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T.H.E.M.
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Why is every tech company suddenly laying off about 6% of its workforce?
Tech CEOs seem to have decided that when it comes to layoffs, about 6% of the workforce is a magic number.
As today’s job report showed, the U.S. economy as a whole was still humming along nicely in January. But in the tech industry, the new year got off to a depressing start, with Amazon announcing on January 4 that it would be laying off 18,000 employees, or 6% of its corporate workforce. Microsoft followed suit a couple of weeks later, laying off 5% of its staff, and then Alphabet said it would be laying off 6% of its employees. In the days since, the downsizing trend has continued, with Okta, Spotify, business software company HubSpot, cybersecurity firm NCC Group, and PayPal all announcing layoffs. To be more specific, all of these companies announced layoffs of between 5-7% of their workforces.
The fact that tech companies are cutting back is not surprising. The industry embarked on a hiring spree during the pandemic, and the slowdown in the digital advertising market and anxiety about a possible recession, coupled with the big hit to tech companies’ stock prices last year, has made “efficiency” a new preoccupation of tech CEOs. But what is interesting, and perplexing, is the fact that so many of these CEOs have decided that when it comes to layoffs, about 6% of the workforce is a magic number.
After all, while these companies have certain things in common, their underlying businesses are very different, and their income statements and balance sheets look nothing alike. So if the layoffs are the product of careful calculation by these CEOs about the number of workers they need to optimize the future value of their companies (which is what an economics professor might suggest), you wouldn’t think they’d all arrive at roughly the exact same conclusion. And yet, with some exceptions (like Meta and IBM), they have. So what explains this odd synchrony in these companies’ layoff decisions?…….more here
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