession.
The hiring impacts are hitting companies of all sizes across tech, from industry giants to more nascent startups, signaling that the industry’s growth is slowing amid rising interest rates and surging inflation.
Near-zero interest rates, a booming stock market and massive consumer demand allowed tech firms to aggressively expand their workforce at the start of the pandemic. But the recent economic downturn is forcing many companies to reverse course and cut costs to shore up their reserves.
“It’s the perfect storm for tech companies,” said Dan Ives, an analyst at Wedbush. “Because valuations are sky high, hiring was and in the course of six months it’s been a 180.”
Since May, tech startups have laid off nearly 27,000 workers, according to layoffs.fyi, which tracks publicly announced job cuts. That’s roughly double the total number of layoffs recorded in all of 2021.
Tech companies, especially smaller ones, are “pulling back on what was probably overaggressive hiring,” said Steven Weber, a professor at the Graduate School of Information at UC Berkeley.
“Even six months or a year ago the view was, in many of the smaller firms of course, ‘Profits aren’t important, we just gotta grow. We grow into profits.’ During recessions, and during valuation shifts like we’ve seen in the markets in the last couple of months, unprofitable growth companies are getting killed. Their stock prices are collapsing,” Weber said.
The Federal Reserve is fighting the nation’s highest inflation in four decades by raising interest rates, a move that will curb consumer demand and likely bring down prices.
But economists say that rate hikes, which make it more difficult and expensive for companies to access capital, boost the likelihood that the US goes into a recession next year.
The economic downturn is driving investors away from risky assets, including tech startup stocks that rarely deliver profits. The tech-heavy Nasdaq composite is down roughly 30 percent over the past year, while the big five tech stocks slide 36 percent over the same period.
Uber last month told employees it would lay off 3,700 people, and Spotify said this month it is slowing hiring by 25 percent.
Tesla CEO Elon Musk said Tuesday the electric car company would cut 10 percent of its workforce in the next three months. Musk, who is actively pursuing a bid to buy Twitter, last week reportedly warned employees at the social media company of potential layoffs.
“It depends. The company does need to get healthy. Right now the costs exceed the revenue,” Musk said, according to a CNBC report.
Last week, real estate tech companies Redfin and Compass each said they would lay off around 450 workers due to a slowdown in home buying demand sparked by interest rate hikes. That comes after insurance tech startup Policygenius laid off 25 percent of its workforce earlier this month. Online-only car retailer Carvana fired 12 percent of its workforce in May.
The largest companies aren’t immune to the challenges either. Tech giants boomed during the pandemic as the global population shifted their personal and professional lives online. But as restrictions eased, that growth faltered. Now, they’re preparing for a potential recession with hiring changes.
Amazon executives told analysts on an April earnings call its warehouses are overstaffed.
“Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network,” CEO Andy Jassy said.
In an internal memo reported by Insider, Facebook’s parent company, Meta, acknowledged that as “more people are spending time offline” and returning to “pre-pandemic patterns,” growth has “eased off.”
“While we’re still going through our reprioritization, we know this will have an effect on hiring for the rest of the year,” Meta CFO David Wehner said in the memo sent to employees in May.
Meta spokesperson Andrea Beasley said the company regularly re-evaluates hiring based on business needs and is slowing growth based on guidance for the recent earning period.
Google Cloud terminated dozens of support roles in March, Insider first reported. They were given 60 days to find new positions within the company. Those who didn’t were reportedly eligible for severance.
An employee on the team who was not cut during the reorganizing told The Hill that since the initial “vague” announcement, they still lack a clear picture of what triggered the decision and leadership’s vision for the future of the remaining team.
“The best reassurance that I’ve been able to get is that this was planned in such a way that they would only have to do it once,” the employee said.
“It’s pretty stressful. I mean, obviously, this job is how I pay my mortgage and where I get insurance. It’s a job that I like doing. I like working with my customers. I liked working with the folks who got laid off, they were good people,” the employee added.
A Google spokesperson told Insider in a statement in March that the reorganization “will ensure we have the right people, partners, and systems in place to meet our customers’ needs now and into the future.”
The Hill has reached out to Google for comment.
Ives said that hiring freezes and layoffs are tech companies’ ways of “proactively getting ahead of” a potential recession.
“This is much more [about] companies preserving their margins, giving themselves flexibility, in what looks like a Category 5 hurricane potentially on the horizon. Strategically, we’ve seen a discernible change in hiring plans, even over the last month across Silicon Valley,” he said.
Still, some in the industry believe that tech will weather a potential economic downturn as it did during previous recessions.
Tim Herbert, CompTIA’s chief research officer, said that for every tech company announcing layoffs, there’s another firm ramping up hiring or continuing at their current pace, suggesting that the slowdown is more company specific than industry wide.
“Companies that had a business model that wasn’t designed necessarily into generating cash flow profitability, but they were really pursuing market share, those seem to be the companies that are going to run far more problems on the hiring side,” he said .
A recent CompTIA analysis of labor data found that the tech industry added 22,800 net new workers in May, even as firms announced layoffs. Herbert noted that the market for developers, data scientists and other tech jobs remains strong, as companies are choosing to keep those tech workers on staff even as they let other employees go.