At the beginning of the year 2022, tech looked like one of the most resilient of all industries in the global economy. Far from suffering the effects of the Coronavirus pandemic of 2020, tech firms expanded rather than contracted, attracting increased investment and retaining most of their workforce throughout all of 2021.
In 2022, all of this changed. Tech companies all over the world cut their workforces at shocking rates, particularly in the summer and late autumn. According to Layoffs.fyi, approximately 1000 companies have fired some 150,000 people in the year 2022. TrueUp’s tracker, on the other hand, puts that figure at 1500 companies with over 220,000 people involved.
The exact number of people involved is disputed (which is unsurprising, for such a recent phenomenon), but these figures match or exceed the catastrophic ones of early 2020, when the first lockdowns were implemented in the West.
So what happened? Why did companies so safe suddenly decide to start firing their workers? What is the significance of these events for tech in the long term, and what are future prospects like for those who are just starting in this field?
This article will provide a comprehensive analysis of the earthquake that shook the world of tech in 2022. This is how our piece will be structured:
- Timeline Of The Layoffs
- Why Did The Layoffs Happen?
- Assessing The Significance Of The Layoffs
- Is Tech Still A Good Choice In 2023?
Timeline Of The Layoffs
1. January to April – The Quiet Before the Storm
The layoff rate for tech in early 2022 proved to be relatively calm, at least by comparison with the rest of the year. All the same, the circa 20,000 people who lost their jobs were considerably more than in any comparable period in the previous 18 months, as if foreshadowing what was to come.
Peloton’s layoff of 2800 workers was probably the most significant. The company announced that it would be phasing out a part of its workforce all throughout the year, and indeed, three more rounds of layoffs would follow.
That period also saw two events of momentous historic importance taking place, which of course would also affect the layoffs. One was the collapse of cryptocurrencies. The price of Bitcoin, for example, went from a historic high of $56,000 in November 2021, to less than $31,000 towards the end of January. Over $2 trillion in global assets were wiped out from the global economy – a crash comparable to that of 1929, which kicked off the Great Depression.
The other was the Russian invasion of Ukraine, which began in late February of 2022 and led to an immediate, seismic geopolitical shock which has so far affected not just tech but everything and everyone – politics, diplomacy, finance, energy, transport, supply chains, down to the food stocks of the world.
We will return to both these events in our section on the causes of the tech layoffs.
2. May to August – The Tidal Wave Hits
May to August of 2022 gave us the terrible first wave of layoffs.
In May, the instant delivery startup Getir announced that they were laying off 14% of their workforce, and Tesla followed suit in June with plans to axe 3.5% of theirs – respectively almost 5,000 and 3,500 people just from those two companies. Dramatic cuts also happened in Carvana, Bilili and Biju, who laid off about 2,500 people each.
These prominent layoffs were only the tip of the iceberg, with wide numbers of smaller companies affected as well. All in all, roughly 20,000 people were being fired every month in this period – quadruple the yearly rate until then, which was already high.
Surprisingly, the industry at the time responded with denial, with pundits claiming that the tech layoffs were ‘not happening’. It took some time for reality to sink in.
3. September and October – A Short Respite
September and October saw the tech scene in India hit especially hard, with prominent companies like Byju and Zomato both slashing their workforce against the backdrop of a startup scene decimated by a decline in investment.
However, India was the exception. In the rest of the world, the rate of layoffs returned to the levels of early 2022, leading many to believe that the worst was over.
In fact, the worst was just around the corner.
4. November and December – The Perfect Storm
November of 2022 was simply catastrophic for tech workers. Between 50-60,000 people were laid off, including major cuts from giants of the industry previously thought to be untouchable.
Some of these layoffs were incredibly dramatic. Meta’s redundancies were the first on such a scale in two decades. Those at Twitter were part of the clamorous takeover of the company by billionaire and notoriously divisive public figure Elon Musk.
Layoffs in December have not been quite as dramatic at the time of writing, but after the false dawn in September and October, many are understandably still nervous.
Understanding The Events: Why Did The Tech Layoffs Happen?
To put it in the simplest way possible, the layoffs were the result of the tech industry sprinting too hard in the previous two years, and running out of breath in 2022.
It’s worth remembering that the tech industry, after an initial shock in the second quarter of 2020, actually grew thanks to the Coronavirus pandemic. Streaming platforms like Netflix and Disney+ as well as delivery companies like Gorillas were in the perfect position to take advantage of the transformed social circumstances.
At the same time, interest rates on debt in both the USA and the European Union happened to be extremely low, which allowed institutional investors to borrow a great deal of money and splash it on tech companies.
And there seemed to be no reason not to invest in tech. New tech services were replacing old ones; tech companies dominated the stock market; the boom of cryptocurrencies seemed unstoppable; and the pandemic had done nothing to stop any of this. Optimism was palpable, and startups in particular enjoyed a mini golden age.
Unfortunately, just about all of these things turned around completely in 2022.
Firstly, cryptocurrencies crashed, which scorched companies like Coinbase, Crypto.com and Kraken, not to mention more general trading platforms like Robinhood. Beyond the economic damage, trust in the world of tech in general was badly eroded – enthusiasts of blockchain technology were now connoted with scammers and sketchy finance.
Secondly, the Russian invasion of Ukraine initiated an energy crisis which sent global inflation through the roof. This in turn pushed up interest rates on borrowing, which meant the money that was being invested in tech dried up.
Thirdly, as lockdowns eased, outdoor activities suddenly became a lot more appealing than streaming and deliveries. The growth of Netflix, Gorillas et similia was halted or even reversed.
The effect of these compounding factors was a frightful economic collapse in the tech industry, which lost a staggering $7.4 trillion already by November. Companies responded by cutting costs wherever they could – and this is how we come to the slashing of salaried staff.
New staff that had been hired over the previous two years, in anticipation of a much greater growth than we got in 2022, was most vulnerable and was now considered an over-investment. But the drive to cut costs affected the entire workforce, across almost all sectors.
In the words of Meta CEO Mark Zuckerberg, the drive was one ‘to become a leaner and more efficient company by cutting discretionary spending and extending our hiring freeze’.
While this is the general narrative behind the layoffs, it’s worth remembering that reality is always more complex than our ability to describe it, and that a number of other factors were also at work.
For example, data breaches in 2022 have also ballooned the costs of tech companies, while Musk’s restructuring of Twitter and Zuckerberg’s misguided investments in the metaverse (leading to reported losses upwards of $100 billion) would likely have happened even in different economic circumstances. And let us not forget, there are also those who believe the true explanation of the tech layoffs is wholly other.
This account is the best we can provide at the moment, but it is not – and like all economic accounts, it cannot be – wholly exhaustive and comprehensive of everything that happened in the world.
Assessing The Layoffs – How Big Of A Deal Is This?
As an industrial and economic phenomenon, the tech layoffs are difficult to assess because we don’t know if they are truly over.
Some of the cuts made by the larger companies have been so dramatic that it’s hard to imagine they will follow up with more – yet the same could have been said in September of this year, when the numbers first went down.
With that in mind, at present the tech layoffs are significant, but only to a point. They do not represent any sort of ‘paradigm shift’ and their effects show no signs of being long-term. Direct comparisons with previous crashes suggest this one is not among the worse (or in any case not yet – again, we do not know if it is over).
Set against the dot-com bubble of the late 90s / early 2000s, for example, the inflection suffered by the tech industry in 2022 seems relatively mild. The Nasdaq stock market index (which was, and remains, heavily affected by tech stocks) lost 78% of its value during the dot-com crash; today, it is down 31% from its peak in November 2021. Substantial, yes – unprecedented, no.
The effects of the tech layoffs on the greater economy are unlikely to be very wide, while IT spending is projected to continue growing. Professionals in this field are known to change jobs with a certain frequency, and we may hope that the many people who lost their jobs will be able to find new ones soon, if they haven’t already.
The economic significance of the tech layoffs therefore seems relatively limited. Their cultural impact, on the other hand, has been a lot more powerful.
The aura of untouchability enjoyed by tech – both its institutions and its professionals – appears to have been compromised. Working for a FAANG company is no longer perceived as being insulated from any macroeconomic downturn.
The myth of the ‘tech lifestyle’, with its adamantine job security and its cushy benefits, has certainly taken a serious hit. To what extent this effect is durable will depend on the state of the industry in 2023 and beyond, but there is no question that everyone in the world of tech appears to feel somewhat crestfallen as a direct result of this terrible year of layoffs.
Looking Forward: Is Tech Still A Good Choice In 2023?
In spite of this year’s slowdown, the tech industry continues to enjoy a phenomenal allure for young people going into higher education as well as for professionals of all sorts looking to switch careers – something which, for the field of tech, is nowadays easier than ever.
The most logical question, in light of the 2022 layoffs, is whether starting in tech is still a good choice as we enter 2023.
And the answer to this is yes – investing in a future in tech is still very much worthwhile, and the field continues to offer incredible opportunity.
The reason is that there is an important distinction to be drawn between somebody losing their job, and that same person remaining unemployed. While the tech industry has contracted this year, that is a very far cry from saying that it is dying, in decline, or in any way being replaced.
According to market analysts Statista, the tech sector is going to keep growing substantially over the next decade. And even in this ‘annus horribilis’, reports continue to emerge that the industry doesn’t have too many professionals, but not enough of them.
Of course, the short-term future of some sectors will be affected. The startup scene in early 2023 won’t be quite as rosy as it has been in the last few years – even if economic forecasts for the coming year suggest that investment in startups is going to continue to grow. Also, the world of cryptocurrencies may well remain radioactive for some time.
But other sectors, like Artificial Intelligence (which we reported on last month) or Augmented Reality, seem poised for continued growth. And it’s hard to imagine that computer technology will stop being absolutely crucial to the future of our societies!
Indeed, based on an industrial survey by CompTIA, 31% of tech firms are feeling ‘very good’ about their 2023 prospects, and 38% ‘pretty good’, with only 6% feeling ‘uneasy’ and 1% ‘very uneasy’. As well, 46% of firms intend to increase their budget, against only 13% intending to decrease it. While the survey dates to September and October of 2022 (so, before the catastrophic November layoffs), it’s still a powerful indicator that nobody expects the industry to stop growing, much less to implode.
The 2022 tech layoffs represented a moment in the history of the industry that should not be underestimated. It led to a great deal of human suffering, and challenged many long-held certainties – and, let us say this again, it may not be over yet.
But if the moment should not be underestimated, it should also not be overestimated – and as we have seen, the phenomenon so far has been relatively contained. The tech industry as a whole is not going anywhere, and for the foreseeable future, it will continue to be among the very best bets for those looking to transform their professional future.