In 2022, more than 140,000 tech workers were laid off, marking a 649 percent increase over layoffs during the previous year. In the first three months of 2023, record layoffs continued, with more than 100,000 tech workers being let go.
What is driving these layoffs? There are a variety of factors and they all begin with the state of the economy.
“Currently, there are a tremendous number of signs that the economy is struggling,” says Michael Gibbs, CEO of Go Cloud Careers. “There are inverted yield curves, banks failing, and customers slowing their technology spending because they are preparing for a recession.”
Go Cloud Careers is an educational organization that trains students in the skills needed to achieve high-performance cloud computing careers. The Go Cloud program is founded on the singular goal of empowering its students to get hired for top tech jobs. To accomplish that, it goes beyond providing technical proficiency and certifications, giving its students a deep knowledge of cloud computing and the soft skills that are necessary to build an elite tech career.
Gibbs believes that the move toward a leaner, recession-ready business model is one of the factors that is driving record tech layoffs. The numbers involved in the layoffs are much higher than they have been in recent years because of stack ranking, a labor management approach that is making a comeback.
“Traditionally speaking, technology companies maintained top talent by hiring the best workers that they could find,” Gibbs explains. “Then, at the end of the year, they would stack rank all of their employees — organizing them from least-productive to most-productive — and get rid of the bottom five to ten percent. The labor shortages in the tech industry caused by the Covid pandemic led tech companies to depart from this practice and hold onto weaker talent. Now, however, they are laying off many of those at the bottom.”
Overestimating growth is another factor that experts believe has resulted in the mass layoffs currently seen in the tech space. “Tech companies assumed that the exponential growth that took place during the pandemic was going to continue forever, and it did not,” says Gibbs. “As a result, organizations hired far too many technology professionals.”
The Covid pandemic forced many companies to accelerate their digital transformation efforts as a means of resourcing remote workers. This required increased investment in technology, sparking high revenues for tech companies. But as rumors of an eventual recession have increased, companies have cut back on that spending.
An increase in automation is another factor that is driving tech layoffs. In general, process automation does away with the need for certain workers by leveraging technology to accomplish their tasks. In recent years, developments in artificial intelligence have empowered automation across the tech world.
“ChatGPT and other generative AI tools are being used to replace many hands-on technology workers,” says Gibbs. “Chat GPT-4, which is still beta software, can literally write code. The work that many technology professionals have been doing can be done by ChatGPT better, faster, and cheaper. And Chat GPT does not ask for a raise, does not ask to go on vacation, and doesn’t complain about working 24 hours a day.”
Finally, issues with employee productivity have led to an increase in layoffs in the tech space. Stats provided by the US Bureau of Labor Statistics show that productivity in technology and other sectors saw a record decline during 2022. While leaders in the tech space are struggling to identify all of the factors driving the decline, some experts feel that the practice known as “quiet quitting,” in which people cut back their effort to the bare minimum, is to blame.
“Many workers in technology companies have just not been working at the level they should,” explains Gibbs. “They’ve been spending work time on TikTok, Instagram, Twitter, and other personal pursuits, joining in the practice of quiet quitting. These workers, who some companies see as unproductive and resistant to company goals, are among those being targeted by the layoffs.”