The recent layoffs and the future of US tech

The article has been authored by Ananya Raj Kakoti and Gunwant Singh, scholars of international relation, Jawaharlal Nehru University.

With the Covid-19 pandemic, although the world had come to a standstill, there was unprecedented growth in the tech industry, as it was embraced by people from all walks of life like never before, resulting in many big tech firms earning unheard-of profits. However, since the end of 2022, there has been a steep decline primarily due to the economic chaos experienced worldwide as a result of the ongoing conflict between Russia and Ukraine, as well as an impending recession, increasing inflation, and a slowdown in the employment market. This has occurred particularly in the US and European markets, with the tech sector facing the brunt of it and experiencing billions of dollars worth of market value losses.

Facebook, Apple, Amazon, Netflix, Google, and Tesla, had collectively shed more than $3 trillion in market value by the end of October 2022.

Facebook, Apple, Amazon, Netflix, Google, and Tesla, had collectively shed more than $3 trillion in market value by the end of October 2022. While Google and Microsoft lost $700 billion each, and Facebook (Meta) lost $600 billion; Amazon, a public company, became the first to lose a trillion dollars in market value, making the situation even worse. Hence, to tackle this economic slowdown, all the companies, including Alphabet, the parent company of Google, have opted for a string of layoffs.

The year 2023 is expected to see a worldwide recession, according to many economists and the majority of the Community of Chief Economists at the World Economic Forum predict that geopolitics will continue to influence the world economy and with the ongoing Russia-Ukraine conflict, the matters will only get worse, with severe impact on the US and Europe. The International Monetary Fund (IMF) and World Bank have previously advised economies to prepare for a slowdown in the pace of growth. Therefore, IT companies are reevaluating their spending and preparing for a possible recession amid widespread caution regarding the slowdown in the global economy.

Consumer price inflation has skyrocketed in almost every major country in the world since the geopolitical crisis, thus leading to weak consumer demands. This persistent increase in consumer prices has forced central banks across the world to tighten their monetary policy, which has not been the case for a long time. The US Federal Reserve was the first one to increase interest rates and has continued with its contractionary stance in a recent Fed meeting. Although the World Bank has advised against swiftly increasing interest rates, it is thought to be crucial to contain the growing inflation.

There has also been pressure from the investors to adopt a more aggressive cost-cutting strategy, as with regards to the current scenario there were way too many employees and per employee, the cost was too high. Google has recently made several cost-cutting decisions, including shelving plans for the next-generation Pixelbook laptop and forever shutting down Stadia, its cloud gaming service. Verily, a Google biotech division, announced earlier in January that it was laying off 15% of its workforce.

The possible ways of regaining market confidence and seeping into the lives of the people again are by focusing on R&D. Innovation and investment in new technologies like AI, Web3, accessible IoT, and many other technologies which are at their nascent stage or probably do not even exist yet, that can have a significant impact on the lives of the people across the world, will allow these companies to turn heads around. It is essential that apart from being client-focused and innovation-driven, the companies must upskill and reskill their existing workforce to make the firm more “future-ready”.

However, it must also be noted that the IT industry is not the only one experiencing layoffs; the banking, retail, energy, and healthcare industries are also affected. Goldman Sachs, Citigroup, vegan meat producer Blue Apron Holdings, and even pharma titan Johnson & Johnson have announced layoffs. According to CFO Joseph Wolk, the healthcare conglomerate is considering "right-sizing" itself in response to inflationary pressure and a strong dollar.

Notably, despite job losses in the tech industry, data from the labour department indicate that overall US job growth is still strong and that fewer Americans are submitting new claims for unemployment benefits. The tech layoffs are not a "bellwether of the overall labour market," economist Jennifer Lee told Bloomberg. Analysts note that, in contrast to larger industries that are still hiring, technology firms only account for about 2% of all employment in the nation. Despite the Fed's strong efforts to reduce inflation, the labour market has held up well.

Big tech companies have always bounced back after a recession, and 2023-24 will be no exception. The recession of 2007-09 is proof of it, as all the major tech companies focused on innovation and the new products helped them get through the crisis, whether it was Google Chrome launched in 2008 or Windows 7 in 2009. This economic crisis is not a never-ending one, but rather a temporary hiccup in over a decade which could as well be a much-needed catalyst for the tech companies in taking the next step, turning this situation into a milestone in retrospect. Because if history is any indication, the economy will recover, and when it does, the companies winning the game will be the ones driven by innovation, client-centricity and resilience, as these are the key to the consumer tech market.

The article has been authored by Ananya Raj Kakoti and Gunwant Singh, scholars of international relation, Jawaharlal Nehru University.