Amongst a tech world clouded in labor uncertainty, economic juggernaut, Google, has begun laying off over 12,000 workers. Unfortunately, the Google layoffs are only the middle of an ongoing battle between what to do and how to do it.
Sundar Pichai, the CEO of Google and parent company Alphabet, released a letter to Google employees on January 20th. The memo, cutting deep toward the futures of Alphabet employees, noted that the company needed to take the time to rethink its approach and reevaluate its early investments in artificial intelligence. Pichai stated, “These are important moments to sharpen our focus, re-engineer our cost base, and direct our talent and capital to our highest priorities.”
Wall Street analysts believe that the soon-to-be-released 3-month earning report will show Alphabet’s revenue only grew 1.7%, a significant drop from the 32% from this time last year.
Though the drop in revenue growth may not be the only catalyst for the layoff, it’s a noticeable factor. Overall, Google looks to cut 6% of its workforce.
A Moving Market
In 2022, over 964 tech companies laid off over 149,876 workers globally. Though the numbers may seem skewed, surrounding an industry with millions of workers and thousands of companies, the significance is as crucial as you could possibly imagine. So critical, in fact, that WRAL Tech Wire created an entire list for ‘Layoff Watch’ last year.
Amazon dropped 18,000 workers. Microsoft is looking to cut 10,000.
The question becomes why? Why is an industry that saw such a significant spike during the COVID pandemic struggling to maintain a dramatic percentage of jobs?
The answer is two-fold.
Too Fast, Too Furious
Alphabet grew its workforce by more than 50,000 employees over the past two years. Though the pandemic seemed to scorch through the economy, causing a chest-compressing spike in inflation and unemployment, tech industries saw drastic profit gain. People were in need of various tech services (for both entertainment and work). Therefore, tech saw no problem increasing their profit margins.
With a colossal increase in revenue, companies were scrambling to hire great talent. More powerful companies won the race, being able to offer employees more benefits and higher salaries. This caused companies to hire too many workers. Now, they are feeling the repercussions of the influx and are firing to get back under caps.
The aforementioned tech sector, as well as advertising, media, finance, and professional services all saw major layoffs toward the end of last year.
Simply put: tech companies hired too many workers, not correctly predicting an overcorrecting shift in the opposite direction.
Layoff Contagion
A CNBC report stated that the tech industry lost 7.4 trillion dollars over the last year. Out of panic, a few companies began making cuts. Plenty followed in line. When highly influential and popular companies began making moves, others began to follow, creating the concept of layoff contagion (or social contagion). Mass hysteria. Moves based upon the idea of what should be done.
For example, with Elon Musk’s acquisition of Twitter, the popular business figure decided to cut around 50% of the company’s staff.
Regardless of your opinion on Musk and his dealings, one thing is certain: many business people look up to him and his ideals. Therefore, when Musk decides he can cut the staff of a billion-dollar business in half, many other companies will follow suit. Many will (and have) see his fat-cutting as a sign that they, too, can lower their workforce and still profit.
While we can’t point the entire blame on Musk, it proves the point. Google layoffs have been a part of a wide variety of big layoffs. Companies will see that Twitter, Amazon, and Google made successful layoffs and believe that it’s the right thing to do.
Overall, it may prove to be a bad decision.
Stanford Graduate School of Business Professor Jeffrey Pfeffer shared recent research with the school regarding the tech layoff contagion.
In the interview, Pfeffer said, “Layoffs often do not cut costs, as there are many instances of laid-off employees being hired back as contractors, with companies paying the contracting firm. Layoffs often do not increase stock prices, in part because layoffs can signal that a company is having difficulty. Layoffs do not increase productivity,” Pfeffer stated. “Layoffs do not solve what is often the underlying problem, which is often an ineffective strategy, a loss of market share, or too little revenue. Layoffs are basically a bad decision.”
CEOs will take the chance to cut employees they believe they don’t need without facing the idea of prejudice. It’s just a trend, after all. Then, the CEOs will convince shareholders that this will make them money in the future (like the Google layoffs).
Though payroll is reduced, the work still must be outsourced. The production still needs to be kept. Either the company will spend just as much money hiring contractors, or it will overwork the workers that are kept onboard.
Other companies not met with the cynical nature of those aforementioned will begin to wonder why they aren’t cutting. Are they missing out on some genius business tactic to help improve profit? Then, they will follow the trend.
How Will the Labor Market Look?
Just last week we reported that unemployment is down and 223,000 jobs were added in December 2022. From afar, it looks as if nothing is wrong with the current labor market. There are thousands of jobs available despite tech giants making significant cuts.
How does this make sense? How are there still more jobs than workers during a layoff contagion?
Not all companies are following suit. Smaller companies are quickly scraping up the excellent workers the big tech companies are leaving behind.
When large companies are making colossal employment cuts, small and medium-sized companies are able to amass greater and more significant workforces. Therefore, those smaller employers are now adding jobs and hiring at a higher rate than before.
ADP’s latest survey of private payrolls found that large employers cut 151,000 jobs in December, while firms with fewer than 500 employees added nearly 400,000 new jobs that month.
Those less significant companies are able to pick up the layoffs of the juggernauts. Those that have been cut from their jobs are quickly finding replacement careers, even if the payment is lower. In the current economy, there isn’t much of an option.
Simply put: with larger companies making layoff contagion cuts, small companies are increasing their workforces because they can garner impressive employees from the larger companies. Therefore, layoffs are high and smaller jobs are increasing, pointing toward a troubling job market in the future.
A Future Unknown
With employees having to move to smaller, less-paying jobs, two concerns arise.
One: smaller companies may be biting off more than they can chew. While it can be exciting to have an influx of available talent, smaller businesses may be overstaffing with high aspirations.
It’s understandable to have both expectations and goals, but there is less job security around these smaller jobs. A newer company hiring senior designers, for example, cannot guarantee jobs like Apple can. Therefore, if the hiring company cannot live up to their aspirations, they too may eventually need to make labor cuts, leaving the once unemployed in the dust again.
Two. these experienced employees may be taking pay cuts to work at smaller jobs. They have been laid off by the big companies that could afford them. Now, due to the volatility of modern inflation, they are forced to take the smaller, lower-paying jobs.
Once the labor market returns to normal and the layoff contagion ends, bigger companies will be willing to hire again. Will the small companies that have hired an influx of employees now be able to afford them when that time comes?
You’ll see a backshift in power, with these experienced employees leaving their current small jobs to move back to the higher-paying corporations.
Once the fear of recession settles, where will the employees end up? Will they scurry back to the big companies or be able to remain in the smaller markets, happy and content with their current offers?
We may see a mass migration back to big corporations, leaving these currently over-hiring smaller companies in the dust.
The Google layoffs may seem significant, but they are just a small step in the entire process.
Conclusion
Robert Frick, corporate economist at Navy Federal Credit Union, told CNN, “While layoffs from high-profile firms make the headlines, plenty of firms are desperate for more workers, especially tech workers. Those workers are in high demand from the auto industry to the Department of Veterans Affairs to not-for-profits.”
Ultimately, events like the Google layoffs are not currently detrimental to workers. Though it seems drastic, employees are quickly finding jobs to take up the space. Finding work and lowering unemployment is not the issue. The issue is that of the future. When Google decides it’s time to reverse the layoffs, how will the market shift?
The tech industry isn’t going anywhere, so what’s the future?
Are the Google layoffs truly a tragedy, or a treasure trove of labor for those smaller companies? Time will tell.