Massive tech layoffs continue as companies retool for AI

Big Tech companies in the US are swimming in cash, yet have cut jobs to weaken labor power, increase stock price, and pivot toward new AI technologies. The EU and Germany have been impacted too.

Ilustration Kolumne Hill
For the Mitbestimmungsportal, US journalist and author Steven Hill writes a column on the digital economy

During the Covid-19 pandemic, as people’s daily lives were forced to move online, tech platform companies like Google, Amazon, Microsoft and Meta/Facebook benefitted tremendously. These and other companies doubled the number of employees to keep up with the surging demand, and their profits and stock valuations soared.

But as the pandemic lifted these companies’ expansions ended, and even began to shift into reverse. Since 2022, massive layoffs have ensued. According to an industry layoff tracker, over a thousand tech companies eliminated 165,000 tech jobs in 2022, and over 250,000 jobs in 2023.

The biggest company names in tech have laid off the most workers. Amazon, Meta/Facebook, Microsoft and Alphabet/Google all have laid off tens of thousands of workers. Google cut 6 percent of its workforce, and Yahoo laid off 20 percent, Zoom 15 percent, Salesforce 10 percent while the Musk-ified Twitter cut 50 percent of its employees. Apple has been the one exception. But if all the laid-off tech workers formed a city, it would be bigger than Miami, Minneapolis or St. Louis. 

Employees often have learned about their layoffs in a ruthless manner, sometimes via middle-of-the night emails that leave employees with no chance to say goodbye to coworkers. And these numbers don’t include laid off contract workers (many of whom work overseas) or laid off foreign workers on H-1B visas who lost not only their income but also their work visas, and constantly risk deportation if they cannot find another visa-sponsoring job.

Most of these Silicon Valley companies remain enormously profitable and are sitting on piles of cash. So why have they engaged in such staggering levels of layoffs? The answer to that question is complicated and increasingly shrouded in mystery and controversy. But here’s one clue: don’t believe what the CEOs say.

Tech companies hitting reset? Or …

The tech CEOs claim that their companies have entered a new economic time of uncertainty, marked by supply chain bottlenecks, rising (until recently) interest rates, high fuel costs, a war in Ukraine (and now in Israel-Gaza), and talk of a possible recession in 2024. According to this narrative, the companies had no choice because they overstaffed during the pandemic-fueled hiring spree, so now they have had to enact a necessary and normal “correction” to streamline operations.

“We hired for a different economic reality than the one we face today,” Alphabet/Google CEO Sundar Pichai said in one of his layoff announcements

A number of labor-friendly policy institutes have bought this line of reasoning. Eurofound, for example, says these trends are the result of “an inflated recruitment strategy during the pandemic and a steep reduction in employees thereafter.”

But is that all there is to it? Or is there more here than meets the eye? Especially since these companies remain so magnificently profitable and cash-rich, why don’t they invest in new business lines and technologies that would preserve jobs? The US Commerce Department reports that corporate profits hit a record $2.1 trillion in the third quarter of 2022, and in 2023 the largest tech giants added $2.4 trillion to their market capitalizations. 

While inflation and possible recession remain a concern, recent economic predictions are more optimistic and in fact the US economy overall added millions of jobs in 2023 – just not in the tech sector.

… or are CEOs covering for other business goals?

So what are the true reasons for these massive job cuts by so many profitable tech companies? A number of experts have questioned the validity of what the company CEOs are saying. 

Several data points seem to indicate that the executives are using the current economic situation as cover for other unstated business goals. These include: 1) to weaken labor power within their companies, 2) to inflate their companies’ stock prices by engaging in stock buybacks and employee layoffs, and 3) as part of a company pivot toward new AI-focused technologies that will require fewer employees and with different skill sets.

Let’s look at each of these in turn.

1. Trying to weaken labor power

During the pandemic and even before, when tech companies were hiring at a fast pace, employee salaries hit record levels as competition raged for the top talent. Stories of extravagant perks were highlighted in the media. Labor shortages meant it was a relatively pro-worker market

There have been growing efforts by tech workers to organize into labor unions.

Now things have changed dramatically. 

“Controlling labor costs via periodic layoffs is like breathing for Silicon Valley: cyclical and necessary for life,” says Malcolm Harris, author of the book “Palo Alto: A History of California, Capitalism and the World.” The layoffs, Harris says, have “very little to do with long- or even medium-term strategy except as it pertains to cultivating an insecure workforce.”

Indeed, as I reported previously in Mitbestimmungsportal, there have been growing efforts by tech workers to organize into labor unions. A subset of Google employees formed the Alphabet Workers Union, Amazon workers have organized in several locations, Instacart workers voted to unionize, and Microsoft workers at subsidiary ZeniMax formed the first certified union ever to be recognized by the company. Tech workers at Kickstarter, the New York Times, Code for America and several other companies have formed unions. All of this worker consciousness and growing mobilization has been of increasing concern to the bosses of Silicon Valley.

By firing masses of people in such an overbearing way, that seems designed to instill a sense of fear and precarity into those who still have jobs. It wouldn’t take explicit and illegal collusion for company CEOs to realize that if they all copy each other and lay off workers at the same rate, conditions become more favorable for the company managers.

2. Layoffs and stock buybacks to inflate stock prices

Related to this is the sudden increase in stock buybacks, which increase a company’s attractiveness to investors by boosting its stock price.  After suffering dramatic declines in 2022 in the valuation of their stock prices, tech CEOs became obsessively focused on reversing this trend. The tech companies have not been using the money saved from laying off workers to keep the company afloat or invest in capital projects. After announcing $17 billion in earnings in Q3 2022, Google used almost all of it to buy back its own stock. Meta announced plans to purchase $40 billion of its own stock after laying off 11,000 workers. These stock purchases do nothing to increase productivity, they merely boost the company’s stock prices and line investors’ pockets. In the midst of his company’s maneuvers, Mark Zuckerberg’s fortune jumped by $12.5 billion in a single day, the largest one-day increase ever in his wealth.

Indeed, even the announcement of layoffs can send a tech company’s stock price skyrocketing because it signals to investors that the company’s executives are serious about disciplining workers and driving wages down. The morning that Google announced its layoffs, its stock zoomed 3.5 percent. Meta/Facebook’s stock, which collapsed by 63 percent in 2022, has more than doubled since announcing its mass layoffs. When company after company is laying off large chunks of their workforces, that contributes to a herd mentality among investors and drives stock prices higher. 

It’s important to note that, until 1982, stock buybacks were illegal in the US, as they were considered a form of market manipulation. But a Securities and Exchange Commission (SEC) ruling under the Reagan administration gave companies free reign to buy back their own equities. The massive cost of these stock buybacks alone would have paid the salaries of every laid-off worker for decades.

“Fired by algorithm” creates a ripple effect on those who keep their jobs

The task of the CEOs, then, apparently has been to cultivate an atmosphere in which workers are too scared to organize and the remaining employees must pick up the pace and do more work to keep productivity high. Alejandra Beatty, a program manager at Alphabet subsidiary Verily, said it was “very much a surprise” when she was laid off. She had thought herself to be in good standing at the company. “I was high performance, considered one of the pillars …Now I’m not even allowed to go back in, not even as a visitor,” she said. 

 “Fired by algorithm” creates a ripple effect on those who keep their jobs, subjecting them to a devastating mix of guilt, relief, trepidation, and anger. Such cold efficiency contributed to many workers feeling that firing people in a seemingly random way instilled a sense of precarity, even fear, in those who remain.

“It’s completely devastating,” said Skylar Hinnant, a senior quality assurance tester at Microsoft’s ZeniMax subsidiary, “both to the people who are laid off and their families, and their colleagues, who felt, for that day and will feel it a long time after, that they’re at risk.” 

Hinnant knew plenty of people who lost their jobs across Microsoft. “You can be the most important engineer at your job, you can be an awesome programmer, at the end of the day if the algorithm wants you gone, you’re gone.”

The randomness allows CEOs to try and mold their remaining employees into an intimidated, compliant and disposable workforce. That allows the company executives the labor flexibility they prefer, and that sends the right market signal that inspires investors to re-start their investing.

3. Pivot to AI may well result in fewer (and other) employees

About the same time that Microsoft laid off 10,000 employees its executives also announced plans to invest $10 billion in OpenAI, the creators of the hot chatbot application ChatGPT and its successors ChatGPT-3 and -4. That sum equates to $1 million per laid-off employee. Apparently the fastest way to save money for investments is to lay off employees, and potentially use AI to replace some of these workers with responsive software.

None of the companies dare state that AI automation is a driving force behind the layoffs and stock buybacks. But transitioning to an AI-based business model is among the  business reasons at the heart of these puzzling decisions. These policies offer a chance for company execs to hit “reset” on their business model, and to go forward with a smaller, more compliant work force that is more focused around the latest company priorities for its AI future. 

Similar – but less severe – trends in Germany and Europe with their different labor laws

Tech company layoffs also have hit Germany and Europe. Across the EU, there has been a steady occurrence of layoffs by well-known US tech companies, including Twitter, Stripe, PayPal, IBM, Hubspot and Yahoo, which have cut jobs in Germany, Spain, France, Italy, Portugal, Sweden and Ireland. EU tech companies also have followed suit. Earlier this year, Lucas von Cranach’s OneFootball, the world’s biggest football news app with 170 million monthly users, announced job reductions of about 30 percent. German micromobility operator Tier Mobility recently laid off another 22% of its employees, after previous significant layoffs. 

Trade union participation in restructuring processes has been limited or non-existent.

Swedish music streaming service Spotify announced that it is letting go of 17 percent of its workforce – and saw an immediate stock inflation jump of seven percent. Casavo, the Italian digital platform for selling and buying houses, laid off around 30% of its 500 full-time employees. Irish HR tech startup Workhuman laid off 10% of its 1300 strong workforce, with many of those in its Dublin office. The Austrian AI startup Anyline cut one in four employees and Estonian personal identification tech developer Veriff laid off 12% of its workforce.

From 2020 to mid-2023, Ireland has accounted for the largest proportion of all tech layoffs in the EU, around 40 percent. The tech sector is an integral part of Ireland’s economy, accounting for one-fifth of the country’s corporate tax revenue in 2021, so in times like these Ireland disproportionately suffers.

Trade union participation in restructuring processes among the tech companies has been limited or non-existent. Nevertheless, stronger labor laws have made a difference in Germany and other EU member states, as companies seeking dismissals have been required to engage in consultations with workers and their representatives. In Germany and France, Google has been obligated to negotiate with works councils over the number and types of employees who will be included in a layoff departure plan. Meanwhile, in the UK and Ireland, where labor protections are weaker, cutting jobs has proven to be easier.

Google works council for EU countries

As a reaction to the layoffs, some tech workers in both the EU and the US are trying to organize and fight back. In the EU, recently some Google employees set up a cross-country Google European works council for EU member states and the UK and Switzerland. The workers are hopeful that the works council will facilitate a powerful collective voice in future consultations, including more advance notice of layoffs and reorganizations. However previously tech company Oracle's European works council complained that it hadn't been consulted before the company sent jobs to Romania. Nevertheless, the employment appeal tribunal ruled against the works council.

And in the US, besides the previously mentioned pro-labor union activity among some employees at Silicon Valley companies, the announcement of mass layoffs has spurred even more pro-union activity. More than 1000 employees joined the Alphabet Workers Union, and one of the first things that the AWU did was set up Slack and Discord channels where laid-off workers could connect and share information. The Discord channel reportedly has 18,000 users now.

This is a crucial moment when the future of how we will work is being decided. If we view tech industry jobs as “glimpses of a possible future of work,” then this “disposable worker” mentality – with its hostility towards unions, worker participation and collective bargaining – must be challenged and reined in by better government policy and more workers organizing. And whereas AI could potentially serve humankind, that will only happen if governments create appropriate guardrails for this new digital infrastructure. Society cannot afford to allow Big Tech to fix the rules in their favor.