November 22, 2022

What Tech Layoffs Mean for the Labor Market at Large

Tech layoffs are dominating business headlines, especially those coming from tech giants that have experienced immense growth in recent years. 

Amazon announced plans to lay off over 10,000 workers in corporate and technology jobs. Meta is laying off 11,000. About half of Twitter’s staff has been let go by Elon Musk’s takeover in a truly unprecedented scenario. Microsoft, Salesforce, Stripe, Lyft, and more. The list goes on.

As 2022 comes to a close, are we seeing the last of the tech layoffs? Probably not. But does this mean that tech workers are not in demand? Or that a large-scale recession is confirmed? Is this bellwether of more industries being impacted? 

To answer HR’s burning questions about the recent tech layoffs, we asked Sania Khan, Chief Economist at Eightfold AI, to share her insights on the topic based on her research from the labor market and proprietary Eightfold data. 

The good news: It’s not all doom and gloom. 

Here’s what Khan said the data reveals about the employability of tech workers and how companies with tech-skills debt can capitalize on this trend. Plus, she shared what the mainstream media isn’t covering about recent tech layoffs. Hint: the gender gap in tech just got wider. (Ed note: Quotes have been edited for clarity and length.)

Eightfold: Did anything surprise you from the tech layoffs report? If so, what?

What Tech Layoffs Mean for the Labor Market at Large
Sania Khan, Chief Economist, Eightfold AI

Sania Khan: The good news is that, on the whole, layoffs are concentrated in tech and are not economywide. The percentage of layoffs across industries (roughly 1 percent of total employment) hasn’t fluctuated much since last year. So although we’re seeing tech layoffs, other sectors are still hiring. 

Our analyses found that the hardest hit positions — software engineers, recruiters, product managers, marketing managers, and other engineers — are in-demand. So those laid off shouldn’t have trouble finding a new position. In fact, The Seattle Times quotes several area companies saying they’d snap up that laid-off tech talent in a heartbeat.

On the other hand, the bad news is that women are disproportionately affected by tech layoffs.

Our analysis indicates that women are, on average, 65 percent more likely to be laid off than men in the tech industry.

If women decide to leave the sector altogether, this could disproportionately hurt women in the long run. 

The analysis also examined whether tenure or years of experience correlate to layoff decisions. Our initial hypothesis was that those with the least amount of tenure at an organization would be the first to be let go. 

However, we found that most layoffs consisted of employees with more than one year but less than two years of tenure at an organization. We also found that those with 10 to 15 years of work experience were hit harder, making up 25 percent of layoffs, while people with under five years of experience constituted only 15 percent of the layoffs. 

Eightfold: The report says that tech layoffs peaked in the summer of 2022, despite Amazon’s latest news. Can you share what lies ahead in the coming months? Should we expect more layoffs, hiring freezes, or rehiring?

S.K.: As interest rates rise, tech companies are the first to react. For the past decade, the industry boomed with eager venture capital firms handing out money in all directions. But as central banks raise interest rates to fight inflation, that capital is the first to dwindle. As a result, startups have difficulty raising new capital in these environments. This is why we see them adjust their workforce and growth strategies. 

On the flip side, a high-interest rate environment also causes consumers and business customers to cut back on unnecessary items — including the latest tech — as their budgets tighten. Such a pullback could further hurt tech. 

Our Eightfold analysis found that employee layoffs started in May, peaked in June, and had been trending downward. As mentioned above, Twitter cut half of its workforce, although that’s an outlier. Meta, Lyft, Stripe, and Redfin cut about 15 percent. Microsoft, Amazon, and Salesforce cut less than 1 percent. 

Until this high-interest rate environment cools, we’ll likely continue to see hiring freezes and layoffs, depending on the individual startup’s working capital and how well they can manage their burn rate. Pre-revenue and early-stage startups rely on outside capital for their numbers to add up. Our research shows that the earlier the startup stage, the greater the percentage of layoffs. Seed startups had the highest rate of their workforce laid off (69%), while Series A and B had begun to taper off (40% and 35%, respectively). 

Despite headlines, employers seemed to have learned a lesson from previous downturns. Hiring and retaining high performers is increasingly challenging, so employers are trying harder to keep their employees. Instead, many companies are cutting costs across their businesses by scaling back budgets, reducing perks, and shrinking real estate holdings.

Eightfold: Tell us more about how those laid off should have no trouble finding new positions due to the existing labor shortage. Can you explain why? What should those people focus on?

S.K.: Our analyses indicated that recent staffing cuts have significantly impacted the IT, support operations, talent, marketing, and operations departments. The hardest hit positions aligned with those departments were software engineers, recruiters, product managers, marketing managers, and other engineers. 

According to our analysis, those impacted by recent layoffs have in-demand skills. Our research also looked at the top rising skills for each laid-off position, which include:

  • Web developer: GraphQL, React Native, vue.js
  • Software engineer: GraphQL, TensorFlow, Kubernetes
  • Data scientist: spaCy, TensorFlow, Jupyter
  • Product manager: Data science, design thinking, UX research
  • Sales manager: Luxury goods, digital marketing, sales enablement
  • Recruiter: Healthcare staffing, social recruiting, veterans, RPO 

Our recommendation would be for those laid off to pick up these skills and consider pivoting into new industries that are bound to scale up these departments to remain digitally competitive. 

What Tech Layoffs Mean for the Labor Market at Large

Eightfold: Women are more likely to be impacted than men in tech layoffs — can you talk about why? And the potential implications of that?

S.K.: Our Eightfold analysis indicated that many laid-off roles are historically female-leaning. For instance, women comprise 61 percent of all recruiter positions and 63 percent of all marketing manager positions. 

When you hone in on actual technical jobs within the tech industry, women make up only one in four of those roles. Furthermore, our analyses indicate that when other factors are held constant, like industry, race, education, year, and experience, there was a 20 percent lower likelihood that a woman occupied a tech role. 

As such, these tech layoffs could disproportionately hurt women, especially in the long run, if they decide to leave the sector altogether. We cannot fail to recognize the needs or underlying issues of retaining a diverse workforce and inadvertently “reshuffle” women out of tech.

Eightfold: Can you speak about the diversity implications of losing tech talent dependent on work visas?

S.K.: If tech employers do not extend work visas, we’re likely to see a dire staffing shortage of workers, which could have severe consequences on diversity in tech. The H-1B visa program for temporary foreign workers helps ease the tech skills shortage and has played a critical part in innovation in the U.S.

From a macro perspective, immigration is key to easing labor demand without risking rising unemployment. In addition, it would place downward pressure on wages for high-income jobs, which would help with the Federal Reserve’s goal to bring inflation down.

Eightfold: There is a significant disconnect between managers and workers on productivity rates. Can you discuss why? What role did this disconnect play in layoffs?

S.K.: While we cannot examine the impact of remote workers and layoffs, a 2022 report from Beautiful.aI found that 60 percent of managers surveyed said remote workers were more likely to be let go first. It’s also important to note that 62 percent of managers said remote workers are more difficult to manage than their in-house counterparts. 

This could be the result of “productivity paranoia,” discussed in a 2022 study by Microsoft. The results show that 87 percent of workers feel they are just as efficient at home as in the office, but most bosses disagree. At the same time, 85 percent of business leaders are not confident that employees are productive, and only 12 percent have “full confidence” that they are productive. 

Microsoft CEO Satya Nadella mentioned a fundamental disconnect between managers’ expectations and employees’ perceptions of their productivity. Microsoft defines productivity paranoia as leaders fearing that lost productivity is due to employees not working, even though hours worked, number of meetings, and other activity metrics are higher than before. 

What Tech Layoffs Mean for the Labor Market at Large

Eightfold: As companies continue to make difficult workforce decisions in a recessionary environment, what questions should leaders ask about their workforces before taking action?

S.K.: As HR leaders learned in the post-pandemic years, hiring the right talent is extremely difficult in a tight labor market. Most leaders should be less inclined to cut their workforce despite an impending recession.

To avoid future hiring frenzies and talent shortages, organizations should always look first at other cost-cutting solutions, including hiring freezes, a reduction in benefits, or increased reliance on contingent labor. [Click to Tweet]

It’s also essential during this time to build up great managers that can inspire employees to take on more responsibilities, learn new responsibilities, and upskill themselves. It’s the only way for organizations to “do more with less.”

Eightfold: Economists project this to be a short recession in 2023. Can you talk about talent planning and what leaders should focus on to remain competitive long-term? 

S.K.: Well-executed talent planning is crucial during downturns. For instance, closing underperforming business units and moving those employees to other departments while upskilling and reskilling those affected is highly strategic. 

Reorgs can drive a company from a slow-growth to a fast-growth stage. With actionable, market-informed workforce planning insights and trends, organizations can benchmark their talent and skills against competitors.

At the same time, communicating significant changes helps build a great company culture, which strongly ties to increased employee agility, engagement, and productivity. 

What Tech Layoffs Mean for the Labor Market at Large

Sania Khan is the Chief Economist at Eightfold AI. For more from Sania on how to weather a tough economy while investing in your workforce, read her latest blog