Tech layoffs may not be a bad omen for the US economy as a whole
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The recent wave of layoffs in the technology sector may have American workers wondering if their job might be next on the road to a cut.
So far, there’s little evidence that the thousands of cuts at big tech companies — Meta, Amazon, and Twitter, to name a few — are bleeding into the overall American economy, according to labor economists.
Fed data indicates continued strength in the labor market, which is characterized by high demand for workers, plentiful job openings and layoffs, which overall continue to hover near record lows.
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The November jobs report, released on Friday by the US Labor Department, was the latest evidence of the still-gravity-defying resilience of the labor market. Employers added 263,000 jobs – well above expectations – and the national unemployment rate held steady at 3.7%, just above its lowest level in half a century.
Nick Pinker, head of economic research at Indeed Hiring Lab, said the job market generally looks like it’s “heading” into 2023.
“I think what’s happening in the tech sector is not really representative of what we’re seeing in the macro economy right now,” Pinker said.
Layoffs are at an historic low in nearly two years
Economists said the federal Employment Opportunity and Labor Turnover Survey, which is released monthly, is perhaps the best measure of layoff trends on a national basis. The layoff rate—which measures layoffs as a percentage of total employment—never fell to 1% or lower before the pandemic era.
This precedent was shattered last year. According to JOLTS data, the layoff rate has been at or below 1% every month since March 2021.
One caveat: data lag. The latest release, on a Wednesday, was for the month of October. Several tech layoffs were announced in November, which means they could appear in the upcoming JOLTS report, said Daniel Zhao, chief economist at Glassdoor.
Right now, the total number of laid-off American workers averages about 1.4 million a month. By comparison, layoffs between 2017 and 2019 averaged about 1.8 million per month, Bunker said.
In other words: Existing layoffs would have to jump by 400,000 per month on a sustainable basis to return to 2017-2019 levels — and even that was considered a period of strength in the labor market, Bunker said.
Elsewhere, job creation – a measure of employers’ demand for workers – remains well above its pre-pandemic trend, although it is down from peak levels earlier this year.
There were about 10.3 million jobs in October. Before the pandemic, that number had never exceeded 8 million. So companies are still looking to hire workers at near-historic levels.
Moreover, the ratio of job vacancies for unemployed individuals is around 1.7 – which means that there are nearly twice as many jobs available for people looking for work.
Unemployment claims are another measure, albeit a less reliable one because it is not a direct measure of layoffs. It is calculated weekly, so provide more update in real time. Claims for unemployment benefits have remained relatively flat and close to the pre-pandemic trend line.
Tech companies cut bloated worker ranks in the era of a pandemic
Overall, US-based companies announced 76,835 jobs in November, led by the technology sector, according to a report released Thursday by Challenger, Gray & Christmas. This was more than double the number recorded in the previous month and five times the number recorded in November 2021.
However, the total job cuts in 2022 is the second lowest on record, trailing only last year, according to the report. The company started tracking data in 1993.
Layoffs among big tech companies are, in many cases, partly a cannibalization of overhiring during the pandemic; This is not necessarily a harbinger of broader economic malaise, economists said, which will lead to job cuts in other sectors.
Meta CEO Mark Zuckerberg alluded to this dynamic in a recent letter to employees explaining job cuts, which affect more than 11,000 workers.
“At the onset of Covid, the world moved rapidly online and the e-commerce boom led to significant revenue growth,” Zuckerberg wrote. “Many people expected this to be a permanent acceleration that would continue even after the pandemic was over. I did, too, so I made the decision to significantly increase our investment. Unfortunately, it didn’t happen the way I expected.”
Amazon CEO Andy Jassy said the company has “hired quickly in the past several years.” However, Jassy said the economy is “still in trouble.”
The US Federal Reserve is raising borrowing costs to cool the labor market and the overall economy, in an effort to tame persistently high inflation. It remains to be seen how far the central bank will put the brakes on the economy.
“The job market…remains surprisingly strong”
Zhao said that while the US economy overall is not seeing mass layoffs, tech companies are responding in part to a “real economic trend.”
“It is only clear what the first domino is [to fall] Zhao said too late. “I don’t think we can rule out that these layoffs aren’t the first domino.”
However, the labor market remains strong and has consistently surprised to the upside this year, Zhao said, indicating that there will not necessarily be broader contagion.
“I feel like that’s been the theme for 2022 – we’re still expecting the job market to slow significantly, and to remain surprisingly strong,” he said.
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