Layoff Contagion – Tech Companies Starting Terrifying Trend

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A tech worker found himself fired. Once cuddled by a sought-after career in an ever-growing industry, the tech worker was now scrambling for a paycheck, unable to bring a five-fingered grasp upon the concept significantly out of reach: a layoff contagion had begun, and an industry once known for its exponential labor requirements was now spiraling downward, facing a future that was shades darker than it had been before.

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 has created an entire list for ‘Layoff Watch’ this year.

Have we reached a period where prehistoric notions are coming to the forefront, leaving the advancement of technology to those considered radical? Certainly not.

What’s happening to the tech industry? What exactly is layoff contagion? Will it stop?

Viral to Virus

Contagion is a surefire word to perk the ears of those that struggled through the two-year-long pandemic that plagued the entire globe in 2020. Often used to discuss the movement of a virus between people through different forms of viral communication, contagion is the way in which something is spread.

A plague has come to strike the technology sector. Masks and vaccines will not be enough to stop it.

Social contagion is more of a societal trend than a panic-inducing virus. It’s when an idea, attitude, or behavior catches on socially. A strong cultural figure begins or picks up on a lesser-known idea, and those that are easily influenced continue it. Eventually, the concept spreads like a web across a group or culture. Despite the connotation of contagion, a social contagion doesn’t always have to be something negative. It’s any fad, after all.

Social contagion has been occurring for the entirety of human history. Someone starts an idea that catches on through fear, admiration, or gullibility. Those feel that it is something they should do because everyone else is doing it.

Buy a Tulip

The most dramatic of social contagion becomes mass hysteria. A large group of humans all jump onto the same idea without any scientific basis. They just feel that it’s something they should do because a more influential source did it.

These gullible decisions can lead to exponential issues in the business world. For example, look at Tulip Mania from the 1600s.

In the Netherlands, a few Dutch regents began competing at growing the most beautiful tulip bulb. Due to the tulip’s exoticness and prolonged propagation cycle (around seven years to grow a bulb from seeds), the tulip bulb became a fashion icon for the wealthy. This social contagion (fad) led to everyone rising up the price of bulbs. People believed the tulip to be of significant importance, and through its low supply and high demand, it did become significantly important.

By the end of the three-year market bubble, single tulip bulbs were worth more than a mansion on the Amsterdam Grand Canal. No, really.

By 1637, the demand for tulips dropped. The contagion had stopped spreading. Everyone woke up from their flower-powered fever dream and realized that the fad was unimportant. Well, at least not worth an entire mansion. The bubble had burst.

But what in the world does this have to do with layoff contagion?

It Wasn’t Just a Tweet, But a Sigh From Many Birds

It’s nearly impossible to pinpoint the exact start of the layoff contagion within the tech industry. At one point, a single company decided to lay off members for whatever reason. Another (maybe inspired by word of mouth from the original company) began to lay off workers. Another, another, another.

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.

While finding the first company to start the spread would be a tough ask, there is one that can be pointed to as being the grand spark in a career-burning fire.

Ever heard of Elon Musk? The CEO of Tesla and the new owner of Twitter? The controversial and widely-adored entrepreneur with over 121 million Twitter followers?

He may be to blame for the extreme spike in tech layoff contagion toward the end of 2022 (and beyond).

After his $44 billion acquisition of Twitter toward the end of October, Musk decided to trim the workforce down by unfathomable amounts. The new CEO gave employees the ultimatum between extreme work and production or severance packages. He fired around 50% of the workforce with a forceful snap of his ‘clean’ fingers.

Not to mention, The New York Times reported that 1,200 full-time employees left ahead of Musk’s commitment deadline. So, with 50% fired and 1,200 leaving before Musk took control, Twitter’s workforce dropped from 7,500 to about 3,700 within the blink of the Tesla Giant’s eye.

And On and On…

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.

  • A highly-influential person making a big decision? Check.
  • Easily-convinced-but-powerful people following the big decision? Check.
  • A trend beginning? Check.

Welcome to the layoff contagion.

Would You Jump Off a Bridge If Your Friend Told You To?

Companies are imitating companies. Figureheads are deciding that if others are doing it, so should they. But is this even a good thing? Is the layoff contagion helping the countless companies making cuts?

No, not really.

Stanford Graduate School of Business Professor Jeffrey Pfeffer shared recent research with the school regarding the tech layoff contagion. His interview proved to be both eye-opening and worrisome (for he, himself, is worried).

“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.”

Remember when your mother asked if you would jump off a bridge if your friend asked you to? What would be the benefit of that?

If Elon Musk, or some other major tech company, asked you to throw away millions of dollars in recruitment labor and signing bonuses to ‘cut the fat’, would you?

The herd mentality is striking hundreds of companies. We are all facing a ledge like lemmings.
  • BuzzFeed cut 180 employees, about 12% of its workforce.
  • Morgan Stanley laid off about 2% of the workforce, about 1,600 people.
  • BloomTech laid off 88 employees, half of the workforce.
  • PepsiCo is laying off hundreds of corporate employees.
  • Lyft is laying off around 700 employees, about 13% of its workforce.
  • Amazon is looking to lay off up to 20,000 employees globally.
  • Coinbase announced that it would lay off 18% of its workforce.
  • DoorDash is letting go of 1,250 employees.
  • Kraken let go of 1,100 employees due to the crypto meltdown (an entirely other story).

These aren’t just smaller companies taking steps toward trying to be like Musk, either. These are colossal tech giants.

“When the economy turns back in the next 12, 14, or 18 months,” Pfeffer continued. “[Tech Companies] will go back to the market and compete with the same companies to hire talent. They are basically buying labor at a high price and selling low. Not the best 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.

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.

Layoff contagion will go throughout the entire sector for no reason other than monkey-see-monkey-do.

Pfeffer noted, “After the Sept. 11, 2001, terrorist attacks, every airline except Southwest did layoffs. By the end of that year, Southwest, which did not do any layoffs, gained market share. A.G. Lafley, who was the former CEO of Procter and Gamble, said the best time to gain ground on your competition is when they are in retreat – when they are cutting their services, when they are cutting their product innovation because they have laid people off.”

Will 2023 Bring the Cure?

After the world was ravaged by the COVID-19 pandemic, many decision-makers moved to drastic measures. It was a world we had never seen or imagined. There was both reason and empathy in the decisions that were made. No one truly knew how to navigate the world reduced by a terrifying virus.

While we are beginning to rebuild from the trauma, there are still chess pieces being moved out of reaction. The downturn in economic activity and the inflation of prices has everyone (including tech companies) planning for a recession. Despite some believing things will begin to alleviate next year, a recession seems imminent.

HP Inc. said it will let 4,000 employees go by 2025. Amazon CEO, Andy Jassy, said the company will continue to lay off more employees in early 2023. Companies will continue to scramble to combat the topsy-turvy tech industry. Other companies will continue to follow through layoff contagion.

Will the layoff contagion continue? Surely. Should it? Probably not.

What About the Workforce?

If thousands of tech workers are being fired, then isn’t there going to be a significant influx of workers on the open market? Is there going to be a scramble for every open tech position, leaving thousands unemployed?

Surprisingly, or almost ironically, the job market is anything but scarce.

According to CompTIA’s report, more than 300,000 tech jobs in the U.S. were available in October, roughly 100,000 more jobs than those available one month prior to the pandemic. Though major tech companies had reduced labor, there are still plenty of tech companies looking for employees. Because A, B, and C are firing doesn’t mean that D, E, and F aren’t hiring.

The ‘cutting fat’ concept doesn’t mean tech companies are closing doors to hiring completely.

Will we see a scarcity of open jobs eventually? Sure. But we said the same in 2001, 2008, the dot-com bubble crash, the Silicon Valley gold rush, and COVID. Resiliency is one of the finer points of human existence. Our reliance on technology and advancement is also there, helping push the aforementioned trait to new heights.

We will always need tech workers. We will always make it.

Are Other Sectors in Danger?

In our tulip example, the widespread panic for the flower was constrained within the Netherlands. Fortunately, there wasn’t the world-shrinking technology of the internet. Could you imagine how much tulips would have sold for on Amazon?

Jokes aside, it’s impossible to dictate the exact outcome of the layoff contagion, but to believe it will not find its claws in other sectors is both optimistic and naive.

There are plenty of business owners that may follow in the footsteps of Twitter and Musk, even if they are not in the tech sector. Humans are still humans, not completely defined by the archetype that they work with. We will see one company in a different industry decide that tech companies are on the right path and follow them. Then, other companies in that industry will follow the aforementioned company.

Link and reaching for each point, another spider casts its web on the employment of an industry.

In fact, we are already seeing other companies following the tech industry. Investment bank Barclay’s laid off about 200 employees, AMC Networks plans to lay off 20% of its staff. The Washington Post has even discontinued print magazines and laid off a few workers.

Phones In Hands and Workers on Payroll

How do you stop a man-made virus from spreading throughout the entirety of the world’s workforce? What do you do when there’s no vaccine being amalgamated in a lab? There’s no efficient fix on the way?

It’s possible that the solution is in an adverse contagion. Maybe a company needs to push against the grain, creating a solution that falls more in line with production and empathy than the greasiness of cogs.

Pfeffer spoke on this point stating, “One thing that Lincoln Electric, which is a famous manufacturer of arc welding equipment, did well is instead of laying off 10% of their workforce, they had everybody take a 10% wage cut except for senior management, which took a larger cut. So instead of giving 100% of the pain to 10% of the people, they give 100% of the people 10% of the pain.”

While supply chain issues, fuel costs, and the war in Ukraine will continue on, maybe there is another solution to combating the layoff contagion. Maybe there’s a way to undermine the need for layoffs in general. Unfortunately, it would need to spread as quickly and effectively as the beginning layoffs did.

As stated, resiliency is the defining trait of humans. Throughout history, we have learned to overcome any obstacle with surefire will and sheer stubbornness. Our resiliency as modern humans relies entirely on the use and development of technology. The two things, regardless of your thoughts on our concerning need for modern tech, go hand-in-hand.

The future is still trending toward more phones, laptops, and mobile tech in more hands. We will need more workers for that. The employment rate will continue. The layoff contagion flame will be snuffed out with the frigid water of human consumption.