In 2022, the global economy entered a period of economic uncertainty as the latest round of tech layoffs indicates, is spilling over into this year. The geopolitical upheaval in Europe triggered the fed to hike interest rates thereby increasing inflation that ultimately impacted consumer spending. The recent spur of tech layoffs led to comparisons of the pandemic bubble (burst?) with the dot com bubble burst. Let us see why this is a false equivalence.
While tech layoffs bear some semblance with those observed in the early 2000s in absolute terms, the scale of marching orders being handed to tech workers in 2022 and 2023 is significantly smaller, as outlined in the table below.
|Year||Total Tech Workforce (Approximate)||Layoffs||Laid Off as % of the Total Tech Workforce||Nasdaq Composite Index (January 1)||Nasdaq Composite Index (December 31)||
Dot Com Bubble Burst
COVID-19 Aftermath and Russia-Ukraine War
* Layoffs so far in 2023
Nevertheless, 1,035 companies fired 158,951 tech employees in 2022, according to Layoffs.fyi data. So far in 2023, 173 companies have offloaded 56,570 employees. Some of the companies that have resorted to axing employees to minimize operational expenses include:
- Amazon – ~18,000 employees and shut down several warehouse expansions and other projects
- Meta – ~11,000 employees
- Microsoft – 10,000+ employees
- Salesforce – 7,000+ employees
- HP – ~6,000 employees
- Google – ~12,000 and shut down several projects, slowed down hiring
- Intel – nearly 20% of its ~121,000 employees
- Snap – ~1,300 employees
Largely undertaken as a cost-cutting measure, layoffs are a way for companies to prepare for the worst, i.e., an economic recession. So how did the tech sector get here?
Why Are Tech Layoffs Impacting Thousands?
Two major global events shaped organizational strategies in recent years, viz., the COVID-19 pandemic and the conflict in Ukraine.
The tech sector was able to withstand the initial shock of COVID-19-induced and economic activity-stalling global lockdowns. A record number of users/employees and companies resorted to the web for entertainment, work, communication, etc., pushing tech companies to deliver new products and services to enable users to keep their jobs and manage affairs virtually.
While economists’ expectations of a V-shaped recovery, i.e., a rapid bounce to pre-pandemic levels with higher spending, didn’t exactly materialize, it did uncover the issues in the global economic order.
The post-COVID-19 (if we can say that) recovery has actually been K-shaped, i.e., some sectors perform healthily while others may stagnate or even decline. Technology was one of the sectors that, in early 2021, was on the upper arm of the ‘K.’ It seems like tech isn’t there anymore.
Tech companies took on the surging demand for tech services by going on a hiring spree that included the onboarding of more than ~87,000 people in 2021. According to CompTIA, the tech sector hired 177,705 people the following year.
Max Nirenberg, chief revenue officer and managing director for North America at Commit USA, told Spiceworks, “Many notable tech companies who conducted layoffs in 2022 and 2023 mismanaged their budgets and practiced poor team building in previous years, particularly when trying to scale rapidly, or when estimating which skills needed to be brought on full-time when launching a new product or service.”
For instance, post Elon Musk’s takeover, Twitter slashed its headcount by nearly half, and the company is reportedly operating with 550 full-time engineers. How this can hamper innovation remains to be seen.
Amazon CEO Andy Jassy and Salesforce CEO Marc Benioff admitted the same in respective announcements earlier this month that the rate of hiring was greater than it should have been. “I’ve been thinking a lot about how we came to this moment,” wrote Benioff. “As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that.”
What To Expect From the Tech Sector in 2023?
Nirenberg went on to highlight the deep-rooted need for highly skilled techies required in tech development. “It’s important to remember that developing new technology has never been more competitive, complex, or challenging. For instance, a plethora of different experts may be needed to develop software, IoT or other hi-tech solutions,” he said.
Niremberg added, “In today’s landscape, it’s never been more important to do more with less and look for new ways to manage rising costs while continuing to innovate with technology and meet consumers’ rising expectations.”
However, overheads could still rise, especially those that may be deemed as supplementary. “Unnecessary costs can quickly pile up for recruitment, salaries, employee retention, office space, equipment, and more, which can quickly lead to burning through budgets.”
This is why companies will continue to take drastic measures, as they have been over the past three quarters, at least through 2023. “Leaders who are facing hardships are having to course correct. This means many hi-tech businesses are currently reassessing how they can continuously scale resources based on real needs, both in the skillsets required and the number of experts needed at one time,” Niremberg opined.
“Likely, this will result in more [tech] layoffs in the short term, but the employment situation will stabilize, while costs for retaining top talent in house will continue to soar.” Basically, companies necessarily have to extract a higher ROI from existing offerings.
The good news is that 74% of tech executives who responded to the CNBC Technology Executive Council survey said their organizations would likely spend more on new technology in the next 12 months, with Gartner projecting that global IT spending would grow by 2.4% in 2023 to $4.5 trillion. 22% of the respondents said spending is expected to be at similar levels.
52% of respondent organizations in Nash Squared’s Digital Leadership Report also said they expect tech budgets to increase in 2023, while 31% of its respondents anticipate tech budgets to remain the same this year.
The bad news is that while higher spending entails higher revenue, it doesn’t necessarily mean companies will immediately splurge on talent, considering the following:
- There is a reduced demand for certain services as pre-pandemic norm returns
- Higher cost of capital due to rising interest rates (the fed increased interest rates to 4.25%-4.5%, the highest in over one-and-a-half decade)
- Crypto implosion (especially after Bitcoin pullback and FTX bust)
Derick James, chairman of the board at Lupovis.io, told Spiceworks, “2022 was a tumultuous year. With the unwinding of Covid at the same time as a major war in continental Europe and the resulting surge in inflation, there has been a disjoint consumer behavior driven by a step change in inflation and investor confidence in an uncertain market.”
Meanwhile, 39% of respondents also said their companies’ tech workforce would rise in 2023, while 52% of tech executives said the number of tech employees would remain steady throughout the year.
“Major tech sector companies have already had layoffs as they adjust to the new environment, but I think many smaller players will adjust to expecting slower growth and layoffs at the smaller scale companies will not be as significant as the major players. The main effect will be constrained expansion, allied to a more difficult inward investment landscape,” James added.
Tech Sub-Domains That Will Drive Growth and Create New Job Opportunities in 2023
Even as the tech sector continues to economize to avoid the adverse effects of (over)spending in an uncertain economic environment, companies that have a solid, self-sustaining business model, i.e., those that don’t aren’t overly dependent on external investments, and with clear profitability will continue growing.
According to the U.S. Bureau of Labor Statistics #JobsReport, the tech industry added 17,600 employees in December 2022, marking it as the 25th consecutive month of net employment growth for the sector. Overall, the U.S. economy added 130,000 tech workers in December 2022, thus decreasing unemployment to 1.8%.
Meaning there is scope for new positions, even in what seems like a spiraling down tech sector driven primarily by the exodus out of Big Tech and other large companies and probably venture capital-backed enterprises.
The information technology industry is also one of the most in-demand sectors for remote workers going into 2023. HR services provider Remote analyzed Glassdoor data to determine which job roles and industries currently offer the most lucrative remote career opportunities.
The U.S. tech job roles with the most remote opportunities in 2022:
|Job Role||U.S. % of tech jobs that are remote||Average salary for a Remote role ($)||Average industry salary ($)|
As the table above indicates, skilled techies have the best chance of finding a remote job in web development in the U.S., followed by software engineering, data science, cybersecurity, and data analysis.
Remote-working web developers also have the opportunity to take home $95,000 per annum as compensation, which is 31% higher than the U.S. industry average. Meanwhile, remote work-seeking software engineers, data scientists, cybersecurity professionals, and data analysts also have the opportunity to earn 28%, 36%, 55%, and 18% higher salaries, respectively, than the U.S. industry average.
Nearly 15.4% of the U.K. and U.S. working population were working remotely or in a hybrid role in 2022.
Both Niremberg and James opined that smaller companies would be the ones that will benefit from a bigger talent pool to choose from.
“Recent mass layoffs have shown that many top executives in the world’s largest companies have come to perceive employees as fungible commodities, not people,” Niremberg continued. “As a result, many skilled tech professionals aren’t eager to reenlist to the big tech companies – and instead may opt to join new startups, or even outsource their skills as a freelancer or within a specialized staffing agency.”
Specifically, cybersecurity is the sector to watch, according to James. Repercussions on cybersecurity from geopolitical, healthcare, and other events are leading companies, governments, et al. to rethink their posture in the information age.
“Ironically, the uncertainties created by the war, evidenced in a number of near-consumer tech sectors, have created opportunities elsewhere. Evidence of nation state cyber activity has been more prominent, and this has provided a boost to a sub sector which has already been seen as on a growth path,” James said.
“Cyber is now becoming a primary concern at C-level across all tiers of the market from Fortune 100 to SMEs. This can provide a host of job opportunities in the coming year and beyond.”
Outsourcing and others
Additionally, Niremerg pointed out that an increasing number of companies are resorting to short-term outsourcing as an alternative strategy to offering full-time employment. “We’ve seen demand for outsourcing skilled tech roles grow exponentially in recent years, and see no signs of this trend slowing down,” he said.
“We also expect greater growth in key sectors like cloud, IoT, and fintech in 2023, which will likely lead to more job opportunities across different functions and roles.”
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