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Google parent company Alphabet announced today that it plans to cut 12,000 jobs, joining a list of technology and media layoffs that already includes Microsoft, Meta, Amazon, Salesforce, Snap, Twitter and Warner Bros. Discovery. According to one estimate, approximately 130,000 people have been laid off from their jobs at large tech and media companies in the past 12 months. That is roughly equivalent to the total number of people who He worked at Apple before. COVID hit.
These layoff announcements have become depressingly common, even routine. But they are also somewhat mysterious. The overall unemployment rate in the US is 3.5 percent, which ties the lowest mark of the 21st century.
In the 2010s, the job market was weak and the tech sector was growing. During the coronavirus pandemic, the US economy experienced a sudden slump and the tech sector was booming. Today, the US job market looks pretty strong by some measures, and yet the tech and media industries are bleeding. What’s going on? And what does this reversal of 21st century norms tell us about the state of the economy?
The first explanation for this moment is, and I don’t know how to put it in a fancy way, so I’ll just put it in a simple and kind of stupid way: the post-pandemic economy has been a lot weirder than most people expected. Many people predicted that the digitization of the pandemic economy in 2020, such as the rise of entertainment streaming and online food delivery apps and home exercise, were “accelerations,” pushing us all into a future which was coming anyway. In this interpretation, the pandemic was a time machine that sped up the 2030s and pushed up tech valuations accordingly. Hiring skyrocketed in technology, as companies added tens of thousands of workers to meet this acceleration expectation.
But perhaps the pandemic wasn’t really an accelerator. Maybe it was a bubble. Pandemic stocks, like Peloton and Robinhood, skyrocketed and collapsed. So did employment at tech companies, including Alphabet and Amazon. The challenges to the late-pandemic economy were many: Some businesses faced supply chain problems, while others were hit by rising interest rates that followed sticky inflation. Entertainment companies pushed their chips into streaming only to find profits wouldn’t follow. But all of these companies experienced the same phenomenon: In 2020 they thought the pandemic economy was a time machine, and in 2022 they realized the pandemic economy was an oasis. So that’s one way of looking at what’s happening in technology. It’s back to 2019 again.
The second explanation for this strange timing is that everything in the economy these days is an interest rate story. When interest rates were low, investors valued growth narratives, and tech companies (or companies calling themselves tech companies) had a monopoly on these narratives. Tech companies’ price-earnings ratio spiraled out of control as investors placed their faith in companies like Netflix, Uber and Tesla, which delivered a lot of long-term promise and little short-term gain. When inflation and interest rates rose, companies that made long-term promises were at greater risk and were beaten.
A third explanation is that much of the slowdown in technology and media is actually a slowdown in advertising. Last year “was a difficult year for the advertising market that saw the massive growth of the pandemic era come to a screeching halt,” wrote several analysts at MoffettNathanson, a media and technology research firm. Marketers slashed advertising budgets “in response to a mix of real financial problems and anticipated future problems until, by the end of the holidays, hardly any money was spent.”
Advertising is often the first casualty in an economic slowdown, because it’s not the spending that affects the immediate product; rather, it is an investment in the future brand and growth of the company. Because so many tech companies—not just Google and Meta, but also Amazon, Apple, Snap, and Netflix—have become full- or part-time ad companies, nearly all of them are sensitive to a looming ad slowdown. Too much faster. and stronger than the general economic slowdown. So when you think about the mystery of why the tech sector is bleeding while the overall job market looks healthy, this is a big part of the story. The advertising economy is sick, while the service economy is healthy.
The final explanation is that CEOs are normal people who navigate uncertainty by copying behavior. We cannot rule out the possibility that five-digit tech layoffs are essentially acts of mimicry or social contagion between competitors. When all your competitors are laying off 10 percent of their staff—and being rewarded by the market for it!—sacrificing 10 percent of your workers may seem like the right thing to do, or the inevitable.
“Was there a valuation bubble? Absolutely,” business professor Jeffrey Pfeffer saying Stanford News. “Meta overhired? Probably. But is that why they are laying people off? Of course, no. All these companies are making money. They are doing it because other companies are doing it.