> The tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing. If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it. Layoffs are the result of imitative behavior and are not particularly evidence-based.
Or, well, maybe a price to earnings ratio of >60 at tech companies is not sustainable in the long term.
Also, net margins across the whole sector have been decreasing lately.
Comparisons from Q3 2021 vs Q3 2022:
- Meta's went from 32% to 15%
- Amazon's from 7% to 2%
- Google's from 29% to 20%
> Could there be a tech recession? Yes. Was there a bubble in valuations? Absolutely. Did Meta overhire? Probably. But is that why they are laying people off? Of course not. Meta has plenty of money. These companies are all making money. They are doing it because other companies are doing it.
Meta also loves having a profit margin of 40%. Why? Because big profit margins also mean higher paper value of executive's stocks. I believe that when advertising revenue and growth tumble, it's the easiest to fire people to maintain margins.
> Layoffs often do not increase stock prices, in part because layoffs can signal that a company is having difficulty.
When Zuckerberg announced on 9th Nov 2022 that he'd reduce Meta's work force by 13% the stock rallied by 22%. Same for Amazon (20% rally after announcement of layoffs).
But I don't know! Stocks often rally when the business itself is good and you announce that the very good profit margin stays. I wouldn't expect this to work for companies who are still burning a lot of money, but it's probably a good method to drive up stock prices at companies which already make lots of money.
> Moreover, layoffs don’t work to improve company performance, Pfeffer adds. Academic studies have shown that time and time again, workplace reductions don’t do much for paring costs. Severance packages cost money, layoffs increase unemployment insurance rates, and cuts reduce workplace morale and productivity as remaining employees are left wondering, “Could I be fired too?”
Yes, I wouldn't expect productivity to increase after lay-offs either. But if productivity decreases less than the money you're saving within the next year or so, it's still a good deal for the company, I guess?
The real question I have about this is where the average break-even point lies. How many months does it take until a lay-off in this environment becomes profitable?
> When the economy turns back in the next 12, 14, or 18 months, they will go back to the market and compete with the same companies to hire talent
Even he does not know when the economy turns back.
> Layoffs kill people, literally. They kill people in a number of ways. Layoffs increase the odds of suicide by two and a half times. This is also true outside of the United States, even in countries with better social safety nets than the U.S., like New Zealand.
> Layoffs increase mortality by 15-20% over the following 20 years.
I believe this is unfortunately true, especially if you wholeheartedly did your job.
However, I'd like to set the current lay-offs into context: Tech accounts for 50% or more of the lay-offs; tech only makes up 40-year low. The last time we had a rate this low was 1969.
Meta had 45k employee pre-covid. In November 2022 they had 85k employees, so almost doubled during covid. In this context a reduction of 13% almost sounds like a rounding error. Which other sector had such excessive labour growth during covid?