Big tech is slashing hundreds of thousands of jobs and blaming artificial intelligence, but there may be more to the story than that. Intel just announced 15,000 layoffs yesterday, causing their stock price to plunge. Big tech, who for over a decade provided all sorts of employee perks, may no longer be the dream place to work. In 2009, a friend of mine who had quit his job in investment banking joked, that in the wake of the financial crisis, being an investment banker was like being an airline stewardess. The job used to be glamorous and well paid, and now it was neither.
After the financial crisis, central banks around the world slashed interest rates to near zero, which was bad for banks but good for startups and the tech industry. According to the St. Louis Fed, over the five years after the financial crisis, jobs in the tech sector sector expanded by more than 20% compared to 11% job growth in the overall US economy. Tech sector wages, which were already high, grew at roughly 5% per year over the same period.
It became the place to be. While other businesses offered employees benefits like pensions and healthcare, tech firms attracted staff by offering perks like free food, offices that looked like playgrounds, nap… Mat pods, the ability to bring your pet to work, on-site massages, meditation rooms, office jam sessions at Spotify, and something called disco yoga. Google and Facebook offered employees a free laundry service, which is only so much of a perk when their employees mostly wear shorts and t-shirts.
I don't know, maybe the laundry service went to their homes and picked up their dirty laundry from their bedroom floors. That's probably how it worked. To seem relatable, tech workers began posting day-in-the-life videos on social media, mostly showing themselves playing ping pong and eating berries at work. Hey guys, welcome to a day in my life.
It's a 26-year-old working in tech in Manhattan, so I wake up at 5am and I go to Equinox and I get in a cab and head to the office. The subway is really scary since there are tons of lower class people who don't work in tech, so I take the cab everywhere now. In 2020, the global pandemic Tech transformed how people lived, worked, educated their children and spent their free time. The world rapidly moved online and the surge of e-commerce and consumer tech spending led to massive revenue growth at Big Tech. Central banks around the world slashed interest rates even further, and tech firms took that cheap money, significantly stepping up their investments in moonshot projects like self-driving cars, metaverses, and crypto.
Facebook, who went so far as to change the company name to Meta to demonstrate their commitment to whatever the metaverse is, hired a ton of people during this period, with head count up 60% by the end of 2021. During this boom period, the mega-cap tech firm's combined increase in head count was 35% or almost 130,000 new jobs. and the lavish deals that they had given their employees redefined employment expectations in the entire economy. The big tech firms were already rated as the best firms to work for, with Google or Alphabet having been ranked number one eight times between 2006 and 2018 on the fortune list of the best companies to work for.
Justin Fox at Bloomberg points out that there had been an acceleration in hiring even before the pandemic, which explains why tech CEOs might have thought that the growth they were seeing during the pandemic represented a new normal rather than a temporary effect. By the end of the pandemic, they had hired almost 200,000 more people in the US than they would have if they had stuck to their prior hiring trend. The tech stock sell-off that started in 2022 put big tech companies under pressure to improve their bottom lines, and they laid off some of the excess staff that had been hired to meet the pandemic boom. Twitter led the way with layoffs when its new owner reportedly laid off half of the employees within a month of taking over the company, breaking the taboo of tech layoffs, making it easier for other big firms to lay off staff without standing out from the crowd. Big tech has been making significant cuts and the layoffs don't seem to be ending.
According to layoffs.fyi, a website monitoring job cuts in the tech sector, there were 165,000 tech sector layoffs in 2022, 260,000 in 2023, and there have been 125,000 so far this year. The tech firms are still reporting good earnings and the AI boom is still in full swing. Overall jobs growth in the United States has been strong if slowing slightly and workers pay has been outpacing inflation.
So why are tech workers losing their jobs? Where are they going and which roles are disappearing the fastest? Is working for big tech no longer a dream job?
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To try everything Brilliant has to offer for free for a full 30 days, visit brilliant.org forward slash Patrick or click on the link in the description. You'll also get 20% off an annual premium subscription. In 2024, the YouTube and LinkedIn trend of posting day in the life of a tech worker videos reversed course. The new videos were called a day in the life of an out of work tech worker, and they seemed a lot less fun. A big life update.
I got laid off yesterday. For some reason, these young tech workers hold their microphones in their hands in their videos, which I worry makes them less employable. as if you don't understand the technology of a mic stand, which is a stick, you don't seem that up to date with technology. I mentioned this issue to a friend who told me that young people do this to seem more personable, so I thought that I would give it a go. Hopefully, I seem more relatable now.
The audio quality should still be good because, you know, it's not actually plugged in. I'm trying to seem relatable not to have bad audio. According to the FT, a lot of the tech layoffs are happening as companies are reshuffling their resources in order to invest in new areas such as generative AI, while showing shareholders that there's a continued focus on cost discipline.
They highlight Meta, which cut more than 20,000 jobs since late 2022, who said in February that net headcount additions for the year will be minimal. even as they made significant investments in generative AI, which would involve securing talent. The result has been a wipeout in tech jobs, and for the first time since the dot-com bubble burst, IT unemployment is actually higher than US unemployment overall. any of my younger viewers who aren't familiar with how that works.
The tech sell-off of 2022 led tech companies to evaluate their workforces and realize that they had a lot of dead wood, and if they had leaner organizations they could be more profitable. And as they cut staff, their stock prices started to rise. According to the Washington Post, as stocks have risen, Spirits in the San Francisco Bay Area, the heart of the US tech industry, have only fallen further.
The layoff announcements from big tech companies all contained variations on the theme of, we hired too many people during the boom years. While things are tough in the tech sector, the BLS data shows that the ratio of job openings to job seekers is still quite good. There are 8.2 million job openings in the United States.
and only 7.1 million job seekers. Unfortunately, a lot of the job openings are in areas like education, healthcare, hospitality, transportation and utilities, not tech. According to the press, a lot of the tech layoffs have been in ESG areas, where the big tech firms have started abandoning their woke policies as part of their cost cutting. The New York Post reported that Microsoft laid off a team devoted to diversity, equity and inclusion after spending millions of dollars on the initiative.
One of the signs of the over-hiring may have been the woman they hired away from the land registry who would read out the property title before every meeting. First, we want to acknowledge that the land where the Microsoft campus is situated was traditionally occupied by the Sammamish, the Duwamish, the The Snoqualmie. the Suquamish, the Muckleshoot, the Snohomish, the Tulalip, and other Coast Salish peoples since time immemorial.
Maybe I should look up who owned this office before me and say something nice about them at the start of the videos. I don't know how people do this stuff. And you know, last year Alphabet and Meta, or Google and Facebook, reduced the scope of their DEI programs and cut staff.
Zoom, Snap, Tesla, DoorDash, Lyft and Wayfair have also downsized their DEI teams. The Post reports that DEI-related job postings had declined by 44% by mid-2023, compared to the same period in 2022. Despite these layoffs, Microsoft told the Post that their diversity and inclusion commitments remain unchanged. Merrin Somerset Webb wrote in Bloomberg earlier this year, that ESG and DEI policies had turned out to be low-interest rate environment luxury goods. She highlights the pullback from these policies across both the public and corporate sectors.
In the UK, the Financial Reporting Council just opted against including ESG requirements in the UK Corporate Governance Code, and BlackRock CEO Larry Fink, once a champion of ESG, rarely mentions it anymore. Mentions of DEI and ESG in company earnings calls have plummeted too, since interest rates started to rise, as has their prominence in corporate presentations. A recent paper from the University of Copenhagen suggests that even amongst retail investors, ESG investing is a luxury good, where demand for it increases disproportionately with the scale of inherited wealth. Just like finance can be a boom and bust industry, where workers are paid well but there is a lot of career volatility.
People who have been in either industry for a full market cycle are usually aware of this and know to save their money when the times are good. I am reminded of a story a friend told me of hiring at an investment bank back in the late 1990s. He said that it was so hard to hire at the time that he found himself making offers to the type of candidate that he would have never considered in prior years, as he just needed to fill seats.
During the slowdown of the early 2000s, he then let all of those people go. During the US tech sector's last high growth phase from 1990 to 2000, national employment in the tech industry shot up by 36% over the period, according to Federal Reserve data. Average weekly wages for tech workers doubled, rising by 102% over the decade.
At its peak in 2000, tech employment accounted for just over 4% of total private employment. When the dot-com bubble burst, technology sector employment declined rapidly, with significant net job losses for four straight years. By the time it bottomed out in 2004, the sector's workforce had shrunk by almost 80%. 18% and tech employment declined to 3.4% of total private employment.
From 2010 through to 2022, job growth in the tech sector once again hugely outpaced job growth in the rest of the economy, and most tech workers under the age of 35 have never seen a slowdown. The FT reported earlier this year that the tech layoffs in 2024 appear to be more strategic as job cuts in 2024 have come alongside active hiring. Meta, which cut more than 20,000 jobs since late 2022, said in February that net headcount additions for the year would be minimal even as it has made significant investments in generative AI, which would include securing talent. SAP announced a company-wide transformation in January that involves 8,000 layoffs as they increase their focus on AI. They said that their staff numbers would stay about the same, but that they would be reskilling.
This reskilling process is extremely painful for tech workers as it usually involves being laid off and re-qualifying. I saw a LinkedIn post earlier this week on how there are both too few and too many software engineers. because of a huge skills mismatch in the software development industry. The author wrote that there had been a huge boom of people coming into software development, development and training as web developers, but companies now want to hire people with skills in AI, machine learning, data analysis and things like that. The writer argued that big tech needs to hire the best people and then train them as necessary, as it might be too disruptive turning over your workforce constantly.
While layoffs are happening at these high profile tech firms, they aren't happening in every department. According to Robert Half, a recruiting firm, a sizable portion of the layoffs at Big Tech have not been technology professionals, but those in other departments. 365 Data Science looked into which roles were most affected by the tech layoffs, and found that HR specialists and recruiters made up almost 28% of the layoffs.
They also found that this group was finding replacement jobs most quickly. This makes a lot of sense as these people are not really tied to the tech industry, they can work at any big firm. The researchers found that 19% of the laid-off tech workers who found new jobs had moved to smaller software development firms and 13% had moved to internet companies. They found that the majority of rehired workers continued their careers outside of tech.
Among them 10% moved to financial services, 8% moved to the services industry, 7% to consulting, 6% to manufacturing, and 34% to other industries. Because the majority of tech jobs are outside of the tech industry, and tech skills are still in high demand in other industries, many of these people are doing just fine, but possibly struggling a bit with the culture clash. of no longer getting to play ping pong and eat free berries in the office. Unfortunately, the researchers found that the majority of laid off tech workers are still on the job market competing for the type of roles they had recently been laid off from during hiring freezes and continuing layoffs.
These people are mostly highly qualified with a lot of work experience and we'll have to see how long they remain on the job market or if they switch careers. A study from the Brookings Institute found that tech sector jobs have started spreading out around the country since the pandemic. San Francisco and San Jose disappeared from the list of metro areas gaining the highest shares of digital employment, replacing them up in metro areas like Dallas, Denver, Miami and Salt Lake City.
A report on pay trends from Zip recruiter found that 48% of 2,000 US companies surveyed lowered pay for certain roles last year, and 41% of employers said that a position has gone unfilled in the past six months because candidates wanted more pay than the company was able to offer. According to the report, companies are not just taking advantage during a difficult job market to cut costs. In some cases, stagnant and even lowered salaries are the result of a reset for a pandemic era surge in compensation where companies were scrambling to fill roles during the Great Resignation. This phenomenon of falling wages is being seen mostly in the United States because of how its economy rebounded from the pandemic. During the rebound, wage growth in the United States outpaced that of the UK and Europe, and now that it is resetting, the pinches being felt most in the United States.
One of the perks of working at a hot tech firm during the boom period was getting a chunk of your compensation in the form of stock options, which a lot of high growth tech companies like to think of as being free, rather than as a deferred expense that's eventually paid for when the options vest. We see this cost today in the massive stock buybacks which have to happen at firms like Salesforce. to keep their share count from rising and earnings per share from falling.
Bloomberg reported in May that insiders at Magnificent Seven tech companies have been selling their shares after going nine years without any significant sales. Senior management may be less bullish than the general public are. The Magnificent Seven tech stocks have risen nearly 150 percent since the start of 2023. partially because of investors'excitement over artificial intelligence.
Jeff Bezos netted about $8.5 billion selling Amazon stock over a two-week period in February. This was his first sale of Amazon stock since 2021. Mark Zuckerberg sold a billion dollars worth of meta stock last November. Sundar Pichai of Alphabet sold more stock in the first few months of this year than in all of 2023. Nvidia director Mark Perry sold more stock at the start of this year than in the previous two years combined.
And Apple chairman Arthur Levinson filed in February to sell his biggest block of stock in more than 20 years. This isn't just happening at the companies that are doing well. Tesla's chair Robin Denholm filed to sell about $52 million worth of stock this year, her first sale since 2022. Some of the luster has come off of big tech in recent weeks, with the Nasdaq more than 11% off its high from a few weeks ago.
The downturn followed underwhelming outlooks from the biggest tech companies, along with a bad jobs number. Intel lost more than a quarter of its value this Friday after announcing plans to slash headcount and capital spending as it suffered further setbacks in its slow-moving turnaround plans. Its price is below where it traded in 1997. Other semiconductor stocks like ASML and Tokyo Electron fell too. Microsoft's AI-fueled cloud growth fell short of investor expectations earlier this week.
and the stock is down about 11% over the last month, but it is still up about 10% year to date. The scale of CapEx by the big US tech companies, based on a belief that AI will transform the world, amounts to the biggest and fastest infrastructure rollout in history, according to the Financial Times. Big tech is expected to spend $0.5 trillion over the next two years, much of it on data centers powered by Nvidia GPUs. From a financial perspective, we have to ask who will benefit from this spending and when will the returns on investment start rolling in? Researchers from MIT argued in a recent report that the technology isn't designed to solve the complex problems that would justify the costs, which may not decline as many expect.
The Economist wrote last year, about how the big tech firms were no longer showing up at campus recruiting events at top US colleges like Berkeley. Students who were hoping for internships at FANG companies were now talking to firms like Juniper Networks, an ancient company that had been founded all the way back in 1996. They report that some computer science majors have had their internships cancelled and those with job offers have had their start dates pushed back. Apparently students are now seeking stable employment rather than big brand names on their CVs since the waves of layoffs started. One student told The Economist that she had realized that she hadn't actually wanted to work in big tech before the layoffs and was relieved she didn't get sucked into it. She hopes to work as a product designer at a small company where she can get solid experience rather than just chasing a bigger name.
Stanford professor Jeffrey Pfeiffer wrote in the Stanford report that he is concerned that the tech layoffs could spread across other industries. He wrote that layoffs are contagious across industries and within industries. So why did the big tech firms move so aggressively to cut staff? Well, a big part of it was just because they had simply over-hired. Are layoffs the best move in a challenging business environment, or is there something else they could have done?
Well, they could have announced goals to increase margins, for example, to sure up the stock price, but then they'd be held accountable to achieving those goals. When they announce layoffs and the clearing out of dead wood, they get to do that and then move on, having shown that they are serious about margins and costs. For management, it's an easy fix.
So, if, as The Economist says, Big Tech no longer wants you, where can you go? Well, as I mentioned earlier, the majority of tech jobs in the United States are not at the big tech firms. The other sectors who hire tech workers may now be able to hire some top talent that previously they couldn't.
Some of the recently laid off tech workers might opt to start their own companies too. and bring new products and ideas to the market. Most of today's tech giants grew out of the ashes of the dot-com bust.
If you found this video interesting, you should watch my video on what's happening with electric vehicle sales next. Don't forget to check out our sponsor Brilliant.org using the link in the description. Have a great day and see you in the next video. Bye.