Tech is experiencing layoffs. Without downplaying the significant impact on those directly affected, this post attempts to provide some perspective.
The graph above shows monthly Washington state tech employment1 from January 1990 through December 2022 (the most recent month for which ESD data is available).
Industries go through cycles. In tech, it has happened before, it is happening now, and with certainty it will happen again. But with equal certainty, tech will continue to grow long term, and Washington is well positioned to take advantage of that future growth.
There are several factors currently in play.
We are in a period of overall economic stress, which decreases the demand for the products and services that tech companies offer. “Over the past two years we’ve seen periods of dramatic growth,” Google CEO Sundar Pichai wrote. “To match and fuel that growth, we hired for a different economic reality than the one we face today.” In the absence of continued rapid revenue growth, some workforce reductions are inevitable.
Importantly, even after these reductions, most tech companies will still be far larger than pre-pandemic levels. Some examples (these are global employment figures, not Washington state):
- Salesforce has announced a workforce reduction of 8,000. In January 2020, Salesforce had 50,000 employees. In October 2022, Salesforce had 80,000 employees. Following the layoffs, Salesforce will still have 44% more employees than three years ago.
- Amazon has announced a workforce reduction of 18,000. In March 2020, Amazon had 840,000 employees. In September 2022, Amazon had 1.544 million employees. Following the layoffs, Amazon will still have 82% more employees than three years ago.2
- Meta (Facebook) has announced a workforce reduction of 11,000. In December 2019, Meta had 45,000 employees. Just prior to the November 2022, announcement, Meta had 87,000 employees. Following the layoffs, Meta will still have 69% more employees than three years ago.
- Microsoft has announced a workforce reduction of 10,000 jobs (only 878 of which are in Washington). However, Microsoft had added 40,000 jobs just in the most recent fiscal year.
- Google’s reduction of 12,000 in its global workforce should be viewed in the context of growth from 119,000 to 187,000 in the past three years.
Some companies are adjusting workforce to de-emphasize certain areas, creating headroom to grow other areas. Microsoft CEO Satya Nadella wrote “we will continue to hire in key strategic areas … while divesting in other areas.” (Artificial intelligence is a particular focus of growth across the industry.)
Jeffrey Pfeffer, a professor of organizational behavior at Stanford’s Graduate School of Business for more than 40 years, attributes much of the workforce reduction that is taking place across the tech industry to “social contagion” — imitative behavior. A more positive interpretation: workforce reductions by similar companies may provide an environment that’s conducive to implementing difficult business decisions that have been postponed.
The pre-pandemic peak of Washington state tech employment (shown above) was 150,000 in March 2020. The high water mark, in September 2022, was 177,000. The December 2022 value was 173,000. While further reductions are likely, December 2022 employment is 23,000 above the pre-pandemic peak — and 68,000 above the number a decade ago (105,000 in December 2012).
Finally, two University of Washington observations:
- Empirically, hiring continues. We surveyed the 100-plus students in our program who completed their degrees during fall quarter, and the results in terms of employment don’t stand out relative to students who graduated during the 2021-22 academic year. (Dice currently lists 1,886 “software engineer” job openings in the Seattle area alone.)
- Student demand continues to grow. UW received 8,555 freshman applications for Fall 2023 from students whose first-choice major is in the Paul G. Allen School — up from 7,587 for Fall 2022.
As noted earlier, industries go through cycles. In tech, it has happened before, it is happening now, and it will happen again. But tech will continue to grow long term, and Washington is well positioned to take advantage of that future growth.
1Classifications of businesses are inevitably imprecise. The tech industry has many non-tech employees (particularly at companies headquartered here), and non-tech companies often have a large number of tech employees. A particular example is that Amazon employment is not included in the chart – ESD classifies Amazon as “Retail” rather than “Information.”
2In fairness, the reductions will be focused on Amazon’s white collar workforce, which is perhaps only 1/4 of the total. Like all of Amazon, the white collar workforce grew dramatically during the pandemic. Amazon has announced, for example, that many of the layoffs will be in HR. This is not surprising. It took Amazon 25 years to reach its overall pre-pandemic workforce level. That workforce nearly doubled in the next two years. The level of HR staffing required to fuel that extraordinary growth is not needed post pandemic.