Why does Tech Hire and Fire so quickly [Finance Fridays]

Understanding why the same companies hire and layoff tens of thousands within one year

Mar 04, 2023

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We see many reasons being thrown around for the layoffs. Tough Market Conditions, corporate restructuring, overhiring (CEOs love using this line), and so on… Some of these make sense, while others are surface-level explanations that exist only for PR reasons. The mass layoffs are especially strange given that these same companies were hiring very aggressively last year. On the surface, this can seem extremely random (how many people have said, “I didn’t see the layoffs coming”). However, there is a method to this madness. A reason why we see them occur so frequently, and why no company ever seems to learn from them.

Meta Platforms total number of employees in 2022 was 86,482, a 20.16% increase from 2021.

Meta Platforms total number of employees in 2021 was 71,970, a 22.81% increase from 2020.

-Just before layoffs, the company was ballooning. Source

In this post, I will be covering the systematic reasons that cause these companies to hire and fire employees so aggressively. Understanding this will help you protect yourself from these layoffs. Once they sign the offer, far too many people get complacent and think that their jobs are safe. However, the truth is that these companies are ruthless when it comes to ‘cutting costs’ and ‘becoming lean’. Deciphering their behavior will help you stay safe.

Why Tech Hiring is so crazy

Boom and Bust Cycle- The boom and bust cycle is one of the most important ideas in Macro-Economics. In a nutshell- our economy is cyclical. It goes through periods of growth followed by recessions. We have seen unprecedented growth in the last decade. The layoffs were in a sense inevitable since we are now in the bust phase. I have covered the boom and bust cycle and how it affects tech in depth here. Give it a read to understand this idea, why Tech is especially volatile in it, and how you can thrive in the boom and prep for the bust.
The Big Tech War and Unprofitable Projects- I covered the Big Tech War in the post, The Big Tech War has started. Here is how you will win. As a tl;dr- The major Tech players have all monopolized their niche and are now competing with each other. Since competition is no longer small companies, they can’t bully their way into dominance easily. So these companies are throwing heaps of money to attract talent, start new projects, and gain inches. Many people being laid off were people in these experimental/low growth/unprofitable projects. One such example of an experimental project meant to escape competition and establish dominance is Meta’s transition to the Metaverse, which I covered here.
Hiring as a status symbol- Many teams get very bloated because of ego-tripping. People still conflate the ability of a manager with the number of people they manage. Thus, there is an incentive to hire and fill up the headcount. When times are good, there are no issues. When the well dries up, people are let go very quickly. Layoffs and Mass Hiring both also can be done to appease investors. More on this below-
The CEO is paid to hire and fire you- This is the side of layoffs that no one talks about. However, it’s important for you to know about it. During bull markets, management will be criticized for holding onto money and not ‘reinvesting’ it (b/c of inflation). Thus, companies will hire, just to show growth, even if the hires are unneeded. Since upper-level execs are paid with stock, they are incentivized to conduct stock buybacks and hire instead of saving money for downturns. Furthermore, when things are bad- layoffs are presented as a cost-cutting measure. Markets react very positively to this. Once again, Execs make money, this time from firing you.

What does this mean for you? Simply put- don’t get too caught up in the engineering for your job. As you can see, there are definite triggers around layoffs. It is important for you to keep your eyes open. Evaluate your projects/work critically. Many talented engineers have lost their jobs because they ended up being assigned to low-impact projects. Don’t let that be you. Move towards high-value projects, especially when the market starts to cool (you’ll have some warning about it).

To those of you that love learning about business and finance, the YouTuber How Money Works has a great video on this topic. He’s a great source for learning about the funny world of money, and I reference his work a lot. But before you click on that video, scroll down for a great deal on this newsletter.

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