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Explained: Factors Driving Tech Layoffs in 2023

What Factors Driving Tech Layoffs in 2023

Published on Feb 13, 2023

The pandemic witnessed a hiring spree in the tech sector. But employers are now resorting to mass layoffs due to the upcoming economic recession. While over 150,000 people were affected by the 2022 tech layoffs, the wave is expected to continue in 2023 as well, with over 68,500 new job cuts in the first month of 2023 alone. Media coverage has focused on the top firms behind the layoffs as well as the consequences for employees. 

A worrying statistic about the recent tech layoff research has highlighted that just over 10% of the workers have found a new job as of January 2023. While there are still on the job market, the competition for the same positions alters during hiring and layoffs.  

As a result, qualified individuals with strong education and experience often remain in for a long time in the market or end up switching careers. But the recent tech layoff has presented valuable insights into what led to the mass job cuts and why. 

Read more: How can Leaders Establish a Culture of Curiosity and Innovation in their Organization? 

Why are there tech lay offs 2023

What Changed for Top Corporations Post-Pandemic? 

In the two years of the pandemic, tech organizations witnessed record revenues as people shifted to online services to get things done, from shopping online on e-commerce platforms to shifting their entire workspace on platforms including Zoom, Google Meet, and Microsoft Teams. This escalation indicated that the demand for skilled tech workers during the pandemic rose, thereby setting off fierce competition between tech giants and startups to attract new talent. From handsome paychecks to perks, nothing was off the table. There was also the availability of abundant capital to startups, who used the money to guarantee that even they could outbid the global tech companies to attract skilled talent.  

But as the pandemic eased in 2023, the invasion of Russia on Ukraine and central banks around the world sounding cautious about an impending recession worsened the situations for tech organizations. 

Impact of Tech Layoffs 

  • Loss to the Workers: Layoffs are damaging to the affected employee, psychologically and financially, and their families, colleagues, and other businesses. 

  • Decrease in Customer Prospect: When a company decides to lay off its employees, it sends out a message to its customers that the organization is undergoing a certain crisis. 

  • Emotional Distress: The employees laid off suffer the most distress, but the remaining employees also suffer emotionally, thereby causing the productivity level of other employees to decrease. 

Read more: The Growing Significance of Technology as a Sustainable Business Asset 

Impact of Tech Layoffs 

Tech Layoffs: Top Corporations   

In 2022, the tech sector laid off more than 1,50,000 employees, and several job cuts were announced since the start of the new year. Four of the top tech companies in the U.S.- Google-parent Alphabet, Amazon, Facebook-owner Meta, and Microsoft accounted for 51,000 of the total tech layoffs announced in the past few months. In 2022, tech layoffs were up 649% compared to the previous year, as per the report published by consulting firm Challenger, Gray & Christmas Inc. 

  • Amazon: E-commerce, cloud computing, and streaming giant Amazon, in January, said it is likely to cut 18,000 jobs or 6% of its workforce in company-wide layoffs. 

  • Google: Alphabet, the parent company of Google, announced on January 20 that it would be laying off 12,000 jobs or 6% of its workforce. 

  • Meta: Facebook-owner Meta Platforms Inc. announced in November 2022 that it would be cutting off more than 11,000 jobs or 13% of its workforce. This mass layoff was considered the first of its kind in Meta’s history of operation. 

  • Microsoft: The tech corporation announced that it would be cutting 10,000 jobs or less than 5% of its workforce by March 2023. 

  • Salesforce: Tech company Salesforce, headquartered in San Francisco, announced on January 4 that it set to lay off 10% of its jobs along with closing some offices. 

  • Spotify: Widely renowned music streaming platform Spotify disclosed that the company is set to cut 6% of its global workforce.  

  • Twitter: Following the takeover of Twitter by Tesla CEO (Chief Executive Officer) Elon Musk, the social media company made aggressive job cuts and laid off half of its workforce of about 3,700 employees across different departments, including communications, content curation, and engineering. 

Read more: Next In: Enterprise Sustainability Investments in Technology 

what is the reason for layoffs in 2023

Reasons for Tech Layoffs 

  • Looming Recession: While the pandemic had slowed down the growth, 2022 witnessed Russia's invasion of Ukraine and central banks globally sounding cautious about an impending recession. While many organizations were apprehensive of potential economic recession, inflation soared in most parts of the world. The International Monetary Fund, or IMF (International Monetary Fund), forecasted that the global GDP (Gross Domestic Product) growth for 2023 will be gloomy.  

  • Cost Cutting: One of the major reasons for layoffs for organizations has been cost-cutting, as they were not able to make enough profits to cover their expenses or were requiring substantial extra cash to pay off their debt. Many startups also faced this trouble, in the edtech and e-commerce sectors, in 2022. 

  • The Fall in Dependence on Online Platforms: With the pandemic easing, consumer sparing time on the internet has gone down. This has resulted in heavy losses to these tech companies. During the pandemic, overall consumption witnessed an upsurge, following which the companies decided to increase their output to meet the market requirements. However, this has significantly come down. 

Reasons for Tech Layoffs 

Tech Layoffs 2023: Most-affected Positions 

The job cuts in big tech companies are garnering the attention of the public the most. With major tech firms headquartered in the US, nearly 90% of the layoffs occurred there. Analysts believe big tech companies are trying to right-size their growth instead of downsizing. 

Tech corporations that hired aggressively during the pandemic envisioned rapid growth as the “new normal. But they are now endeavoring to shrink headcounts back to where they were earlier. Meanwhile, Twitter saw layoffs in the aftermath of Mr. Musk’s turbulent takeover. 

The largest groups of tech corporations laid off their employees that do not hold tech jobs which accounted for 27.8% working in HR (Human Resources) & Talent Sourcing and 22.1% software engineers. This was followed by marketing employees with 7.1% and customer service with 4.6%.  

what is driving tech layoffs

There has been one similar pattern in the distribution of layoffs across positions at top tech corporations, including Twitter, Amazon, Meta, and Google. But while HR departments took the biggest hit at Amazon, Microsoft, and Meta, the software engineer position was most affected at Twitter and Google. 

Read more: Why Investing in Employees Enables Better Business Results? 

Navigating The Aftermath 

The job market is evolving at a constant pace, with some positions becoming obsolete due to refinements in technology and automation. However, new opportunities are also emerging. But to thrive in today's competitive market, it is vital to possess the ability to adapt and stay updated with the latest innovations. 

While industries have a long way to go regarding fairness in the tech sector, the current layoffs are compelling them to take a considerable step back. With hiring freezing and tech corporations opting for mass layoffs, recruitment teams have become obsolete. This also hints that jobs are beginning to be automated. The layoffs partially resulted from the tech organizations planning to invest in artificial intelligence (AI) and automation. Tech giants like Microsoft and Google have announced their plans to invest more in AI-powered solutions such as ChatGPT.  

Factors Driving Tech Layoffs in 2023

Layoffs in the tech sector are continuing. Tech giants, including PayPal and Groupon, are just a few companies that have recently announced sweeping layoffs. In U.S.-based tech companies, more than 66,000 workers have been laid off in mass job cuts so far in 2023, a recent Crunchbase News report highlighted. And with the year just getting started, many organizations are expected to follow them. But it hints at one question - Could this be a reason behind the mass layoffs? 

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