3 reasons why the huge tech layoffs don’t mean a recession is around the corner, Goldman says
Tech companies had a dream run through 2020 and 2021, setting new records and driving up stock values to historic highs.
But this year, those same companies saw nearly half of their early pandemic-era gains erased. With headline inflation at nearly a 40-year high and lackluster stock performances, tech companies have announced a host of layoffs. Meta has let go of 11,000 employees, while Amazon has said it could cut 10,000 corporate jobs in an effort to control costs. Twitter laid off about 50% of its staff earlier this month, although that involved some special circumstances. And companies like Microsoft, Stripe and Salesforce have also dismissed employees in the past few weeks.
The layoffs have intensified chatter of a looming economic downturn that some people say is already underway. But even as large-scale layoffs are upon the tech sector, it may not point to a looming recession in the U.S., according to a Tuesday note from analysts at Goldman Sachs. And they say there are three reasons why.
First, the tech industry only made up a tiny fraction of the broader jobs market, so it wouldn’t have a far-reaching impact on unemployment. While almost 26% of the S&P 500’s market capitalization comes from tech companies, the jobs in this field do not reflect the same dominance, the report noted. Major tech jobs only comprised about 0.3% of the overall job market, and tech companies’ financial influence does not translate to an effect on employment, according to the bank.
Second, workers laid off from the tech industry could likely find alternate jobs, given the number of vacancies. Job openings in tech are higher than in the pre-pandemic era, offering opportunities for job-seekers, according to the report.
Lastly, mass lay-offs in the tech industry have been observed in the past but didn’t always point to job cuts elsewhere in the economy or to a market downturn. The problem for the labor market, according to Goldman, is that it remains too strong.
Rather than the sign of a tanking economy, analysts said the recent massive layoffs were because of lower profits this year, making it costly to sustain a large headcount. For tech companies specifically, the gains were generous when they came—and brutal when they were wiped away.
The silver lining is that the appetite for tech talent is still substantial and offers avenues to laid-off employees, the New York Times reported. Startups are also making the most of the tech job cuts by filling open positions with software developers and engineers, leaving big tech companies with years of experience.
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