The Tech Sector Is Not Just Downsizing, but It Is Doing What It Takes to Be: Shedding Light on the Herding Effect of Technology Layoffs
“There is a herding effect in tech,” said Jeff Shulman, a professor at the University of Washington’s Foster School of Business, who follows the tech industry. The companies see no reason to stop because the layoffs appear to be helping their stock prices.
If it appears as if an entire sector is experiencing a downward shift, Pfeffer argues, it takes the focus off of any single individual company — which provides cover for layoffs that are undertaken to make up for bad decisions that led to investments or strategies not paying off.
Layoffs are contagious. Pfeffer, who is an expert on organizational behavior, says that when one major tech company downsizes staff, the board of a competing company may start to question why their executives are not doing the same.
Yet, in the first four weeks of this year, nearly 100 tech companies, including Meta, Amazon, Microsoft, Google, TikTok and Salesforce have collectively let go of about 25,000 employees, according to layoffs.fyi, which tracks the technology sector.
Wall Street has noticed whatever is fueling the workforce downsizing in tech. The S&P 500 has established several all-time records this month, led by the so-called Magnificent Seven technology stocks. Alphabet, Meta and Microsoft all set new records, with Microsoft’s worth now exceeding $3 trillion.
The interest rate is 5.3% and is nowhere close to the low rates of the pandemic. And some tech companies are reshuffling staff to prioritize new investments in generative AI. This month’s layoff frenzy has not been explained by those factors.
Shulman adds: “They’re getting away with it because everybody is doing it. And they’re getting away with it because now it’s the new normal,” he said. “Workers are more comfortable with it, stock investors are appreciating it, and so I think we’ll see it continue for some time.”
Now in 2024, tech company workforces have largely returned to pre-pandemic levels, inflation is half of what it was this time last year and consumer confidence is rebounding.
More than 260,000 jobs vanished in the tech industry last year, making it the worst year for employment in Silicon Valley since the dot-com crash.
