Why so many layoffs at big tech companies?

Large technology companies have taken the world's news in recent weeks by interrupting thousands of contracts with their employees. This practice, which is called lay off is being used by companies such as Amazon, Google, Microsoft and others bigtechs.

At a time of global economic contraction, these mass layoffs could be a prelude to something bigger to come.

Layoff: What is it?

In recent weeks, a new term has made the main world news and has drawn our attention to what was previously unknown. lay-off in good Portuguese it can mean dismissal, but in practice this term is used for a period of inactivity in the employment contract that usually happens en masse, and has become popular because it is an event that is hitting big technology companies. 

The biggest difference between the lay-off and a dismissal is that in the lay-off a deadline is stipulated for employees to return to work, that is, there is not a contractual termination, but an interruption in the contract so that the employee has a period of inactivity in relation to the company.

The lay-off has emerged as a way to avoid mass layoffs, but the way in which it has occurred has attracted attention due to numbers in unprecedented proportions, especially when we consider that large technology companies have a great weight in the economy and in the future of companies. things in general.

This is because these companies have played a central role in innovation in recent decades, and the fact that they have to resort to this artifice generates discomfort and a fear that things will not end there.

The site https://layoffs.fyi/ gathers the main data about the event, and according to the numbers gathered on the website, in 2022 alone, 158.951 people had their employment contracts interrupted.

If the numbers for 2022 already draw attention, the situation becomes critical when we look at the numbers for 2023 and consider that we haven't even finished the first month of the year.

With technology companies the main drivers of market trends, the fear now is: Will this trend spread across the global job market?

Affected companies

So far, the main big tech are being affected by this need to resort to the lay off, with layoffs that scared and shocked the market and the world not only of technology due to the high number of workers affected.

Amazon, Google, Microsoft e Meta, all major tech companies have terminated more than 10 employment contracts so far, with no certainty that that number will increase.

Although, as we have already said, the layoff deals with an interruption in the contract, some companies like Amazon have already publicly announced that they are talking about mass layoffs. 

What increases the market's fear is that these interruptions are just the beginning, and that these contracts will never be resumed, but end up leading to massive layoffs, which would be frightening for the entire world economy and driven by big tech that for a few years now have been exactly the most outstanding companies in the world, not only in terms of profit, but also in terms of innovation and business management.

What's up

The US economy is on the verge of entering a recession, and it hasn't happened in a few years. Galloping inflation and high interest rates have been a reflection of a market that has failed to react as expected in its post-pandemic recovery.

The expectations with the positive result of the vaccine and the economic recovery were that the world would suffer a phase of expansive growth, mainly the big economies, and the big technology companies, as trendsetters, reacted to this by preparing for demands that, in practice, they didn't exist.

These companies made a lot of hires and prepared to serve an unreal market. Proof of this is that the world economy in 2023 will go into recession, according to the IMF. 

In addition to the US, the situation in Europe is not the best, and when we consider that we have the US, Europe and China as major world economic powers, it is easy to see the global downturn we are going to face.

From a marketing point of view, this lay-off movement has been so frightening in large technology companies because this movement is being observed as the first major prelude to an approaching recession and in no analysis is it presented as something mild. 

It is worth remembering that all these companies mentioned here — and others — are, currently, companies that recurrently stand out among the companies with the highest annual profits.

What to expect

It is something normal when Brazil has inflation problems, but it is not very common for the United States and Europe to suffer from this problem, and this is happening at a frightening level nowadays.

US inflation is at levels comparable to those of 1980 and the economy is on the verge of a recession that for now has been observed as a mild recession. The last time the US went into a recession was in the great recession of 2007.

In a globalized economy like the one we live in, all economies are connected like wires in a network. When a wire suffers problems – especially when a very important wire such as the American economy is –, the entire network is compromised. Proof of this is that, when, in 2007, the US entered a recession, the world did with it.

What we mean by this is that the lay-off in these large companies has not happened for a reason isolated from these data which, when analyzed carefully, are frightening.

These tech companies need a demand – like the demand they expected to have – for them to need active employees. 

That is, the lay off will expand or retract as these companies need active employees, and this is directly related to the current economic situation, after all, the absence of demands happens precisely because of the economic downturn.

We cannot say that we will be in a more comfortable situation in the next semester, but we can follow the numbers and economic analyzes so that we can better understand the path that these companies will continue to take, after all, at their roots, their movements are taken with a view to profit.

Therefore, we need to pay attention to economic charts and analyses, whether they are positive or negative, and remain sober in relation to future expectations and upcoming economic events, in the certainty that whatever happens, we are not in a very easy moment in history. .

SOURCES: Layoff data, amazon layoff, layoffGoogle, US recession, World Recession 2023