Why is the Technology Industry Experiencing Layoffs?

More stories about technology layoffs seem to be in the news recently. Here are the factors that have contributed to these rounds of layoffs and what the technology industry will continue to experience.

Overhiring in the Technology Industry Due to Covid

During the pandemic, consumers caused a massive bump in the sales and use of technology products. Tech companies viewed this change as a long-lasting change and hired accordingly. When the pandemic ended, there was a lower demand for these products, and the technology industry suffered from the consequences. This low demand can be attributed to a consumer increase in other sectors, like travel, and the drop in work-from-home jobs. This economic “renormalization” caused an imbalance in tech companies that required layoffs to maintain their profit margin.

Weak US Economy

Another significant contributing factor to these technology layoffs is a weakened economy. When inflation rose in the US, the Federal Reserve tried to offset it by raising interest rates. Historically when the Fed tries to offset inflation with high interest, the economy has caved under the weight of this measure and taken significant downturns. Because of the high-interest rates and inflation, tech companies see increased functioning costs. When viewed in combination with their excess staff, layoffs are often the easiest decision.

Other Causes

While overhiring and a weak economy are the leading causes of the widespread layoffs, there are smaller, likely more individualized factors leading to some layoffs in the technology industry. One of these may be the “war for talent” during the tech boom at the beginning of the pandemic. In some cases, this caused sloppy hiring practices, leading to companies hiring too fast and spending too much. Many companies also have gone through a period of restructuring in the aftermath of the pandemic. With a move back to in-person or hybrid working, some companies are laying people off because of a decreased capacity for this return or an expected increase in productivity with the return of in-person work.

Will Technology Layoffs Continue?

Most industry experts expect these layoffs to continue, primarily because of the predicted recession. Many companies are trying to cut costs in the weaker economy to please investors and boost profits.

 

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