Disruption in the US Tech Sector: Layoffs, Stock Buybacks, and Business Plan Pivots
By Steven Hill
For the past decade, the tech sector in the US has enjoyed explosive growth. During the Covid-19 pandemic, people’s daily lives were forced to move online, and tech companies like Amazon and Meta/Facebook doubled the number of employees to keep up with the surging demand. Profits and stock valuations soared.
But as the pandemic lifted, the highflying tech sector has been brought down to earth. Company expansions ceased, and even began to shift into reverse. Massive layoffs have ensued. According to an industry layoff tracker, the tech sector eliminated more than 220,000 jobs during 2022.
That reversal has continued in 2023. Amazon has announced 18,000 more layoffs, Microsoft is slashing by 10,000 and Google by 12,000, 6 percent of its workforce. Yahoo will lay off 20% of its workforce, Zoom 15 percent, Salesforce 10 percent and the Musk-ified Twitter has cut 50 percent of its employees. If all the laid-off tech workers formed a city, it would be bigger than Pittsburgh, Newark or St. Louis.
The layoffs often come 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 contracted workers who often work overseas or laid-off foreign workers who have lost not only their income but also their work visas and face deportation if they cannot find another visa-sponsoring job.
Why have the most profitable Silicon Valley companies engaged in such staggering rounds of layoffs, one company after the other? The answer to that question is complicated and increasingly shrouded in controversy.
Are tech companies hitting reset?
The tech CEOs claim that we have entered a new economic reality, marked by supply chain bottlenecks, rising interest rates, high fuel costs, war in Ukraine and talk of a looming recession. According to this narrative, the companies have no choice because they overstaffed during pandemic-fueled hiring sprees, so now it is necessary to streamline operations.
“We hired for a different economic reality than the one we face today,” Alphabet/Google CEO Sundar Pichai said in his layoff announcement.
But most of these companies have been and remain enormously profitable. They are sitting on piles of cash that could be invested in new business lines and technologies that would preserve jobs or even create new ones. The US Commerce Department reports that corporate profits hit a record $2.1 trillion in the third quarter of 2022. Meanwhile, the remaining employees are asked to do more work to keep productivity high.
And while inflation remains elevated, recession has not yet struck the United States. Recent economic predictions are less dire, and in fact the US economy added hundreds of thousands of new jobs in December.
…or are CEOs covering for other business goals?
So what are the true reasons for these massive job cuts? Increasingly a number of experts question the validity of what the companies are saying. Other 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 increase their companies’ stock price by engaging in stock buybacks and employee layoffs, and 3) to pivot toward new AI-focused technologies that will require fewer employees with different skill sets.
Let’s look at each of these in turn.
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.
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 new 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, 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.
Following Google’s announcement of mass layoffs, more than 1000 employees joined the Alphabet Workers Union. 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.
This organizing activity intensified after 2015, when Apple, Google and other tech companies agreed to pay a $415-million settlement after a lawsuit alleged the companies had colluded to keep pay low with a “non-poaching” agreement between CEOs. All of this worker consciousness and growing mobilization has been of increasing concern to the bosses of Silicon Valley. Firing masses of people in such an overbearing way 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 companies.
Stock buybacks and layoffs: two sides of the same coin
Related to this is the sudden rise in stock buybacks, which increase a company’s attractiveness to investors by boosting its stock price. After suffering dramatic declines over the past year in the valuation of their equity positions, tech CEOs are obsessively focused on reversing this trend. The tech companies aren’t 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 price and line investors’ pockets.
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 climbed by 3.5 percent. Meta/Facebook’s stock, which collapsed by 63 percent in 2022, has zoomed 35 percent since the start of the year after announcing its mass layoffs.
Until 1982, equity buybacks were illegal in the US and 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 stocks. The massive cost of these stock buybacks alone would have paid the salaries of every laid-off worker for decades.
The task of the CEOs, then, seems to be to cultivate an atmosphere in which workers are too scared to organize and investors start investing. CEOs seem determined to mold their remaining employees into an intimidated, compliant and disposable workforce. That allows the company executives the labor flexibility they prefer.
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 new chatbot application ChatGPT. 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 have stated that automation is a driving force behind the layoffs and stock buybacks. But it’s not farfetched to conclude that these are the real business reasons at the heart of these puzzling decisions. These policies offer a chance for company execs to hit “reset” on their business model with a smaller, more compliant work force that is more focused around the latest company priorities.
Steven Hill is publisher and chief author of DemocracySOS and is the author of “Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers.” You can reach him @StevenHill1776