Tech the Magic Drag-On

For Gen Z, either in one of their first jobs… or perhaps one of those who participated in the “Great Resignation” to upgrade their pay and opportunities… it was a huge shock. Getting laid off when they were told, repeatedly, how valuable they were and how they would define the future of the tech world. Indeed, even for those who resigned from the small and moved on to the big who were not laid off, many regretted their lemming-like mass exodus. See my, earlier, companion I Quit, Neah, Oops, I’m Sorry blog. But with the recent announcement from the Bureau of Labor Statistics of our 3.4% unemployment rate, the lowest number in decades, getting laid off in one of the “hottest” work segments was completely unexpected by Gen Z. For older workers, there’s a “been there, done that” notion of accepting the inevitable.

Here’s what the pattern looked like: “The layoff announcements dropped one after another, accelerating throughout the second half of 2022. Amazon began laying off what will be 18,000 employees. Lyft, the ride-share company, said it would dismiss 700 of its workers, or 13 percent of its staff. The technology giants Meta and Twitter announced that they were cutting thousands of employees.

“The new year brought even more bleeding in Silicon Valley: Last week, Google’s parent company, Alphabet, said it planned to lay off 12,000 of its workers, Microsoft said it would cut 10,000 employees and on Monday, Spotify said it would reduce its staff by 6 percent, about 600 people. Add up the losses and more than 216,000 tech employees have been laid off since the start of 2022, according to Layoffs.fyi, a site that tracks job cuts in the sector.

“The layoffs have an ominous feel to anyone who is tracking news on the economy and the tumult in recent months relating to inflation, interest rates and the labor market. But the tech job cuts are not necessarily bad news for the economy overall, or even for Silicon Valley.” New York Times, January 25th. Suspiciously, the percentage of workers laid off, not surprisingly heavily represented by Gen Z’s lacking seniority, seemed to hover between 5% and 7%, on average, of the work force. That averaged to 6%, and James Surowiecki, writing for the February 3rd FastCompany.com, wondered why the tech sector seemed to adhere to this rather uniform layoff percentage. It seemed to be a tech-industrywide parallel downsizing norm.

“In the days since, the downsizing trend has continued, with Okta, Spotify, business software company HubSpot, cybersecurity firm NCC Group, and PayPal all announcing layoffs. To be more specific, all of these companies announced layoffs of between 5-7% of their workforces.

“The fact that tech companies are cutting back is not surprising. The industry embarked on a hiring spree during the pandemic, and the slowdown in the digital advertising market and anxiety about a possible recession, coupled with the big hit to tech companies’ stock prices last year, has made ‘efficiency’ a new preoccupation of tech CEOs. But what is interesting, and perplexing, is the fact that so many of these CEOs have decided that when it comes to layoffs, about 6% of the workforce is a magic number… So what explains this odd synchrony in these companies’ layoff decisions?

“One likely answer is that tech CEOs pay attention to each other, and in particular to the most important players in the industry, and that they take cues from each other as well. The boom in 6% layoffs, then, is something like a fad—the product of what Stanford professor Jeffrey Pfeffer has called ‘social contagion.’ Just as people everywhere decided a decade ago that planking in weird places was a worthwhile thing to do, tech companies have decided in the past few months that about 6% of their employees are surplus to requirements.

“This isn’t, as it happens, a new phenomenon. There’s interesting academic work about the rise of downsizing in the 1980s that shows that trend-following helps explain companies’ willingness to slash payrolls. While downsizing was initially seen as a dubious strategy, it became normalized over time, which in turn made it easier for companies to embrace. On the flip side, the tech industry’s hiring spree from 2019-2022 was also likely in part the product of trend-following: If everyone else was doing it, then it was hard to resist doing so yourself…

“Tech companies were, in many cases, overstaffed by the middle of 2022. But there’s no easy algorithm to tell a company how much it’s overstaffed. So looking at what other companies in their industry were doing was a natural response. It’s an example of what social psychologists call ‘social proof’: when people are in ambiguous situations where the correct way to behave is not obvious, they will often look at what those around them are doing in order to decide what to do.

“Tech companies are also trying to keep two different constituencies happy: their employees, who will generally be made anxious by layoffs, and investors, who generally love them. (The Nasdaq, in fact, was up 10% in January.) If they cut too much, it will aggravate employees. If they cut too little, investors will be critical... Tech companies may pride themselves on thinking outside of the box. But when it comes to hiring and firing, they’re more like part of the herd.” Gen Z employees probably did not being part of a “herd,” but as a weakening economy, even if it fell short of a full-on recession, continued to keep inflation high, tech CEOs most certainly did not want to be the odd company out… perhaps seen as missing the forest for the trees and likely to be subject to a “herd” of analysts preaching against those “wasteful” companies.

I’m Peter Dekom, one of those self-employed professionals working remotely watching a herd march by… not a good sign for any of us.