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After a tumultuous year that saw the tech industry grappling with the fallout of the pandemic, 2024 was supposed to mark a return to stability. However, recent reports reveal that major players in Silicon Valley are once again wielding the axe, initiating a second wave of layoffs that has sent shockwaves through the sector.
In 2023, the tech industry endured its worst period since the dot-com crash of the early 2000s, shedding over 260,000 jobs amid pandemic-induced chaos. Executives pointed to a combination of factors to justify the mass layoffs, including a hiring spree during the pandemic, inflationary pressures, and sluggish consumer demand.
Fast forward to 2024, and the landscape appears markedly different. Tech companies have largely restored their workforces to pre-pandemic levels, inflation has moderated, and consumer confidence is on the upswing. Despite these positive indicators, the first month of the new year has witnessed a flurry of layoffs across the industry.
According to layoffs.fyi, nearly 100 tech companies, including heavyweights like Meta, Amazon, Microsoft, Google, TikTok, and Salesforce, have collectively shed about 25,000 jobs in the first four weeks of 2024. What's striking is that these layoffs come at a time when tech firms are enjoying unprecedented profitability and sitting on substantial cash reserves.
Jeff Shulman, a professor at the University of Washington's Foster School of Business, attributes the layoffs to a 'herding effect' in the tech industry. He suggests that companies optimise their stock prices by trimming their workforces, viewing layoffs as a strategic move rather than a necessity for survival.
While some smaller startups are indeed struggling financially and resorting to layoffs, the trend among large, publicly traded tech firms is primarily driven by a desire to appease investors.
Shulman observes that layoffs have become normalised within the industry, with workers and investors alike increasingly accepting them as part of the status quo.
The recent uptick in interest rates and a shift towards investments in generative AI are cited as contributing factors to the layoff frenzy, but experts argue that these explanations fall short of fully elucidating the trend. Instead, there's a growing consensus that layoffs in the tech sector are fueled by a culture of emulation and imitation among companies vying for market favour.
Stanford business professor Jeffrey Pfeffer characterises the phenomenon as 'copycat layoffs,' where one company's downsizing triggers a domino effect across the industry. Pfeffer argues that collective layoffs deflect attention from individual companies' strategic missteps, effectively camouflaging internal challenges amid broader sector-wide turmoil.
As Wall Street continues to reward tech companies for their cost-cutting measures, the cycle of layoffs shows no signs of abating. The soaring valuations of tech stocks, exemplified by Microsoft's recent milestone of surpassing $3 trillion in worth, further incentivise companies to prioritise shareholder interests over workforce stability.
Some also believe that the tech industry is trapped in a paradox where short-term gains in stock performance overshadow long-term concerns about employee welfare and organisational sustainability.