Why Silicon Valley is scuffling with a spate of layoffs

The tech sector tumbles as the COVID pandemic eases. Here’s what tech workers need to know about the current job market.

The end of the pandemic is proving to be a difficult time for the tech sector, as the tech-heavy Nasdaq Composite is down 4% since April — the worst-performing month since the 2008 financial crisis Nasdaq is down 28% year-to-date.

The stock market collapse is not only bad for investors who have poured their hard-earned cash into technology, but also equally alarming for those working in the tech space. Many companies, including video-sharing site Cameo, financial firm OnDeck and financial services firm Robinhood, have all laid off employees since May. By the end of July, more than 30,000 tech workers in the US had lost their jobs. Others, like social media companies Meta and Twitter, have both temporarily halted hiring.

The big question here is: why? Let’s take a look at the reasons for these layoffs, the crash in tech stocks, and what it means for tech workers.

Reasons for layoffs in the technical field

changes in consumer behavior

The most prominent reason behind the massive layoffs of tech company founders is a shift in the market. The “shift” refers to people not being as dependent on technology as they were in the pandemic’s heyday. When COVID first broke out, people needed to use technology for absolutely everything, and that helped the tech industry grow.

Since that’s no longer the case, growth in the tech sector has slumped, affecting tech workers. One of the companies that has seen a massive slump is at-home fitness company Peloton. Some companies, like Samsung and Wayfair, had begun offering Peloton’s corporate wellness program to their employees in 2021. However, as demand for home fitness dropped, the company lost 90% of its value, rising from $47 billion in 2021 to $4 billion as of May. In February 2022, the company laid off 2,800 employees, who commented that the entire layoff process felt “cold and mandatory.”

Rising inflation and high interest rates

Another factor that has negatively impacted technology companies is the rise in interest rates since March this year. In 2021, companies found financing easily due to low interest rates. This allowed them to keep growing and expanding without thinking of a backup plan to handle a slower pace of fundraising. However, as the US grapples with high inflation rates of 8-9% this year, rising rates are the way to break out of an inflationary cycle.

On June 15, the US Federal Reserve increased interest rates by 0.75% – the largest increase since 1994 – to 1.75% from 1.00% in May. This rate is expected to continue rising, with forecasts predicting it will reach 2.50% by the end of July. This has prompted investors to reconsider whether companies that have thrived under lower interest rates would be able to stay afloat. That’s because tech companies have a history of underperforming when interest rates are higher and borrowing more expensive.

When interest rates are high, it becomes more difficult for companies to raise funds. A case in point is OnDeck, which laid off 25% of its workforce in May. According to Tech Crunch, the company allegedly tried to raise a fund of between $100 million and $150 million but was only able to land $40 million, forcing the company to scale back operations to cut costs.

What does this mean for techies?

All of this tells us that tech companies haven’t considered how their businesses would change post-COVID in the decisions they’ve made over the past two years. Companies overestimated their growth paths and hiring capacities. And now the expanded workforce that has fueled that growth is suffering the consequences of the slowdown in fundraising.

However, that doesn’t mean that tech workers should start worrying about their job opportunities. Even as tech companies lay off employees and slow hiring, the broader market still welcomes talented tech recruits with open arms. Especially in an environment where there is a lack of talent due to various factors such as lack of experience. Additionally, some larger tech companies like Microsoft, Google’s parent Alphabet, and Amazon have announced they will raise salaries to stay competitive in a tight job market.

The only thing tech workers need to think about is getting back to the office. Many managers believe that remote workers are less productive than those who work in the office and are therefore more likely to fire remote workers than their in-office counterparts. If you’re good at your job, you’ll eventually be retained no matter where you work from. However, to stay safe in the trying circumstances, experts suggest workers should now hold on to their current jobs to avoid entering the already tight job market.

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Cover image courtesy of Freepik

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