Why the tech industry is conducting mass layoffs in 2024?
In January 2024, roughly 100 tech companies, including Meta, Amazon, Microsoft, Google, and Salesforce, have laid off around 25,000 employees, reports layoffs.fyi. Surprisingly, this is happening even as tech workforces bounce back to pre-pandemic levels, and consumer confidence is growing. A professor at the University of Washington's Foster School of Business, Jeff Shulman, attributes this to a "herding effect" in the tech world. He says, "The layoffs seem to be helping stock prices, so companies see no reason to stop."
Copycat layoffs and social contagion
Shulman believes this trend has become the new normal: "Workers are more comfortable with it, stock investors are appreciating it, and so I think we'll see it continue for some time." Stanford Business professor Jeffrey Pfeffer calls this "copycat layoffs," explaining that tech industry layoffs are a form of social contagion where companies mimic others' actions. When one major tech firm cuts staff, competing companies do so too, providing cover for layoffs which compensate for poor decisions and failed investments/strategies.
Wall Street rewards cost discipline
Roger Lee, who operates the industry tracker layoffs.fyi, notes that Wall Street seems to reward tech companies for their cost discipline. This could encourage more firms in the sector to reduce expenses and let go of employees. The US stock market has hit multiple all-time highs this month, driven by the so-called Magnificent Seven tech stocks. Alphabet, Meta, and Microsoft have all made new records, with Microsoft's value now crossing $3 trillion.
A grim period for the tech sector
The year 2023 was the worst 12 months faced by the tech industry, since the dot-com crash of the early 2000s. The entire sector witnessed a bloodbath, with over 260,000 jobs lost in the US alone. At that time, Silicon Valley executives justified the layoffs, citing reasons like pandemic hiring binge, and weak consumer demand. They panicked and axed people, and the market reacted favorably. Now, "they continue to cut to weather a storm that hasn't fully come yet."
What's the situation back in India?
Walmart-owned Flipkart is axing 1,000 workers. This accounts for roughly 5% of its total workforce. Meanwhile, Swiggy is reducing its workforce by 400 employees. The company currently has around 6,000 employees. Paytm's parent company, One97 Communications has fired over 1,000 workers across various divisions. Finally, Cult.fit backed by Tata Digital and Zomato, has laid off around 120 employees, as part of a cost-cutting exercise.
