Sitting in front of a computer screen for a 10-minute Zoom call on Wednesday, Mark Zuckerberg did something he had never done before. The Meta CEO explained to employees that he will be making the largest-scale layoffs in company history in an effort to cut costs after last month’s disappointing quarterly earnings report. “I know that there must be just a range of different emotions,” he said with a somber tone, in a video obtained by NBC News. “I want to say up front that I take full responsibility for this decision… And it was, you know, one of the hardest calls that I’ve had to make in nearly 10 years of running the company.”
Meta, which operates Facebook, Instagram and WhatsApp, will cut 13% of its workforce, or 11,000 jobs, as it seeks to scale back expenses and transform its business in a more competitive digital advertising market, Zuckerberg said. The social media giant is just one of several tech companies to announce layoffs this quarter, joining Twitter, Stripe, Salesforce, Lyft and others.
So far in November, there have been more tech layoffs than in any other month this year, with over 21,000 employees losing their jobs across 46 different tech companies, according to Roger Lee, founder of Layoffs.fyi, a website that tracks tech layoffs.
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Economic experts warn that such a high volume of layoffs could be bad news for other industries, as it signals the extent to which the current bout of inflation and high interest rates are squeezing companies out of cash, even though the current employment picture for other industries is relatively strong.
“We’ve seen a surge in layoffs in recent weeks because it’s becoming obvious that the [Federal Reserve] will need to keep increasing interest rates for longer than originally expected,” Lee tells TIME. “That means there’s no end in sight to the current downturn in the markets and economy, so tech companies are adjusting their staffing accordingly.”
“Unfortunately, the pain won’t end until the Fed is able to get a handle on inflation,” Lee says.
Here’s what you need to know about the tech layoffs and what they say about the economy.
Why tech companies are laying off employees
Although tech companies saw soaring profits during the pandemic, Silicon Valley hasn’t been able to recapture that success in the current economic climate. The main reason: digital advertisers are cutting back on spending amid the highest inflation in 40 years, limiting how much consumers can purchase.
“All of these companies are to some extent dependent on advertising revenue,” Emily Bowersock Hill, chief executive of Bowersock Capital Partners, told TIME last week. “That is a real sign of weakness in the economy that those revenues are declining.”
At Meta, where the largest-scale recent layoffs occurred, the company has been facing growing competition for advertising dollars from some of its biggest rivals like TikTok and Snapchat. Meta reported that revenue fell in the third quarter, as Facebook lost daily users for the first time in its 18-year history, and the company plans to lose more money next year in its metaverse push. Meta has estimated that it will also lose $10 billion this year after Apple introduced privacy restrictions that force app developers to explicitly ask users to consent to their data being collected for the targeted advertising campaigns that have historically made Meta more attractive to potential advertisers.
Layoffs are usually one of the first moves a company makes when it needs to cut costs, says John Anderson, a managing director of executive search firm Allegis Partners. “Tech companies are looking at the macroeconomic climate and what’s happening with their particular company or industry, and saying, we need to tighten our belts and reduce our operating costs,” he says.
Other factors like lingering supply chain issues, the war in Ukraine, and the strengthening U.S. dollar could also be at play.
Wayne Chang, the founder and CEO of Digits, an AI-powered accounting software startup valued at $565 million, tells TIME that some job cuts are also likely the “result of over-hiring and companies trying to adjust to their valuations coming down to market.”
“I’ve been through lots of these cycles, and in my eyes what’s probably going to happen is hiring will pick up again once the economy stabilizes,” he says.
The impact of interest rates
With the Fed raising interest rates again last week—by 0.75 basis points for the fourth time—the tech sector is being affected particularly badly. Tech companies with significant interest rate exposure, such as real estate or car selling platforms, will be hit “especially hard” by the steep rise in interest rates, says Tim Herbert, the chief research officer at CompTIA, a nonprofit association for the technology industry and workforce.
Twitter recently laid off roughly half of its workforce, or about 3,700 jobs, as advertisers rethink their spending on the platform amid Elon Musk’s chaotic takeover. Online payments giant Stripe announced that it will lay off roughly 14% of its staff, while Lyft and RedFin each said 13% of its workforce will be eliminated. Other tech companies that made recent layoffs include Salesforce, Microsoft, Twilio, DocuSign, HelloFresh, Opendoor, Peloton and Noom.
Fed officials have signaled that interest rates could be raised even further in December and February depending on how the economy is responding to the recent rate hikes. Thursday’s inflation report indicated that Americans saw some relief last month, as consumer prices rose 7.7% for the year ending in October, lower than the 8.2% reading in September.
What the layoffs mean for the economy
Although last week’s jobs report came in strong—with more 261,000 new jobs added to the U.S. economy in October—job cuts in the tech industry are particularly alarming to economists.
“Oftentimes the tech industry is the leading indicator of what’s going to happen next,” Anderson says. “With the macroeconomic trends right now, we could definitely see some spillover into other industries.”
Herbert says that if the Federal Reserve continues to slow down the economy to rein in inflation, as officials have indicated is likely, “some degree of additional economic pain is inevitable.”
“The recent tech layoff announcements could be viewed as a cautionary predictor for firms caught in a similar position,” he says. “But we must also recognize that could be offset by the segment of the tech market holding up.”
Other companies seeing similar struggles
Although the layoffs are mostly confined to the tech industry so far, a number of additional companies are facing the same struggles with declining revenue and the need for cost-cutting measures. For companies in the retail space, the economy is shifting at the wrong time with the all-important holiday shopping season ahead.
Amazon instituted a hiring freeze this week after forecasting that its revenue for the holiday quarter will be lighter than expected. FedEx also said that it would pause hiring and park its airplanes as demand fell short of its projections. And Walmart, the nation’s largest private employer, said it will hire fewer hourly workers for the holiday shopping season.
Other companies may have to implement layoffs or hiring freezes as well, particularly if their revenue is slowing.
On the positive side, Anderson notes “there are plenty of opportunities out there” for employment. The Bureau of Labor Statistics reported last week that there were 10.7 million job openings in late September, and nearly 317,000 tech job postings, according to a report by CompTIA. “This could be viewed as a segment of companies stepping back into the labor market to hire,” Herbert says, “possibly in anticipation of a return to growth heading into 2023 or possibly to take advantage of additional tech workers seeking employment.”
And for those who want to take a different path?
“Laid off workers have the ability to now work on their own things and start new companies,” says Chang, the startup founder. “I’d be really excited by the potential innovations coming out of that.”
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