Another week and another round of tech job loss announcements — a pattern which shows no signs of easing off. The big name to slash jobs last week was Spotify, following in the steps of Google-owner Alphabet, Meta, Microsoft and many others.
Both Davy and Goodbody pointed out in recent days that the number of jobs actually being lost is relatively small in Ireland.
Perhaps the real concern should be that redundancies are now being seen as the right thing to do for businesses.
Stanford Graduate School of Business Professor Jeffrey Pfeffer last month outlined how he believes some companies are pushing through copy-cat layoffs.
“The tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing. If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it,” he claimed.
Perhaps that is the case for some — after all many of the companies continue to make billions of dollars in profit a year.
“Could there be a tech recession? Yes. Was there a bubble in valuations? Absolutely. Did Meta overhire? Probably. But is that why they are laying people off? Of course not. Meta has plenty of money. These companies are all making money. They are doing it because other companies are doing it,” Pfeffer told Stanford News.
Yet other companies such as Spotify, which announced 6pc of its 9,800 staff would be let go, did need to take a hard look at itself. CEO Daniel Ek said last week: “I was too ambitious in investing ahead of our revenue growth.”
But Spotify is not yet profitable and the economic headwinds of the past year have made investors go back to basics — such as making money. Spotify posted a net loss of €160m on revenue of €8.6bn for the nine months ending September 2022, and has also invested billions in a plan to focus on podcasts.
But investors lost faith in this strategy and shares were down around 66pc last year. In light of this, it seems unlikely that the company could escape this wave of job cuts.
‘The tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing’
But you would have to think that nearly all boards of tech companies are asking hard questions about costs (which are on the increase anyway) and no doubt many are wondering that if Meta and Google are trimming headcounts, why aren’t they. In fact, it emerged last week that one shareholder in Alphabet, TCI, wants job cuts of 20pc, rather than the 6pc it has announced to date.
While layoffs are in vogue, Pfeffer argues that it does little to solve the problem, and experience has taught us that many of the former staff are actually brought back as contractors.
“Layoffs do not solve what is often the underlying problem, which is often an ineffective strategy, a loss of market share or too little revenue. Layoffs are basically a bad decision.”
He adds the staff who are made redundant often don’t fare well. Pfeffer also argues that it doesn’t necessarily help company share prices as it signals the company is under pressure. However, it seems to be hitting the right note with the markets at the moment with several of the stock getting a boost from job news.
Perhaps the ongoing resilience of the jobs market at the moment means that the future is still bright for those laid-off tech workers. The firings are peculiar in that no one doubts that the tech sector is where future growth will come from. Many of companies letting staff go are continuing to enjoy growth and success.
Irish-founded Stripe, for example, which said it was laying off 14pc of its staff before Christmas, has deepened its partnership with Amazon, which has also announced layoffs. Stripe indicated to staff last week it will consider an IPO over the next year.
But in the short-term, tech workers are already struggling to get mortgages. As we reported last week, staff whose jobs are not in question may have to jump through extra hoops to secure a home loan. Banks are right to get jittery when a company has announced redundancies but equally, employers may be unlikely to provide letters of comfort at this time when the sector is in flux.
Brokers say that it is not unusual for a couple earning €100,000 each now having to hold off on plans to buy a home.
‘Layoffs do not solve what is often the underlying problem’
This won’t last for ever. Something similar happened for aviation workers during the pandemic with well-paid potential buyers such as airline pilots unable to borrow.
In another piece of bad timing, many tech workers are also now the subject of a crackdown on unpaid tax linked to share schemes. In December, Revenue told the Sunday Independent that the project would be active in 2023 and that so far the average payout from workers has been coming in at €36,000.
Accountancy sources said that workers in tech have been particularly affected, some at companies where jobs cuts are under way.
For the last few years and particularly during the pandemic, well-paid tech workers were the envy of many in the economy.
Tougher times now face the sector but at least most of those being made redundant can take solace from the fact that the job market is still holding up strongly — and that their skills will continue to be in demand.