Tech layoffs have mounted over the last year but recent trends suggest that the bottom could be near as while more companies are laying off tech workers, in absolute terms they are laying off fewer workers.
The US job market has been quite strong in 2023 and added over 1.65 million jobs in the first half of the year which is an average of 278,000 jobs every month – well ahead of the historical averages.
The strong job market has been a headache for US Fed as it makes its task of taming inflation even tougher. Fed chair Jerome Powell hasn’t ruled out consecutive rate hikes after previously pausing them at the June meeting.
While higher interest rates are invariably negative for most stocks some investing strategies can outperform in high inflation.
Coming back to the tech layoffs, they peaked in January as leading companies like Amazon, Microsoft, and Alphabet announced mass layoffs.
Most tech companies with the notable exception of Apple have resorted to mass layoffs. Talking of the FAANG pack, in absolute terms, Amazon has laid off the most employees while Meta has shed a quarter of its workforce – which is the highest in percentage terms.
Microsoft has started another round of layoffs today. I’m still working to confirm the amount of people affected. Sales teams seem to be the most impacted so far, along with employees in support roles, education, and Microsoft’s Modern Work teams
— Tom Warren (@tomwarren) July 10, 2023
Among major tech companies, Amazon, Netflix, Meta Platforms, Salesforce, and most recently Microsoft have announced more than one round of mass layoffs.
While the layoffs have been broad-based, tech companies have been under pressure to cut costs in their loss-making ventures – which for instance is metaverse for Meta Platforms and Waymo for Alphabet.
Data Seems to Suggest That Tech Layoffs Have Bottomed
Meanwhile, data compiled by Layoffs.fyi shows an interesting trend in tech layoffs. In January, 273 tech companies globally laid off 89,554 workers cumulatively which was the peak in the current cycle.
The layoffs have since tapered down and fell to 10,524 in June. That said, the number of companies that are laying off workers has been on an uptrend and totaled 92, 94, and 108 respectively in April, May, and June.
The data suggest that tech companies are now laying off fewer workers and more than mass layoffs of the kind we saw previously, they could be performance-related as well.
How Could Generative AI Disrupt the Job Market
There are fears that generative AI could disrupt the job market and lead to large-scale job losses.
According to a report from Challenger, Gray, and Christmas, 3,900 people lost their jobs due to AI in May. It was the first time that the firm listed AI as among the reasons for job losses.
Notably, in April, Dropbox announced that it would lay off 500 employees, or 16% of its workforce. While the company blamed slowing growth for the decision it also attributed it to the AI pivot which made some roles redundant.
In his blog, Dropbox CEO Drew Houston said that the “AI era of computing has finally arrived” which he termed as a more “consequential” reason for the layoffs.
IBM is also pivoting to AI and has said that it would pause hiring for the nearly 7,800 roles that can be replaced by AI. Notably, among the many apprehensions related to AI have been related to its impact on existing jobs.
Even OpenAI CEO Sam Altman warned that AI could “eliminate” many jobs – while adding that it would create “much better ones.” During his Congressional testimony though he admitted that AI “could go very wrong.”
The World Economic Forum predicts that AI would impact a quarter of the jobs globally in the next five years.
Goldman Sachs meanwhile believes that AI would help increase productivity by 1.5% annually until the end of this decade and boost S&P 500 earnings by 30% or higher.
Generative AI Jobs Rise Despite Tech Layoffs
Investors are excited about AI which is reflected in the price action of AI plays like Nvidia and C3.ai which have tripled this year and the former became a trillion-dollar market cap company.
NVIDIA, the world's most valuable semiconductor company, has reached a staggering market cap of $1.044 trillion!
NVIDIA's market cap is equivalent to that of two second-ranked TSMCs! Its market cap is also worth seven times that of the long-standing CPU giant, Intel. #data… pic.twitter.com/UaYqg7Ed9H
— Genuine Impact (@genuine_impact) July 3, 2023
While many tech workers have lost their jobs amid the ongoing layoffs, companies are still hiring for AI and according to job portal Indeed generative AI-related job postings in the US rose 20% in May.
While many believe that AI would disrupt the job market and lead to widespread job losses, it has been a boon for San Francisco as AI-related hiring is helping the city beat the slowdown blues.
According to the city’s most recent employment update, the tech sector in San Francisco and neighboring San Mateo County added 2,800 jobs in May.
To put that in perspective, that’s nearly 38% of the jobs that the city lost amid the tech layoffs.
The searches for generative AI jobs have also spiked since the launch of ChatGPT last year and continue to stay at elevated levels even as it has come off its highs.
Nick Bunker, director of economic research at Indeed said, “There has been a notable increase in job seeker interest in AI-related jobs, especially since the introduction of ChatGPT.”
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