ITP Techblog

Tech companies in the US are laying off staff in large numbers for the first time in two years and imposing hiring freezes as the economic outlook deteriorates.

That's a radical departure from the narrative during the pandemic when a rapid wave of digitisation actually saw a scramble to hire tech talent in areas such as software development, cybersecurity and cloud computing.

We had the "Great Resignation" which saw people quit their jobs in record numbers seeking greater flexibility, greener pastures or a shift in lifestyle. Employers responded by offering more attractive salaries, accommodating remote workers and resorting more to using contractors and outsourcing to get their programmes of work done.

Now, within a few short months, the chill winds of recession are blowing and tech companies are in cost-cutting mode. The trend is most pronounced among companies that have exposure to the consumer market, which is particularly susceptible to the erosion in consumer spending power caused by inflation and the rising cost of living. Supply chain issues and the disruption caused by the war in Ukraine have only compounded the issue.

Netflix bore the brunt of that phenomenon when it disappointed Wall Street by shedding subscribers for the first time last month. It moved quickly to trim back its slate of TV shows and movies and shed 150 staff. An analysis of tech companies showed that they collectively laid off 16,000 staff in May. That's the highest level since May 2020.

Netflix shed subscribers and was punished on Wall Street

Among the companies that have made sizeable cuts this year are Peloton, Carvana, Better.com, Gopuff and Robinhood.

It's not just US tech companies and start-ups trimming staff numbers. Turkish e-commerce and delivery company Getir, which operates in several European countries, said last week it would trim 14% of its workforce - around 4,500 people.

The cuts aren't just related to IT workers, but across the board in marketing, administration, sales and management. With revenue projections deteriorating and share prices of listed companies dropping by up to 50%, high-growth tech companies are adjusting their expectations and trimming their cloth to fit the new reality.

Still, unemployment in many countries where these cuts are taking place remains low - just 3.6% in the US in April. While the likes of Meta and Twitter have announced hiring freezes, Microsoft plans to double its remuneration budget in order to hold onto the staff it has. 

The reality, in the current economic climate at least, is that many tech companies still have a healthy outlook. It's those companies that loaded up on staff as venture capital flowed into them that are now scrambling to contain costs as their runway to profitability stretches further out into the future.

Buoyed by cheap finance and a wave of pandemic spending, many companies increased their headcount.

Marc Andressen, the co-founder of Netspace and serial tech investor, laid out the situation particularly brutally in a succinct tweet:

So what do the layoffs mean for our own tech industry? We tend not to have tech companies with thousands of employees - Datacom and Xero being the exceptions. While we are not immune from the impacts of economic uncertainty, we are still recovering from an intense talent shortage caused by our prolonged border shutdowns.

Employers here are hustling to finally bring on board the talent that they've had to do without for the last two years. Some tech companies will need to tighten their belt and venture capital firms are likely to be more circumspect about writing cheques, particularly to fund risky ventures in the Web3 and blockchain space.

But our tech sector runs relatively lean, it's what makes our start-ups attractive to investors. In fact, the tech layoffs overseas could prove to be an opportunity for us to recruit skilled and experienced developers, project managers, AI and cybersecurity experts.

As ITP Tech Blog reported last month, several digital technology roles have been put on the Green List by Immigration New Zealand and given a fast-track to gain residence. From September migrant workers in these roles will be able to apply for residence, including directly from offshore. Ahead of September they can still come to New Zealand and will need to apply for an Accredited Employer Work Visa.

So here's an opportunity to lure the best, brightest and newly redundant to our shores to join our own companies. in the meantime, keep calm and carry on. Our tech sector is humming along just fine for now.