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Why Tech Companies are Shedding Workers in the Face of a Talent Shortage

Logan by Logan
August 13, 2022
in Business
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Why Tech Companies are Shedding Workers in the Face of a Talent Shortage

Image Source- Getty Images

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On earnings calls over the previous two weeks, tech CEOs have mainly discussed layoffs and a slowdown in hiring.

The job report from the prior week was another.

In July, more than 500,000 jobs were added, far exceeding the predicted 258,000. The unemployment rate is currently 3.5%, tied for the lowest level since 1969, and wage growth was up 0.5% for the month (5.2% over the previous year).

Why are big giants like Amazon, Oracle, and Microsoft cutting staff in such a competitive labor market where businesses are still having trouble finding the expertise they require?

First off, economists note that a sector’s performance is not necessarily indicative of the broader economy. Similar to how many industries were affected in the early days of the pandemic lockdown (airlines and hotels were hit hard, while e-commerce and streaming platforms grew), so too will this next stage of the economic cycle.

Tech businesses increased their workforces quickly throughout the pandemic. Many of these same businesses are now attempting to cut expenses and shore up capital due to concerns about an impending recession and sky-high inflation that are hurting consumer spending. As it required to staff up its warehouses to meet customer demand, Amazon practically doubled in size during the past five years. It just announced a 99,000-person headcount reduction, bringing the total number of employees down to 1.52 million.

In response to the enormous surge in the number of retailers and restaurants that turned digital during the Covid-19 lockdown, Shopify started expanding its workforce in 2020. The corporation revealed in July that it will be cutting off around 1,000 workers, or 10% of its whole workforce. In a note to staff, CEO Tobi Lutke admitted that he underestimated the duration of the pandemic-driven e-commerce boom.

Image Source- Bloomberg

Reduced labor pool

Current labor market dynamics are also influenced by shifting demography. Christopher Kayes, a management professor at George Washington University, notes that restrictive immigration laws and the large number of people who have retired and are retiring early since the epidemic have both resulted in fewer workers. Another aspect is that working women who struggle with childcare are still on the sidelines. With more jobs being created as the economy expanded, there are fewer employees available to fill them.

“When you combine the growth in jobs with a smaller labor pool and workers who are just more selective about the jobs they’re taking, you’re going to have this mismatch,” Kayes says.

The scenario described here, according to Dannie Combs, chief information security officer of Donnelley Financial Solutions, has never existed before. He primarily works in Austin, Texas, “and there’s not a recession here that I can see. There are thousands of jobs available.”  At the same time, he acknowledges that the corporation has to be “creative in our compensation packages and our offers in terms of location and flexibility” due to inflation, which is an unavoidable factor.

According to Sanjay Macwan, chief information officer and chief information security officer at Vonage, there is potential to reduce staff because the rapid pace of digital change over the past few years has inevitably attracted and necessitated a large number of highly qualified tech personnel.

Meanwhile, businesses in sectors like retail, aviation, and hospitality that had a sharp and sudden decline during the pandemic are now finding it difficult to hire those individuals back onto their payrolls. “There’s a lot of friction in those industries,” he adds. “Workers can get harassed and abused by customers, so they leave and go elsewhere and that makes the hiring even more difficult.”

Both Combs and Macwan are optimistic about technology in the long run, despite layoffs and labor unrest. Combs says: “In segments like technology, I still believe there are endless opportunities.”

Tags: A smaller labor poolcompensation packagesdigital transformationeconomistsemployeesendless opportunitieshirejob cutsjob layoffslayofflayoffs and hiring slowdownslockdownslowdown in hiringtalent shortagetechTech companiestech companies overhired during the pandemicworkersworkers shortages
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