What Tech Layoffs Can Tell Us About the Recession

Layoffs across the tech industry and interest rate hikes make it appear as if the economy is doomed in 2023, but it’s not that simple.

In the years leading up to the pandemic, tech companies followed a path of steady growth. When lockdowns and COVID restrictions kicked in, people spent more time online, streaming video and shopping.

Growth for tech companies skyrocketed. They. went on a hiring spree to keep up with the traffic on their sites and platforms. As revenue increased through 2021, so did their payroll.

Then in 2022, things opened up. People spent less time online and more time having IRL experiences. 

Meanwhile, Apple’s privacy change allowed users to opt-out of data tracking, which impacted the digital ad model of some companies. 

Throw in the threat of TikTok taking viewership away from other platforms, and revenue began to fall.

Companies across the industry are making cuts, but despite the layoffs, employment rates at these companies are still at their pre-pandemic levels.

The pandemic caused the economy and consumers to behave in unusual ways. People were stuck at home, and that changed their spending habits. Online retailers and streaming services experienced increased demand, and supply chains were disrupted. 

Now, people are leaving their homes and doing the things they missed out on over the last two years. Retailers are shedding excess inventory, and traffic at the ports is easing.

This isn’t a recession. This is the economy returning to, well, “normal.”

Take the tech layoffs. Even though tech companies have been cutting jobs, their employment levels are still higher than in 2019. (Twitter, being an outlier, is an exception.)

Each industry is affected differently by the availability of its skilled workers. Tech companies are cutting jobs, but businesses in durable goods manufacturing, wholesale and retail trade, education, and health services struggle to fill positions.

According to the U.S. Chamber of Commerce,

“These industries have more unfilled job openings than unemployed workers with experience in their respective industry. Even if every unemployed person with experience in the durable goods manufacturing industry were employed, the industry would only fill half of the vacant jobs.”

The Federal Reserve interest rate hikes are significant. However, they are a myopic view of the state of our economy, which is still experiencing the ripple effects of the pandemic and The Great Reshuffle. The Fed can increase interest rates to slow down spending, but it can’t hire nurses, doctors, teachers, factory workers, and retail workers.

And that doesn’t even take into account how WFH has changed people’s lives.

Economists, investors, bankers, employers, and workers cannot solve 2023 problems with 2019 thinking. If they are going to solve the problems of a contracting economy, then they need a new paradigm.