Why are layoffs happening in tech – and what can recruitment learn?

Recruitment can provide a weathervane for a company as a whole, if not an entire sector. If you see recruitment efforts towards a hiring drive, identifying and advertising for new profiles, then the times are good. If there are a growing number of hiring freezes and layoffs, then there are clouds on the horizon. It’s fair to say that the clouds are growing now in the tech sector.

Meta laid off more than 11,000 employees in early November, representing 13% of its staff. HP have announced plans to shed between 4000 and 6000 employees before 2025. Amazon is reportedly ready to make the most significant job cuts in its history. Around half of Twitter’s 7500 employees lost their jobs after Elon Musk’s well-publicised takeover. Salesforce, Netflix, PayPal, Walmart.com, Cisco, Spotify and Lyft have all carried out similar layoffs. Uber has implemented a hiring freeze. There is even a tracker – layoffs.fyi – that provides a grimly fascinating data-driven view of tech start-up departures since Covid. These types of drastic staff reductions have a knock-on effect on not only the work that recruitment does, but also the structure of recruitment departments.

Why is this happening? Tech companies known for their financial prowess and global reach are letting workers go en masse; companies that are part of a sector that not only successfully weathered the pandemic, but experienced an economic boom once it was over. It seems inexplicable, but the truth is that there isn’t one single reason.

The economic factor

The possibility of an impending recession, fed by increasing inflation, is dominant in everyone’s mind. The post-pandemic economic boom that occurred in tech – with accelerated digital transformation on a global scale – has subsided. Many remote-working employees have returned to the office. The market is cautious. A hiring slowdown after a fast growth period, caused by a unique and one-off catalyst like the Covid pandemic, was always extremely likely. Growth cycles always have to come to an end. Meta had doubled in size to 87,000 workers during the pandemic; cutting 13% of its staff now that the economy has descended to pre-pandemic levels seems like more of a natural part of the cycle than an alarming example of a sector in trouble.

With this in mind, companies are taking precautions. The sudden wave of layoffs are a measure to avoid being blindsided by possible economic downturns in the future.

Sometimes, where there is crisis, there is also opportunity. There is a chance for smaller organisations, working with in-house recruiters or external agencies, to acquire the talent that has been cast out by the big fish of the tech sector. This is even a moment for traditional firms – bricks-and-mortar retailers, for example – to modernise and improve their digitalisation by attracting tech talent that under normal circumstances they would find difficult to hire. They can restructure workflows, adopt hybrid working models, update cybersecurity – many of the processes that the tech sector already undertook during the pandemic.

Harvard Business Review points out that layoffs are flooding the job market with talent and that, essentially, we are seeing a reversal of the mass overhiring that took place during Covid.

Unique factors

Inflation, and the possibility of recession, aren’t the only driving forces behind the mass layoffs in tech. Undoubtedly the most high-profile news story from the sector in recent months is Elon Musk’s takeover of Twitter – a downsizing that he attributed to lack of profitability but is realistically more complex. Many crypto start-ups have downsized also, spooked by the bankruptcy of cryptocurrency exchange FTX.

So what lessons do these stories hold for recruitment? Companies must plan for the long-term to overcome periods of uncertainty. Twitter has experienced an astonishing talent drain and alienation of key workers in a short space of time. Those disaffected employees will be inevitably snapped up by smart, proactive recruiters with an understanding that their job loss was beyond their control, working for a company that wants to offer candidates an opportunity, not only a salary. The trend towards work that aligns with identity and values during the pandemic hasn’t disappeared. Gartner’s ‘Future of Work’ survey found that 52% of employees said the pandemic made them question the purpose of their jobs. Recruiting teams that can tap into that desire will find success.

In conclusion…

The unexpected and inflated economic success that tech companies experienced during the pandemic ironically makes them most vulnerable to bumps in the road. However, we should remember that many of the tech companies making layoffs are especially visible, often based in Silicon Valley or California as a whole, and represent a small slice of the tech sector in real terms. Recruitment remains strong in other areas, even with smaller businesses – roughly half of all US companies under 500 employees have increased hiring in 2022 compared to 2021 – and hiring freezes and layoffs aren’t always indicative of an oncoming recession.

Many of the post-pandemic trends still hold firm late into 2022. The desire for candidates to find meaning and aligned values in their work remains beyond economic fluctuations. Recruiters and recruitment agencies must continue to put forward a vision of a company that people want to work for with motivations beyond economic reward.

Continental Search Alliance recruits for mid-level to C-suite executive positions from scalable startups to the world’s largest tech firms, combining tech and digital expertise with extensive reach across EMEA and APAC.