Could tech layoffs spread to the rest of the US economy? – DW – 29/01/2023
First a trickle, then a stream and now a torrent. US tech giants are cutting thousands of jobs almost every day. Loved ones in the COVID-19 lockdowns have seen their earnings squeezed as life returned to normal after months of staring at screens.
During the pandemic boom, employees at Microsoft, Google, Amazon and Facebook parent Meta were bloated by overzealous hiring as demand for their products and services increased. But as decades of high inflation took hold and operating costs skyrocketed, Silicon Valley had no choice but to cut the fat.
Technology firms have collectively cut more than 330,000 jobs over the past 12 months, according to a tally by research platform TrueUp, including nearly 90,000 since the start of this year.
With inflation still stubbornly high, interest rates rising and growth slowing, the natural conclusion is that the tech sector̵[ads1]7;s woes will quickly spread to the broader US economy. But economists have cited several reasons why further layoffs may be limited.
Technological sector “overleased”
“Employment in the technology sector is up about 8% from pre-pandemic levels, while total employment is just above pre-pandemic levels,” Olu Sonola, head of US Regional Economics at Fitch Ratings, told DW. “This suggests that the sector overhired in 2021 and 2022 … by approximately 200,000 to 300,000 jobs.”
High-profile names like Twitter, Spotify and Tesla represent the future path of the US economy, so any negative news is more likely to hit the headlines and skew public perceptions. But a large number of workers across all sectors change jobs every day because the United States has one of the world’s most flexible labor markets.
“Number of layoffs [across the US economy] every month is about 1.5 million,” Karen Dynan, a non-resident senior fellow at the Peterson Institute for International Economics, told DW, versus 30,000 per month in the technology sector. [tech] layoffs have received much attention, but their direct effect on overall U.S. employment is limited.”
Many tech firms are still hiring
While some tech firms have cut jobs, many others are still recruiting aggressively thanks to a red-hot labor market that has left employers in several sectors struggling to fill vacancies and workers demanding higher wages.
A scan of job sites by TrueUp on Friday found more than 179,000 vacancies in big tech, startups and so-called unicorns – new privately held firms worth at least $1 billion (0.92 billion euros). A survey by ZipRecruit last month found that four out of five laid-off US tech workers found a new job within three months.
Eight of the 10 top-ranked jobs in the U.S. are still technology roles — including developers, engineers and machine learning — according to a ranking by Indeed.com, which gives technology seekers the best job prospects in any industry in 2023.
Many of the announced job losses also affect employees outside the US.
Despite inflation, US spending continues
Economists are divided on whether the US will enter a recession this year as consumer spending – which accounts for more than two-thirds of US economic activity – remains strong.
Consumption fell slightly in November and December, according to the US Commerce Department. Credit card debt is also rising – evidence that Americans need to borrow more to maintain spending levels, which is likely unsustainable.
A clear sign of a recession would be a rise in overall unemployment, but the jobless rate fell by 0.2% to 3.5% in December. The number of people claiming unemployment benefits for the first time hit a historic low last week of 190,000.
Some job loss, but no culling
“We’re seeing some signs that pressures are easing in the labor market overall — wage growth is slowing, the use of temps is falling, unemployment is starting to come down. So we’re likely to see layoffs pick up in the labor market overall.” said Dyna.
Fitch’s Sonola believes the labor market will “cool significantly” during 2023, but does not expect layoffs in the technology sector to spread to the broader labor market.
Few analysts expect the same rise in unemployment as during the 2007/8 financial crisis when the US unemployment rate reached 7.5%.
– At most, I see unemployment creeping up to 5% from the current historic low of 3.5% in the US, says Karin Kimbrough, chief economist at LinkedIn, to the American TV broadcaster CNBC.
Many businesses across multiple sectors, including healthcare and retail, are still struggling to hire new workers. To tempt them, grocery giant Walmart said this month it would raise wages to more than $17.50 an hour — after already raising wages several times during the pandemic. In 2021, the dealer’s starting salary was $12.
The labor market remains tight
Rival chains Target and Costco have made similar moves and are seen as unlikely to cut jobs while demand remains strong.
– Companies are very reluctant to let workers go because they have struggled so much in terms of staffing, Rubeela Farooqi of High Frequency Economics told Agence France-Presse (AFP).
Even with all the recent layoffs, most tech companies are still much larger than they were before the pandemic. Despite announcing 12,000 job losses last week, Google owner Alphabet has hired more than 100,000 employees since 2018. Amazon’s decision to lay off 18,000 people, meanwhile, is just a fraction of its global workforce of 1.5 millions.
The one outlier is Twitter, which shed about half of the social media platform’s 7,500 employees after it was acquired by Elon Musk, the billionaire CEO of Tesla. said the job losses were necessary to secure the future of the loss-making platform.
Edited by: Uwe Hessler