The Tech Layoff ‘Contagion’ – The Atlantic

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The American economy is doing well. So why are tech companies laying off tens of thousands of employees?

But first, here are three new stories from The Atlantic.


Last Friday, Google’s parent company Alphabet laid off 12,000 of its employees – about 6 percent of its total workforce. Yesterday, Spotify announced layoffs for a similar percentage of its employees.

By now you might be used to the constant news of tech company downsizing. According to one estimate, about 130,000 people have been laid off from big tech and media companies in the last 12 months. The reasons for this are not obvious. America’s overall unemployment rate is 3.5 percent, the lowest level in the 21st century. And technology has long been one of the country’s most dynamic industries. So why is it fighting for the American economy at an otherwise optimistic moment?

Our contributors Annie Lowrey and Derek Thompson, both of whom recently published articles on tech layoffs, offer several explanations for this trend. The first and most obvious is the US Federal Reserve’s attempt to curb inflation by raising interest rates sharply over the past year. As Annie writes:

Pretty much all American companies in every industry rely on borrowed money in one way or another… But many tech companies have been specially conditioned to very low interest rates: Uber, a huge and long-established company, for example, loses money on many trips, and thousands and thousands upon thousands of startups are making huge losses and relying on their financiers to pay their bills as they grow.

But as inflation and then interest rates rose, these companies — which made long-term promises at the expense of short-term profits — “were beaten up,” as Derek puts it.

The second reason: the pandemic. Annie reminds us what the economy was like when Americans were in the midst of isolation:

People stopped going to the movies and watched more movies and shows at home — hurting AMC and helping Netflix and Hulu. Families stopped shopping in person as much and began buying more things online – which depressed inner cities and boosted Amazon and Uber Eats, and spurred many companies to pour money into digital advertising. Companies are stopping hosting corporate retreats and starting to allow meetings online – stealing money from hotel chains and empowering Zoom and Microsoft.

Here’s Derek how that played out:

Many people predicted that the digitization of the pandemic economy in 2020, like the rise of streaming entertainment and online apps for home food delivery and fitness, were “accelerations” pushing us all into a future that… would come anyway. In this interpretation, the pandemic was a time machine that accelerated the 2030s and boosted technology valuations accordingly. Hiring has boomed across the technology space as companies added tens of thousands of employees to meet this acceleration expectation.

But maybe the pandemic wasn’t really a catalyst. Maybe it was a bubble.

Consumer spending has returned to normal, and Americans are paying for restaurants, hotels, and flights again. As a result, tech companies are seeing declining revenue in parts of their businesses, and some business leaders have admitted they’ve been growing too fast. (Apple is an exception that might prove the rule: The company has been expanding at a slower pace than some of its peers and has so far avoided layoffs.)

But even though tech companies face a hard dose of reality, many of them are still very profitable. And as Annie notes, the future looks brighter: “The Fed is likely to stop raising rates soon. Artificial intelligence has started making amazing breakthroughs… Maybe a tech summer is upon us.”

Covering the apparent collapse of the tech industry in November, Derek used an amusing and useful metaphor: The industry is in the midst of a mid-life crisis. And that means when the crisis is over, a new era will begin. “One mistake a journalist can make when observing these trends is to assume that because the software-based technology industry now appears to be struggling, things will stay that way forever,” he writes. “More likely, we’re in a pause between technological eras.”

Some argue that while CEOs wait out this pause, they are copying each other – laying off workers not simply as the inevitable consequence of the changing economy, but because everyone else is doing it. “CEOs are normal people who deal with uncertainty by copying behavior,” writes Derek. He quotes economics professor Jeffrey Pfeffer, who told Stanford News, “Was there a bubble in valuations? Absolutely… Did Meta overrent? Probably. But is that why they fire people? Of course not… These companies all make money. They do it because other companies do it.”

Pfeffer believes this “social contagion” could spread to other industries. “Layoffs are contagious across industries and within industries,” he said in the Stanford News article. If so, the story of tech layoffs could become a much broader story about working in America.


Today’s News

  1. A gunman killed seven people and injured another in a mass shooting at two locations in Half Moon Bay, California, just two days after the mass shooting at a dance hall in Monterey Park.
  2. An attorney for former Vice President Mike Pence found classified documents during a search of Pence’s Indiana home.
  3. The Senate Judiciary Committee held a ticketing hearing at which Ticketmaster’s parent company testified about problems with Taylor Swift’s concert ticket sales.

Evening reading

The Atlantic

Twitter has no replies for #DiedSuddenly

By Kaitlyn Tiffany

Lisa Marie Presley died unexpectedly earlier this month, and within hours, due to a lack of evidence, Twitter users were suggesting that her death was caused by the COVID-19 vaccine.

The @DiedSuddenly_ Twitter account, which has around 250,000 followers, also immediately started tweeting about it using the hashtag #DiedSuddenly. In recent months, news of sudden deaths or serious injuries — including the death of sportswriter Grant Wahl and the sudden collapse of Buffalo Bills security Damar Hamlin — have been met with a similar reaction from anti-vaccination activists. Although most of the incidents had obvious explanations and were almost certainly unrelated to the vaccine, which carries an extremely low risk of causing heart inflammation — much lower than the risk of COVID-19 itself — the idea was that the gunshots caused mass deaths cause, fueled widely by right-wing media figures and a handful of well-known professional athletes.

Read the full article.

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“Patience and I have traveled hand in hand / So many days I’ve grown to trace / The lines of sad sweet beauty on her face / And to understand all its veiled depths.”

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Layoffs are not an abstraction for the people who have lost their jobs. With that in mind, I’ll leave you with some advice I read in New York Magazine’s Dinner Party Newsletter: Phoebe Gavin, who was fired from her job as Executive Director of Talent and Development at Vox last week, wrote on Twitter that while you You may be tempted to reach out to a lost loved one or acquaintance immediately, but that person desperately needs to hear from you two weeks later when they have had time to process this and begin to figure out what’s next. So mark your calendar to check back in.

– Isabel

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