Less than one month into 2023, and the flurry of layoff headlines continues to make heads spin.
After getting hit the hardest in 2022, the momentum has carried over into the new year for the tech sector. According to global outplacement firm Challenger, Gray & Christmas, 2022’s total of 97,171 was the highest number of total job-cut announcements in tech since 2002.
Just in the first 20 days in January, the tech sector announced over 31,000 job cuts including 10,000 jobs being slashed at tech giant Microsoft and a whopping 12,000 at Alphabet, not to mention Alphabet, Spotify and Salesforce. And from November to January 20, the tech sector announced 100,114 job cuts, according to Challenger.
Tech enjoyed the longest bull market in history, with low interest rates creating the perfect growth environment. Those picture-perfect economic conditions yielded high profits and allowed for bloated headcount at mega-cap tech companies over an 11-year period.
However, the economic environment darkened over the past year as the Federal Reserve began rapidly increasing short-term interest rates, making borrowing costs surge. That impact was felt across all industries. Long gone is the free-money era for Big Tech.
Feeling the pressure, tech, along with other sectors, have decided to cut costs to focus on healthy balance sheets. Unfortunately for employees, reducing headcount and selling off office space are some of the first measures taken, thus why the biggest spikes in layoffs occur in recessionary periods.
Meanwhile in the media sector, despite the steady layoff headlines, the group has been holding up relatively well compared to tech. The media sector announced 3,774 job cuts in 2022, which was a 5% year-over-year decrease. However, within media, news saw a 20% spike in job cuts from 2021, according to Challenger.
Media layoffs can be attributed to a few key factors including recent M&A, macroeconomic headwinds, the broader industrywide shift from linear to streaming and the advertising recession.
As is typical during economic downturns, advertising is usually the first to feel the pain. It played out that way in 2022, and the trouble for the industry will continue into 2023. As a result, many of the job cuts seen in the media sector as of late were across advertising and marketing positions.
Those advertising woes also spread to digital media outlets sites such as Vox, Vice and Buzzfeed. Editorial positions were slashed as these sites found it extremely difficult to continue growing their bottom lines while maintaining headcount. Furthermore, companies like Vice are still looking for a buyer as the digital news players look to consolidate further.
Despite the spike in scary high-profile layoff headlines, the job losses among skilled white-collar workers does not accurately illustrate the broader labor market story in the U.S. Amid the negative economic data points, the labor market has been the bright spot in the U.S. economy.
In December, the U.S. economy added 223,000 jobs, and the unemployment rate ticked lower to 3.5%. The labor market is tight, and employers are still having trouble finding qualified skilled workers to fill open positions, which is why most tech and media workers have been finding new work rather quickly after getting let go.
Nevertheless, the layoff announcements are likely to continue until the Fed eases up on its pace of rate hikes this year. With fourth-quarter earnings season kicking into high gear in the upcoming weeks, investors will get a better sense of how the media and tech landscapes are faring. Any details about how the companies are projecting their financials in 2023, and how the cost-cutting measures have impacted those forecasts will be key in determining the outlook for the sectors.