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Every day there’s more big job cuts at tech and games companies. I’ve not seen anything explaining why they all seam to be at once like this. Is it coincidence or is there something driving all the job cuts?
It's Q1. Companies always push hard for Q1 profits above all else. There's usually hiring freezes and cuts to maximize profits, come Q2, they'll hire a bunch of people and the cycle will continue.
It's an election year in the midst of an onsetting recession, so shareholders want to consolidate. I think on top of that models are being sold as something that can replace certain task forces - normally there would be rehires, and there still will be but I think it will be after its seen that they aren't ideal replacements.
It's likely the election won't take place until next year.
Greed. They are making more profit than ever
Tech is hard, leaders aren’t always technical. AI is great at bullshitting, and it’s swooned many CEOs into thinking it will 10x (make them 10x more efficient than they previously were) existing employees / replace the need for programmers. Lots of leaders just look to what other leaders at companies are doing - some see what elon does at twitter as proof that downsizing drastically won’t kill your company.
Programming is like editing a book with many chapters. New developers need time to learn the story line of the book before they can begin editing anything. If the book has been around and edited continuously for over a decade, it’s going to take some time for those developers to understand the book well enough to start making meaningful contributions. Lots of these tech companies have multiple books each with many chapters, and one thing leadership either doesn’t realize or doesn’t seem to factor into the equation is that maintaining these books and all their story arcs and character development gets harder and harder over time. Truly in the tech industry, it’s more expensive to train a new hire than it is to promote an existing hire.
But again, leaders are listening to folks like elon musk…
Sometimes I like to think of the economy as a small village where people directly goods with each other. The invention of money means you can make a living off of selling to just one person and still have something to offer the farmer, but for this thought experiment this I want to focus on the actual, real, goods and services of the economy.
So imagine a small village. You have the farmer who grows food. You have the blacksmith who builds car parts, and the mechanic that builds cars and tractors. And you also have the village fool who makes people laugh in exchange for tips. The mechanic gives tractors to the farmers in exchange for food, and gives some of that food to the mechanic in exchange for parts. When any of them need a laugh they'll give something to the fool to hear a joke. And you have your other industries, etc. One day a new person comes to town, who will represent the new tech industry. They realize that they can build a machine that tells the farmer the best days to plant and harvest which will help the farmer grow more food. The farmer happily accepts, paying the tech person some food in exchange. Similarly they're able to help optimize the other industries, and with the value they're providing and them being in short demand they're able to get great wages.
With their prosperity, other tech people start coming to the village and helping the other industries get more efficient. Most of the concrete efficiencies are optimized, so they start working on more abstract ones. Someone builds an app to help the villagefolk find someone to trade with ("I have 2 gears but I need 3 loaves" gets matched with "I have 2 wheat bushels and need 2 gears" which gets matched with "I have 3 loaves and need 2 wheat bushels"), in exchange getting a small cut of those resources, and a larger cut if someone pays for preferential matching (advertising). Other tech people find work helping the other tech people at their jobs (IDEs, libraries, issue trackers, etc.) And other tech people build animatronic village fools to entertain the village themselves (video games).
More tech people come as they've heard of how much they can earn at this village. Eventually they start having some trouble finding work to do, everything seems optimized. Some of the wealthy members of the town (let's say the farmer of the biggest field) says to many of these tech people that they'll pay them food in exchange that the farmer gets a portion of whatever the tech person ends up earning with what they build (low interest rates). With all the good ideas used up, the projects these tech people are working on aren't working well (crypto) or are duplicates of already existing tools (how many social media apps do we need, etc.). Still though, the farmer is giving them a lot of food so yet more tech people come to the village, and many of the children of the village (like the farmer's son) are becoming tech workers too.
Eventually, after a bad crop season (maybe because the farmer's son didn't help harvest), the farmer is short on food and stops lending out food to these tech workers. They try to go around to the other villagefolk but most have already been optimized. The tools that optimized life are already built and the required tech people for maintenance is a lot less than those needed to build it, and the number of truly new opportunities to help new industries isn't enough to provide work to all the tech people.
Tech people earned their crazy salaries when they were helping migrate the non-digital world to the digital world. There were so many obvious opportunities for efficiencies and not enough tech people to go around. 'Spreadsheet' calculations literally used to be a day-long affair with a team of people - of course a business would pay anything to a tech person to automate that. Now that times the whole economy.
These obvious efficiencies are finite but we treated them as infinite and kept training new tech workers. Low interest rates helped keep us employed for longer than we should have as we were paid to work on bad products in the hope that maybe there'd be a diamond in the rough and yet we STILL kept training new workers. Meanwhile other careers that provide more concrete value, like mechanics & HVAC professionals, have had a labour shortage as Tech attracted so many young people to itself. This eventually led to persistent inflation which then ended low interest rates. With higher interest rates a lot of speculative tech can't get funding; Tech is only getting paid for the actual new value it can provide today, which is way less than it used to be.
Lots of tech companies saw huge growth during covid thanks to everyone having extra money to spend (see crypto and NFTs if you want clear examples that we just had too much laying around).
Many of these companies then saw their revenue and userbase increase month-after-month and thought the growth was going to continue forever (or, more cynically, they knew it was going to crash but acted like it was going to continue). This led to a bunch of hires to "drive growth."
But obviously, pandemic spending habits have mostly stopped, and the money faucet is being turned off. Companies can't afford all the workers they hired, so they're "let go due to market downturns."
TL;DR Companies either thought they were going to have unrealistic growth and made dumb hiring decisions, or knew the growth was going to end and thus made cruel hiring decisions.
The correction I would make is that they can afford the workers. But the leadership needs to continue the growth. All they have left is to cut expenses, and the easiest way to do that is layoffs.
Add something about the federal funds rate exceeding 2.5% for the first time since 2008 and you’re on the right track. I think interest rates affect startups more than Google so bigger tech firms were hoarding talent to prevent new competitors from having those workers.
I think interest rates affect startups more than Google so bigger tech firms
Definitely. Google has lots of cash already, whereas startups are often in need of more money.
The other thing that's happened recently is that businesses used to be able to write off (deduct in their tax return) all their R&D expenses in the year they were incurred, whereas now they need to be amortized over five years. This has a huge impact to startups because a lot of their initial work is R&D, and now they have much larger tax bills than they used to have. https://www.axios.com/2024/01/20/taxes-irs-startups-section174
Late stage capitalism
Finally. Thanks.
Okayokayokay, this isn't the point, I know... but those are some really shitty, ill-fitting suits. They look like crap.
Actually... I see your point.
Are they made of leather, or just.... super fake looking low quality fabric?
I'm assuming they were provided by the photography company taking the stock photos
Employees aren't afraid anymore so companies are trying to reinstate fear.
Yes, it is a concerted effort to create a glut. This is like the wga strike, they want to starve you a little so you'll come back begging for a job before you lose your home.
They know the next 20 year will be a shortage of labour and stagflation. They're just trying to start this lean period with the upper hand.
Many people got hired during Covid.
Grow isn't as expected, so now they are firing again.
But on the bright side, most of those companies still employ more people than pre-covid.
A company hiring 19000 people isn't going to get as many clicks as a company firing 1900 people.
It can't be a coincidence that this is happening as AI technology is getting better at what these fired people do at work
Edit: https://www.cbsnews.com/news/tech-layoffs-artificial-intelligence-ai-chatgpt/