What Tech and Media Layoffs Say About the Economy

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Google parent Alphabet announced today that it plans to cut 12,000 jobs, joining a list of tech and media layoffs that already includes Microsoft, Meta, Amazon, Salesforce, Snap, Twitter and Warner Bros. Discovery. According to one estimate, roughly 130,000 people have been laid off from their jobs at major technology and media companies in the past 12 months. That’s roughly equivalent to the total number of people who worked at Apple before COVID hit.

These layoff notices have become depressingly common, even depraved. But they are also mysterious in their own way. The overall US unemployment rate is 3.5 percent, the lowest mark of the 21st century.

In 2010, the labor market was weak and the technology sector was growing. During the coronavirus pandemic, the US economy experienced a freezing depression and the technology sector experienced a boom. Today, the US job market appears to be quite strong by some standards, yet the tech and media industries are bleeding. What’s happening? And what does this inversion of 21st century norms tell us about the state of the economy?

The first explanation for this moment is—and I don’t know how to say this in a sophisticated way, so I’ll just say it in a simple, somewhat silly-sounding way—the post-pandemic economy has been a lot weirder than most people expected. Many have predicted that the digitization of the pandemic economy in 2020, such as the rise of streaming entertainment and online food delivery and home fitness apps, are the “accelerations” that push us all into a future that is coming anyway. In this interpretation, the pandemic was a time machine that accelerated the 1930s and increased the appreciation of technology accordingly. Hiring boomed across technology as companies added tens of thousands of workers to meet this expectation of acceleration.

But maybe the pandemic wasn’t really the accelerator. Maybe it was a bubble. Pandemic stocks like Peloton and Robinhood have soared and crashed. So are jobs at tech companies, including Alphabet and Amazon. The challenges of the late-pandemic economy were varied: Some firms faced supply chain problems, while others were burned by rising interest rates that followed sticky inflation. Entertainment companies have staked their chips on streaming, only to find that the profits won’t follow. But all these companies experienced the same phenomenon: In 2020 they thought the pandemic economy was a time machine, and in 2022 they realized the pandemic economy was an oasis. So that’s one way to see what’s happening in tech. It returns again in 2019.

A second explanation for this strange moment is that everything in today’s economy is a story about interest rates. When interest rates were low, investors valued growth stories, and tech companies (or companies that called themselves tech companies) had a monopoly on those stories. Tech companies’ price-to-earnings ratios have gotten out of whack as investors have put their faith in companies like Netflix and Uber and Tesla that have thrown away a lot of long-term promise and little short-term gains. When inflation and interest rates rose, companies that made long-term promises were most at risk and were locked out.

A third explanation is that much of the slowdown in technology and media is actually a slowdown in advertising. Last year “was a rough year for the ad market, with massive growth stalling during the pandemic,” wrote several analysts at MoffettNathanson, a media and technology research firm. Marketers cut advertising budgets “in response to a combination of actual financial struggles and anticipated future struggles until almost no money was spent by the end of the holiday season.”

Advertising is usually the first casualty of an economic slowdown because the immediate product is not affected by spending; rather, it is an investment in the company’s future branding and growth. Because many tech companies—not just Google and Meta, but also Amazon, Apple, Snap, and Netflix—have become full- or part-time ad companies, almost all of them are vulnerable to the ad slowdown, which is coming much faster. and stronger than the overall economic slowdown. So when you think about the mystery of why the tech sector is bleeding while the overall job market seems healthy, that’s a big part of the story. The advertising economy is sick, while the service economy is broke.

A final explanation is that CEOs are normal people who navigate uncertainty by copying behavior. We can’t rule out the possibility that five-figure tech layoffs are essentially mimicry or social contagion among competitors. When all your competitors are laying off 10 percent of their employees – and are being rewarded by the market for it! – cutting 10 percent of your workforce may seem like the right thing to do or the inevitable thing to do.

“Was there a bubble in valuations? Absolutely,” said business professor Jeffrey Pfeffer Stanford News. “Has Meta taken over? Probably. But is that why they are firing people? Of course not. All these companies make money. They do it because other companies do it.”