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Major international tech companies all seem to have hopped onto a new trend: ruthlessly firing thousands of employees in one go. Elon Musk dismissed 50% of Twitter’s 7,500-strong workforce soon after acquiring the social platform; Snap Inc, Stripe, Microsoft, Uber, and others have also had layoffs.

Amazon is in the process of carrying out its announced plans to axe 10,000 workers, while Mark Zuckerberg’s Meta stated it will be letting go of 11,000 employees – 13% of its total staff. What’s more, companies including Meta are reducing worker benefits.

Employees who once thought themselves – and seemed to be – indispensable, have found themselves jobless thanks to these retrenchments. It is also a shock as the tech industry has always been the one to join if you want a sure job that pays well. But why is this ‘layoff season’ happening now, so suddenly and across multiple firms? And will it end up negatively affecting these tech giants?

Why tech companies are on a firing spree

These tech firms have been hasty with their severe downsizing, and Forbes says that “many companies [have] gone too far” with the layoffs.

These tech giants have given various explanations for their decisions to fire tonnes of workers in one go. These include:

1. Growing competition in tech

Startups continue to emerge rapidly, making tech hubs like Silicon Valley saturated with competition and businesses that offer the same products and services. This means that long-established tech companies now have a smaller piece of the pie in market shares, which means lower revenues for them.

Mark Zuckerberg explained this as one of the reasons for Meta’s decision to cut down on its workforce – in short, it helps them increase its market capitalisation.

This is the same reason for the cutbacks on benefits for staff who are still with the companies.

2. Less demand now COVID-19 pandemic restrictions have died down

The pandemic was hugely profitable for the tech sector; lockdowns and restrictions saw more people turning to online services than ever before as they were confined to their homes.

Every online digital solution, from internet banking apps to online shopping sites, streaming services, Zoom calls, and online food delivery apps saw a massive surge in users. Needless to say, this rise meant that tech firms had to hire thousands of staff to help them meet the high demand for their products.

Now that the world has opened up and people are once again free to go outside and get these services in person, demand for these services has dropped. It is still high, but tech firms were not ready for this decline and were left with larger workforces than they now needed. Having a decrease in revenues while also having the same large amount of staff was something they saw as unsustainable.

3. A worrying, volatile economic environment

Adding to the decrease in revenue these companies are experiencing due to a drop in customers is the economic situation in the US. Growing inflation (which is affecting not only the US but also Africa and much of the rest of the world) as well as the forecasted recession in the country is also hurting companies’ incomes, including tech giants. For instance, Amazon lost $1 trillion in market value in 2022, the first public company ever to lose this much.

They are having to save money on spending on advertising – advertising is a large source of capital for tech firms, so they are losing out on income from this – giving them more reason to want to let go of supposedly ‘excess’ workers and cut back on employee benefits to stay afloat.

Extreme downsizing of a company – especially so quickly – obviously hurts the fired workers who suddenly find themselves unemployed, even if they were given severance packages by the companies that fired them.

However, companies that hastily lay off large amounts of employees in one go can also experience negative effects.

These include:

  • Getting rid of needed talent and skills without realising it: Cutting so much of their workforce so quickly means companies probably have not taken the time to assess each worker and their skills before firing them – skills that could be extremely useful. In this way, they are losing out and may have to hire new employees at a later date that do have these skills, which will cost them time and revenue.
  • Affecting employee morale and losing more staff in the long run: Seeing large layoffs happening is demoralising and stressful for the employees who remain, and creates a snowball effect of losing workers. The remaining staff may wonder if they’re next and will almost certainly lose trust in the company. This leads to burnout and many staff deciding to quit. In turn, those that are left end up having to do the jobs of multiple people, which leads to more resigning. None of this is good for a company.
  • Loss of investors: Companies that fire thousands of employees only to have many more walking out are not a good look. Investors may lose faith and pull their shares from them. This leads to a devaluation in stocks, which can then cause more investors to pull out and a decline in companies’ market shares.

Although it can be in the best interest of a company to cut some staff in conditions such as these, there is no doubt these layoffs are considered by many to be too extreme.

When it comes to retrenchments, a company’s best bet is to be transparent about the support it will offer employees who are let go. This will help it to maintain the trust of employees, customers, and investors.

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