Why are tech companies laying off staff in the thousands?

It hasn’t been quite an ideal start for the tech industry in 2023. 

As economic uncertainty mounts, the industry has responded with a string of layoffs – thousands of them, in what appears to be a continuation of the preceding year. 

It came as a shock on Wednesday when Microsoft announced it was letting go of 10,000 employees, in effect reducing the company’s total workforce by less than five percent. 

Microsoft’s mass layoffs followed a similar decision by another tech giant, Amazon, that’s expected to downsize in excess of 18,000 employees, which will be the company’s single largest workforce reduction in its 28-year history. 

The company boasts to have 1.5 million-plus employees the world over.  

The latest announcement by Amazon comes months after the company said it would be laying off 10,000 of its staff, after a report by Finbold, a market analysis firm, found the tech giant had lost 45 percent of its value in the past year – that is, from $1.6 trillion on January 1 to $939 billion on November 3. 

Economic downturn 

Experts and market watchers say the layoffs are taking place in the face of slowing growth and higher interest rates, with fears circling of an economic recession as early as next year. 

A similar economic uncertainty last year saw over 120,000 people, working with big tech players such as Meta, Amazon and Netflix, getting laid off from their jobs –  a trend that has left many worried. 

Jeffrey Pfeffer, for example, who is a professor at Stanford Graduate School of Business, terms these mass layoffs as “copycat behaviour”.

“Behaviour spreads through a network as companies almost mindlessly copy what others are doing. When a few firms fire staff, others will probably follow suit. Most problematic, it’s a behaviour that kills people: for example, research has shown that layoffs can increase the odds of suicide by two times or more,” Pfeffer tells Stanford News.  

“Moreover, layoffs don’t work to improve company performance. Academic studies have shown that time and time again, workplace reductions don’t do much for paring costs.”

READ MORE: Microsoft lays off 10,000 employees as job cuts in tech sector spread 

Since the start of 2023, layoffs in thousands across different tech companies have been making news headlines. On January 5, Amazon, blaming “a staff leak on having to announce huge redundancies earlier than expected”, disclosed some 18,000 of its staff will be out of their jobs, Tech.co reported. 

Soon after on January 11, Goldman Sachs reportedly gave about 3,200 of its staff members 30 minutes to collect their belongings and quit. The layoffs followed an earlier announcement by CEO David Solomon that job cuts were around the corner. 

And a day ago, Microsoft came forward with its decision. So, what’s driving these sudden massive job cuts and uncertainty around an industry known for lucrative packages for its workers? 

A dicey moment 

To give an idea of how tricky the situation stands, Finbold on November 3 indicated that “the cumulative market capitalisation of five leading companies in the United States has recorded outflows of $3.41 trillion or a drop of 33.8% in 2022”. 

“Notably, at the start of the year, the companies had a total market cap of $10.09 trillion, dropping to $6.68 trillion as of November 3.” 

The five companies in discussion are Apple, Microsoft, Alphabet, Tesla and Amazon. 

But Pfeffer doesn’t think such massive job cuts always help companies cut costs. 

“People don’t pay attention to the evidence against layoffs. If companies paid attention to the evidence, they could get some competitive leverage because they would actually be basing their decisions on science.”