Tech layoffs explained: Is a once-hot sector on thin ice?

After expanding staff sizes for years, many tech companies have announced dramatic layoffs in recent months. What’s driving the downsizing? Certainly, the risk of an economic contraction fueled fears, but the cutbacks are more complex.

First, the COVID-19 pandemic reshaped the structure and makeup of the tech industry. As COVID closed borders and social distancing became the norm, reliance on digital services surged. Amazon, for example, saw sales spike and responded by expanding services like same-day delivery. Staffing was bolstered to develop and expand digital services and otherwise meet demand.

With the pandemic over, growth has moderated. Amazon saw revenues surge nearly 40 percent YOY in 2020, but growth stalled in 2022. Now, underperforming projects are on the chopping block. In November, Amazon laid off roughly 10,000 tech and corporate employees, according to cePro. In particular, the teams working on Alexa voice-activated devices saw steep cuts. Why? While many customers enjoy the services rendered, monetizing those services hasn’t been as profitable as hoped, with Amazon reportedly losing $10 billion on the devices, according to Macro Trends.

Further, with the Federal Reserve steadily raising interest rates in recent months, borrowing has become more expensive. Many large companies relied on cheap loans and easy access to funds to expand staff. With borrowing costs rising, underperforming projects and bloated tech staffs are much more expensive to maintain.

Employees are sometimes shifted to new roles within companies while underperforming services are cut. But with the labor market remaining tight through the end of 2022, many employers still want to hold onto talent. Further, Revelio Labs found that roughly 75 percent of laid-off tech workers found new jobs within three months.