Tech companies are slowing hiring or announcing layoffs. Is this the beginning of a cooler job market?
The tech industry’s hiring boom seems to be slowing down.
The sector proved to be impressively resilient during the pandemic, posting better growth and results than most other sectors. But that appears to be changing.
On Monday, Snap CEO Evan Spiegel announced that the Snapchat parent company was also set to slow down hiring for the rest of the year to manage expenses. The changes resulted from a “deteriorated” macro economic environment, Spiegel wrote in a letter to employees, and says he now expects the company to miss its own earnings and revenue targets for this quarter. Shares in Snap were down 20% Monday in response to the news.
Snap follows other major companies that have announced similar measures. Earlier this m onth,. Uber CEO Dara Khosrowshahi told employees that the company would start to treat hiring “like a privilege.” Other companies, including Facebook parent company Meta, also slowed down hiring in May. Netflix and Robinhood have gone as far as starting to lay off employees.
Volatile Big Tech earnings have been rough on stock prices. The Nasdaq index is down over 11% over the past month, as investors continued the exodus from tech stocks which began in April. The index is down 30% from December.
If tech companies are tightening their hiring belts, does this mean that America’s hot job growth of the past few months is beginning to stall?
The latest hiring numbers show that the job market is still very strong.
But because of sky-high inflation, the Federal Reserve has been progressively raising interest rates for months, raising borrowing costs. Many experts and analysts have warned of an impending recession. That could potentially put an end to the so-called Great Resignation that saw Americans leave their jobs in huge numbers.
“This is the time to take advantage of the tighter labor market for workers because there’s no guarantee these conditions will persist,” Daniel Zhao, senior economist at career placement site Glassdoor, told CNBC earlier this month.
Tech industry cool-off
Social media company Snap is the latest of several tech companies to announce more conservative and selective hiring practices moving forward as the company’s business outlook changes.
Uber’s Khosrowshahi said the hiring slowdown is a response to a “seismic shift” in the market. He did not exclude the possibility of layoffs, something Uber has not shied away from in the past.
Facebook’s parent company, Meta, announced earlier this month that it would stop or slow hiring for most mid-level and senior roles at the corporation. The announcement came as Meta posted lower-than-expected revenues in its quarterly earnings report released at the end of April, which also revealed nearly $3 billion in losses for the company’s Reality Labs metaverse business.
Several tech companies had similarly disappointing returns in their first quarter reports, and some have gone as far as to announce big layoffs.
On April 26, digital brokerage app Robinhood said it would be cutting 9% of its workforce, after the company’s headcount grew from around 700 employees in 2019 to 3,800 at the end of 2021.
Streaming giant Netflix laid off dozens of employees from its brand-new Tudum editorial companion site at the end of April, just months after a hiring spree to build the site. The layoffs occurred shortly after the company’s stock began spiraling after a loss of 200,000 subscribers last quarter was announced.
Reality is catching up to tech
Most of the tech companies that have said they will slow hiring or begin layoffs have one thing in common: They all noted a massive shift in the market, as tech stock downturns in the first months of 2022 have led to billions in losses for tech companies.
There are reasons that belt tightening might be hitting tech particularly hard.
Tech companies grew at a startling rate during the pandemic, as many people were stuck at home, and demand for products like games, phones, cloud services, and digital subscriptions soared. As people begin to leave their homes more, those trends are changing.
But factors like higher interest rates and recession fears could also apply to other industries. And in times of economic uncertainty, job hopping and high employee turnover may become things of the past.
A May report from the Peterson Institute for International Economics found that hourly earnings increases for jobs this year were up by much less this year than they were in 2021, leading researchers to write that if that continues, it “would indicate that labor markets may be considerably cooler than previously appreciated—reducing the underlying pressure on inflation.”
The number of Americans willing to quit their jobs is already declining from its pandemic-era high. Around 37 million people are expected to quit their jobs in 2022, according to an April survey by research firm Gartner, a sharp drop from the 47 million who did so last year.
Whether the changing hiring and retention practices of tech companies this year mean that the wider job market is poised for a cool-off is unclear. But an uncertain economic outlook and plunging stocks suggest that the constant job changes and plentiful employment opportunities available during the Great Resignation might be coming to an end.
May 23, 2022: This story has been updated with news about the Snap hiring freeze.
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