Tech giant Google announced last week that it would lay off 12,000 employees in preparation for a recession.
“Over the past two years, we have experienced dramatic growth,” said Sundar Pichai, CEO of Google. Public blog post to his employees“To keep pace with and facilitate that growth, we have adopted for economic realities that are different from those we are currently facing.”
The new economic reality includes the possibility of a recession.
Google has joined a list of technology companies announcing layoffs as part of a strategy to prepare for a general slowdown in economic activity that could squeeze corporate profits. Tech companies, banks, Internet media and other companies have laid off more than 100,000 workers since early last year. Forbes Layoff Tracker. Most companies claim the economy forced their hands.
But recent data suggests a recession is less likely than last year. Job cuts may be driven more by herd mentality and excess pandemic hiring than economic conditions.
“There may be a slowdown, but the main driver of the layoffs was our very over-hiring in the first year of the pandemic, which we are now pulling back,” Mark M.uro, policy director of the Brookings Institution’s Metropolitan Policy Program, told HuffPost: “Groupthink got them into trouble and now I use Groupthink to give me instructions on how to fix it. ”
Several CEOs have admitted in their layoff announcements that they misinterpreted the surge in digital commerce as a permanent change rather than a pandemic phenomenon.
“Not only is online commerce returning to previous trends, but the macroeconomic downturn, increased competition, and loss of advertising signals have resulted in revenues far below expectations,” said Mark Zuckerberg, CEO of Meta. Email announcing massive layoffs for November to the staff.
On Monday, Spotify CEO Daniel Ek said: Similar words to Zuckerberg In announcing the layoffs, it lamented its failure to anticipate post-pandemic trends and a “challenging macro environment.” (Unlike Meta, Spotify is unprofitable.)
The economic environment could be tougher, but we won’t have a full-blown recession like Zuckerberg suggested. The economy is growing overall and jobs are increasing rapidly every month.
Ranjay Gulati, a Paul Lawrence management professor at Harvard Business School, said inflation could be a major challenge for listed companies, where investors look for returns that outpace overall price increases.
“In this inflationary environment, if you can’t deliver inflation-adjusted returns and you’re pursuing the moonshot idea, you’re not doing well,” Gulati said. Meta suffered huge losses related to its efforts to create an alternate digital universe accessed through virtual reality headsets.
In fact, the greatest threat to the economy comes from the Federal Reserve and its efforts to contain inflation. Central banks are raising interest rates, making it more expensive to borrow money, reducing consumer spending and ultimately putting pressure on businesses to offer lower prices. could create a self-reinforcing cycle of staff reductions.
Federal Reserve Chairman Jerome Powell said the Fed’s actions could trigger a recession, but stressed that no one knows if it will. is determined ex post facto by a commission of the National Bureau of Economic Research). The Federal Reserve has attempted to engineer a “soft landing” by slowing growth just enough to kill inflation without triggering mass layoffs, a key component of a recession.
Last year, inflation appeared immune to Fed rate hikes, fueling fears that the Fed might try to impede growth more aggressively.economist Bloomberg survey in December He said there was a 70% chance of a recession this year.
BuzzFeed CEO Jonah Peretti told staff in a December email announcing the layoffs that a recession could be on the horizon. The company reported a net loss of $27 million for the third quarter of 2022.
“If BuzzFeed is to weather the economic downturn that it expects to last through 2023, it will have to adapt, invest in strategies to best serve its audience, and readjust its cost structure.” It is the parent company of HuffPost.)
But the last few weeks have yielded promising signs that a soft landing may be happening after all. consumer price index Monthly inflation eased in December, with year-on-year prices up 6.5%, down from a peak of 9% in June, according to a report released this month. If this trend continues, the Fed could ease rate hikes and ease the pressure on the economy as a whole.
Christopher Waller, a member of the Federal Reserve Board, cautious optimism in last week’s speechciting data on wages and vacancies, in addition to recent CPI reports.
“Six months ago, when inflation escalated and economic output leveled off, I argued that a soft landing was still possible. “So far we have been able to do so and are optimistic that this progress will continue.”
Most companies are not laying off workers and initial unemployment claims remain low. Many businesses across the country are hesitant to lay off workers despite slowing demand for their goods and services. According to the latest Fed research of local business leaders and economists
But the high-profile layoffs announced in recent weeks could encourage copycat behavior. Jeffrey Pfeffer, a professor at his School of Business at Stanford University, says layoffs in the tech sector are examples of “social contagion” and companies that lay off employees are making good profits.
“If you look for reasons why companies are laying off, the reason is because everyone else is laying off,” Pfeffer said. December interview with Stanford News“Layoffs are the result of imitative behavior and not specifically evidence-based.”
Bank Capital One joined the layoff frenzy last week, cutting tech positions. The Wall Street Journal reported This could be a sign that technology sector layoffs are spreading to corporate IT departments.
A Capital One employee who has not lost her job, speaking on condition of anonymity, told The Huffington Post her manager told the employee: enterprise. A spokeswoman for Capital One did not respond to a request for comment.
The Tech Workers Coalition, a network of software employees and contractors and allies such as lawyers and unions, said tech companies are deliberately trying to undermine workers’ bargaining power and lower wage levels. rice field.
“Flooding the labor market with people looking for jobs en masse is a scare tactic that strengthens their position,” the group said in a statement.