The carnage of tech jobs shows no signs of slowing as higher interest rates weigh on the sector

The layoff avalanche that has rocked the global technology sector in recent years shows little sign of slowing.

Many of the industry’s giants have seen their share prices reach record highs thanks to the market’s exuberance over developments in artificial intelligence, masking the pressures of a higher interest rate environment.

But tech companies have announced more than 41,000 job cuts since the start of 2024. industry tracker Layoffs.fyiwith January marking the worst period for the workforce in ten months.

Microsoft revealed last month that about 1,900 posts at Xbox and Activision Blizzard, the video game publisher behind Call of Duty, would be cut to provide a “more sustainable cost structure.”

Five days later, Paypal and Jack Dorsey’s payments platform Block each confirmed they would cut their workforces by about 10 percent.

Others making cuts this year include eBay, Snap, furniture retailer Wayfair, Google owner Alphabet and Amazon, which is shrinking its Twitch, Prime Video and MGM Studios divisions.

These companies also implemented layoffs in 2023, when the global tech industry laid off a total of 262,735 workers, up from 165,269 the year before.

Technology-focused recruiters have triggered a domino effect, with office specialist Robert Walters and Partway Group, formerly Parity Group, both cutting their workforces last year.

Interest rate increases and a hangover from overrenting

During the first half of the pandemic, tech companies embarked on a hiring boom as millions of additional people worked and socialized from home.

However, since the end of Covid-19-related restrictions, the shift to a more analog lifestyle has depressed growth rates and left tech companies with bloated payrolls.

“We cannot underestimate the impact of the pandemic on the technology sector,” said Chris Eldridge, CEO of Robert Walters’ UK and Ireland division.

‘As demand continues to decline for the specialties that saw a huge spike during Covid, the cuts have continued.’

Between 2019 and 2022, Facebook owner Meta nearly doubled its number of employees to 87,000. The workforce subsequently fell by approximately 20,000 people.

When founder Mark Zuckerberg announced layoffs in November 2022, he blamed his incorrect prediction that the pandemic-induced jump in online activity ‘would be a permanent acceleration’ as some of Meta’s investments turn sour.

The technology industry’s problems have also been exacerbated by weak economic growth and rising interest rates.

Higher interest rates are generally considered bad news for highly valued technology stocks, which are valued primarily based on their future earnings potential. Future cash flows are generally considered less valuable in a high interest rate environment.

Some of the largest technology companies have been cushioned from this effect by interest on their cash balances, but they are still under pressure to reduce costs and strengthen current profitability.

And higher interest rates have led to higher financing costs and lower stock prices at many small and medium-sized companies, whose debt payments typically make up a larger share of profits.

Chris Beauchamp, an analyst at IG Group, told This is Money that layoffs are unlikely to stop completely until interest rates fall.

Inflation has fallen significantly in Britain, the US and Europe over the past year, raising hopes that central banks will soon cut interest rates.

In the meantime, investors are still pushing for tech companies to implement bold cost-cutting measures to improve profitability and stock prices.

Bloomberg analysis US tech giants saw their shares rise by an average of 5.6 percent in the month after they announced layoffs.

“The pressure on technology companies to perform better is now even greater due to the big share price gains, and job losses remain an area where cost savings can be made,” says Beauchamp.

Chasing the AI ​​boom

But as the technology sector moderates hiring and investment, it is simultaneously shifting much of its spending to developing artificial intelligence.

Enterprise software giant SAP announced last month that it was restructuring 8,000 messages to focus on areas such as business AI, while Google’s latest cuts came amid the launch of Gemini, a potential rival to Microsoft’s ChatGPT.

The potential gains from AI are enormous; Consulting firm PwC estimates this could add $15.7 trillion to global GDP by 2030, equivalent to 45 percent of all economic profits.

Robert Waters’ Eldridge notes that demand for machine learning specialists among professional services firms in the British Isles has increased by 29 percent in the past year.

The future of tech jobs

There have been similar spikes in cybersecurity roles, something Eldridge describes as “virtually recession-proof” given the threat posed by cyber attacks across all market environments.

Data breaches will cost businesses an average of $4.45 million by 2023, a jump of 15 percent in three years, according to IBM, a figure that certainly underlines the need to invest in robust online security measures.

Another major threat, climate change, is driving demand among renewable energy companies for software developers and data analytics specialists, an SThree spokesperson said.

They also note a greater need within the financial sector for data scientists and manufacturers for automation and robotics experts.

However, the advancement of AI inevitably means that some technical professions will be replaced by machines, causing dramatic disruption to the global labor market.

Nobel laureate Christopher Pissarides recently warned that students studying science, technology, engineering and mathematics courses may not find enough job opportunities that match their respective skills.

In an interview with Bloomberg, the London School of Economics professor said IT careers in particular could sow staff’s future ‘own seeds of self-destruction’ by working on AI projects that will wipe out their jobs.

‘The skills needed now – to collect, collate, develop and use the data to develop the next phase of AI or, more specifically, make AI more applicable to jobs – will make the skills needed now obsolete because it will do its job,” he said.

Pissarides predicts that traditional professions that involve face-to-face interaction, creativity and empathy, such as healthcare and hospitality, will flourish in the future because they are less likely to be replaced by AI.

His comments are unlikely to deter many teens and twenty-somethings fascinated by the generous salaries and perks that tech companies offer for work on demanding but highly rewarding projects.

Historically, concerns about technological advances leading to a future of mass unemployment have often proven dramatically inaccurate and alarmist.

and studies published by Goldman Sachs, Deutsche Bank and the International Labor Organization last year concluded that AI will create and expand jobs rather than replace them.

Many roles that didn’t exist a few decades ago are now commonplace: podcast producer, driverless automotive engineer, mobile app developer, and SEO analyst.

This also applies to entirely new industries with the suffix -tech in their names: fintech, nanotech, proptech, insurtech, agritech and MADtech (marketing and advertising).

As the ILO notes, “Twenty years ago there were no social media managers; Thirty years ago there were few web designers, and no form of data modeling would have made a priori predictions about a host of other professions that have emerged in recent decades.”