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Tech companies shed workers even as the talent shortage rages on

Key Points
  • On earnings calls over the past few weeks, tech leaders have been talking about layoffs and hiring slowdowns.
  • At the same time, the July jobs report showed robust growth in job creation and a record-low unemployment rate.
  • Many tech companies overhired during the pandemic and now need to trim staff and save money during a tougher economic cycle.
A worker sorts ordered goods into an automated shelving system during operations on Cyber Monday at Amazon's fulfillment center in Robbinsville, New Jersey, November 29, 2021.
Mike Segar | Reuters

Layoffs and hiring slowdowns have been the top talking points from tech leaders on earnings calls over the past few weeks.

Then there was last week's job report.

More than a half million jobs were added in July, well beyond the expectation of 258,000. Wage growth was up 0.5% for the month (5.2% year-over-year), and the unemployment rate is now 3.5%, tied for the lowest since 1969.

In such a tight labor market, when companies are still struggling to find the talent they need, why are tech companies like Amazon, Oracle, and Microsoft shedding workers?

For starters, economists point out that what's happening in one sector isn't representative of the entire economy. Just as the early days of the pandemic lockdown impacted industries differently (airlines and hotels were slammed, while e-commerce and streaming platforms boomed) so too will this next phase of the economic cycle.

Pollak: There are some warning signs hiring may be cooling in a broader set of industries
Pollak: There are some warning signs hiring may be cooling in a broader set of industries

Throughout the pandemic, tech companies added workers at a rapid clip. Now, with worries of a looming recession and sky high inflation dampening consumer spending, many of these same companies are looking to cut costs and shore up capital. Amazon almost doubled in size over the past few years as it needed to staff up its warehouses to meet customer demand. Now it's cutting workers, announcing last month that it reduced its headcount by 99,000 people to 1.52 million.

Shopify began adding workers in 2020 in response to the tremendous growth in the number of stores and restaurants that went digital during the Covid-19 lockdown. In July, the company announced it's laying off about 1,000 people, or 10% of its global workforce. CEO Tobi Lutke, in a memo to employees, acknowledged that he miscalculated how long the pandemic-fueled e-commerce boom would last.

A smaller labor pool

Changing demographics are also at play in the current labor picture. George Washington University management professor Christopher Kayes points out that constricted immigration policies have led to fewer workers, as have the significant number of people retiring, and retiring earlier since the pandemic. Working mothers still on the sidelines because of struggles with childcare are also a factor. It all adds up to fewer workers available for the increased number of jobs that have been created as the economy grew.

"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.

Dannie Combs, chief information security officer at Donnelley Financial Solutions, says he's never seen an environment like this. He works primarily 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 recognizes that inflation is an undeniable factor for the company, and that he's had to be "creative in our compensation packages and our offers in terms of location and flexibility."

Sanjay Macwan, chief information officer and chief information security officer at Vonage, says the digital transformation that has exploded over the past few years has naturally required and attracted huge numbers of skilled tech workers so there's room to reduce headcount.

At the same time, industries like retail, airlines, and hospitality that ramped down quickly and drastically during the pandemic are now struggling to add those workers 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."

Even amid layoffs and labor tumult, both Combs and Macwan are bullish on tech long-term. Says Combs: "In segments like technology, I still believe there are endless opportunities."