Why Are There So Many Layoffs and What's Behind Them

Layoffs are a harsh reality for many people. According to data from the Bureau of Labor Statistics, the number of layoffs has increased significantly in recent years, with 2020 seeing the highest number of layoffs since 2009.

Many companies are struggling to stay afloat due to the economic downturn caused by the COVID-19 pandemic. This has led to a rise in layoffs across various industries, including technology, retail, and hospitality.

The tech industry is maturing, which may be contributing to the layoffs we're seeing. This means that tech companies may not be on pace to acquire as many new customers since many people have already adopted their services.

In some cases, layoffs are a result of a weak economy or struggling industry. For example, the real estate industry experienced layoffs during the housing crash from 2008-12 and again when housing prices pulled back following the COVID-19 pandemic.

Companies may also issue layoffs in a department that is no longer strategically relevant or has become too bloated after aggressive hiring. Disney laid off 7,000 people in 2023, mostly in its media divisions, as it attempted to make its streaming unit profitable and control costs at its legacy media businesses where revenue was declining.

The tech industry has reached a point of maturity, which is a natural part of its growth cycle. As a result, tech companies may not be on pace to acquire as many new customers since many people have already adopted their services.

This maturity can be seen in the tech companies' focus on diversifying products or expanding globally, rather than solely focusing on growth.

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During the pandemic, tech companies saw a huge surge in demand for their services, leading to a massive hiring spree. In fact, Meta nearly doubled its employee head count, going from 48,268 staffers in March 2020 to over 80,000 by September 2022.

This overhiring was largely driven by the shift to remote work and online activities, such as online shopping, streaming, and taking classes. People were spending more time online, and tech companies thought this would be the new normal.

As a result, tech companies like Meta expanded their teams quickly, expecting the demand for their services to continue. However, as restrictions lifted and people returned to pre-pandemic lifestyles, the demand for tech services decreased.

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Now, big tech companies are removing the extra layer of employees hired during the height of the pandemic. In November 2022, Meta announced it was laying off 11,000 employees, a significant blow to those who had been hired just a few years prior.

Some smaller and midsize companies are still hiring tech workers, but the trend is clear: the pandemic overhiring is coming to an end.

Companies close due to various reasons, but one common factor is a weak economy or industry, as seen in the real estate industry during the housing crash from 2008-12 and the COVID-19 pandemic.

Layoffs can also occur when a business is struggling, as was the case for Disney in 2023 when it laid off 7,000 people in its media divisions to control costs and make its streaming unit profitable.

Economic downturns can have a significant impact on industries, leading to closures, as happened in the real estate industry during the housing crash.

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Companies may also close or downsize departments that are no longer strategically relevant, such as an auto manufacturer scrapping a particular vehicle model.

The decision to close a company is often not taken lightly, as it can have a profound impact on employees and the community, as Disney's layoffs in 2023 demonstrated.

Alphabet, the parent of Google, announced layoffs of 12,000 employees in January 2023, after its competitors like Meta and Microsoft also announced similar layoffs.

The layoffs at Alphabet were a result of a shift in strategy to focus on artificial intelligence, as CEO Sundar Pichai acknowledged the company had "hired for a different economic reality than the one we face today."

Meta Platforms cut 11,000 employees in November 2022, then another 10,000 in March 2023, totaling 21,000 layoffs in just a few months. Amazon also had multiple large cuts, including 10,000 employees in November 2022, 8,000 in January 2023, and 9,000 in March 2023.

Virgin Orbit cut 85% of its workforce, which is a staggering 675 staff members, and Accenture is cutting 2.5% of its workforce in 2023, estimated to be around 19,000 employees.

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Alphabet, the parent of Google, recently laid off 12,000 employees in January 2023. This move came after similar layoffs were announced by Meta Platforms and Microsoft.

The layoffs were a response to a shift in economic reality, with growth slowing down and artificial intelligence becoming a key area of focus. In a blog post, CEO Sundar Pichai acknowledged that the company had hired for a different economic reality than the one it faced today.

The layoffs reflected a shift in strategy to focus on AI, with the company eliminating roles that were no longer aligned with its priorities.

Meta cut 11,000 employees in November 2022, then cut an additional 10,000 people in March 2023, totaling 21,000 layoffs in just a few months.

Amazon had multiple large cuts, including 10,000 employees in November 2022, 8,000 in January 2023, and 9,000 in March 2023, resulting in a significant reduction of its workforce.

Virgin Orbit cut 85% of its workforce, which equals around 675 staff members, a staggering blow to the company that launches services for satellites and operates within Virgin Group.

Accenture is also cutting 2.5% of its workforce in 2023, which is an estimated 19,000 employees, a significant number that highlights the impact of layoffs.

Elon Musk said in a BBC interview that he has reduced Twitter staff by about 80%, cutting more than 6,000 employees since taking over, leaving the company with around 1,500 employees after layoffs.

SAP laid off 8,000 employees, a massive cut to its workforce, while Cisco cut 4,250 and PayPal cut 2,500, further emphasizing the trend of significant layoffs.

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Layoffs can be a sign of a company's strength, not weakness. Many tech companies that issued layoffs in 2022-24 did so from a position of strength, padding already wide profit margins in response to investor comments that their payrolls have become too bloated.

Layoffs can actually boost profits, which is why Wall Street often interprets the news as good for investors.

The stock market typically reacts positively to layoffs, with the stock going up rather than down.

However, it's essential to consider the reasons behind the layoffs. If a company is laying off employees due to a decline in business, it's a red flag for investors.

Cryptocurrency companies like Coinbase issued layoffs in 2022 and 2023, but the stock price recovered in 2024 when crypto prices increased.

Economic uncertainty is a major factor in the recent surge of layoffs. Debates about whether the U.S. is in a recession escalated after data from the U.S. Bureau of Economic Analysis in July 2022 showed a shrinking economy for the second straight quarter.

The International Monetary Fund (IMF) states that economic conditions hang in a balance, depending on the course of the war in Ukraine, monetary policy, and the pandemic. This uncertainty has led companies to turn to layoffs as a survival method to cut costs.

Investors are also putting pressure on companies to decrease expenses as revenues slow down. For example, TCI Fund Management called on Alphabet, Google's parent company, to reduce head count and take action for improved profitability.

Economic uncertainty is a harsh reality that many companies face today. Debates about a U.S. recession escalated after data from the U.S. Bureau of Economic Analysis showed a shrinking economy for the second straight quarter in July 2022.

The fear of a recession still looms in news reports, and economists are unsure about the future. Other conditions threaten the economy's health, such as the government debt ceiling, the war in Ukraine, the ongoing pandemic, and the rise in interest rates.

Layoffs are a company's emergency strategy when demand for its products and services dwindles. Sadly, employees are among the first to go when you need to cut costs.

The International Monetary Fund (IMF) states that economic conditions hang in a balance, depending on the course of the war in Ukraine, monetary policy, and the pandemic. This uncertainty has led companies to turn to layoffs as a survival method to cut costs.

Amazon, for instance, has pared back its workforce to almost 80,000 from April to September, with thousands more expected to be laid off in the coming days.

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Inflation hit the economy hard in June 2022, with consumers seeing price increases of 9.1% compared to the typical annual rate of 2%.

The economy softened as people started buying less to accommodate these higher prices. The cost of living jumped significantly, and people and businesses had to make cutbacks.

2022 saw the highest inflation rate in 40 years, according to the U.S. Bureau of Labor Statistics (BLS).

Laying off employees is typically one of the first cost-cutting measures for businesses due to inflation, as they are one of the largest company expenses.

Tech companies, such as Meta, Google, Instagram, Snap, and ByteDance, have business models that rely on selling ads, so they lose revenue when businesses cut back on advertising.

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Investor pressure is a real concern for big tech companies. Investors are pushing for job cuts to reduce expenses, citing slower revenue growth.

Alphabet, Google's parent company, is facing pressure from investors, including TCI Fund Management, which called for the company to reduce headcount and take action for improved profitability.

Meta, another big tech company, is also under pressure from investors. An investor from Altimeter Capital, Brad Gerstner, wrote an open letter to Mark Zuckerberg criticizing the company for being too large and emphasizing the need to reduce employees and expenses.

The results of these investor calls are already being seen. Meta has announced plans to lay off 11,000 employees, and Alphabet plans to lay off approximately 10,000 poor-performing employees.

Twitter is also in trouble, with a massive $13 billion debt and talks of more layoffs making the rounds.

Many workers hired during the pandemic were not entry-level employees, but experienced software engineers and developers earning salaries in the six figures with generous benefits. This is because companies thought the pandemic would be the new normal, and they expanded their teams quickly to keep up with the demand.

Companies are facing too many employees with redundancy and overstaffing, which is a result of the pandemic hiring frenzy. The surge in online activity brought tech companies record-level profits, leading to a hiring spree.

Large tech companies are removing the extra layer of employees hired during the pandemic as people return to pre-pandemic lifestyles. This is causing layoffs, with some companies announcing thousands of job cuts.

Some smaller and midsize companies are still hiring tech workers, according to the BLS. This is a contrast to the layoffs happening at larger tech companies.

The layoffs are not immediate, with some companies announcing job cuts that will take place over months. For example, UPS announced it would cut 12,000 jobs this year, but those reductions will take place over months, not all at once.

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Layoffs are a shorthand term to refer to corporate job terminations. They are typically mass firings, cutting hundreds or thousands of jobs and, unlike individual firings or terminations, done with little regard for an individual employee's performance.

A layoff can affect dozens of job losses or tens of thousands, depending on the size of the company and the economic challenges it's facing. Companies need to cut costs, and layoffs are often the easiest way to do so.

Corporations will refer to layoffs as employment terminations, separations, workforce reductions, or even job cuts, but those terms all mean the same thing: employees are losing their jobs.

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