Tech giants laying off their staff simply won't work

Spare a thought for the 1,300 employees of Zoom – a profitable, household name – who are to lose their jobs in the latest round of redundancies to hit the tech sector.

Fifteen per cent of the video-conferencing company’s workforce is to go, joining more than 97,000 other workers laid off from 313 tech companies this year alone.

Even allowing for adjustments in staff following the hiring spree of the Covid-19 years, the numbers losing their jobs are alarming and raise questions about whether mass redundancies are really the best way for companies to remain profitable and competitive.

Speaking in December during an earlier round of tech layoffs in the US, Prof Jeffrey Pfeffer of the Stanford Graduate School of Business described the decisions by Meta, Alphabet and others as “an instance of social contagion, in which companies imitate what others are doing”.

Worse, Prof Pfeffer claims, are the problems layoffs create for the companies themselves.

“Layoffs often do not cut costs, as there are many instances of laid-off employees being hired back as contractors, with companies paying the contracting firm,” he said.

“Layoffs do not solve what is often the underlying problem, which is often an ineffective strategy, a loss of market share, or too little revenue. Layoffs are basically a bad decision.”

If tech companies are cutting staff as a reaction to market sentiment or out of fear of a recession in the US or globally, it seems a questionable pre-emptive move. In the US, the economy is performing well, despite myriad challenges at home and abroad. According to the latest data from the country’s Bureau of Labour Statistics the US added 517,000 non-agricultural payroll jobs in January and unemployment is just 3.4 per cent – the lowest in 54 years.

Even predictions of a recession in the US are not universally held. Jack Kleinhenz, chief economist at the US National Retail Federation – the world’s largest retail trade association – said last week that although households “will probably feel recession-like conditions this year, I do not expect that the downturn will be severe enough to become an official recession”.

This may be cold comfort to former “Zoomies”, particularly given that their company has been profitable for four years, increased its net income each year and made more than $1 billion in profit in 2021. Chief executive Eric Yuan may have taken a 98 per cent pay cut and foregone his 2023 corporate bonus, but many of his former employees now face an uncertain future.

It is here, at the human level, where the effect redundancies can have is at its most stark. At best, job losses produce short-term precarity. At their worst, according to a study from the US National Bureau of Economic Research, “job displacement leads to a 15-20 per cent increase in death rates during the following 20 years”.

Politically, the need for a sustainable economy, powered by people being in work, spending and investing, was raised by US President Joe Biden in his State of the Union address on Tuesday.

“When the middle class does well,” he said, “the poor have a ladder up and the wealthy still do very well. We all do well."

That is a sentiment tech giants could adopt and, instead of letting valued employees go, turn their considerable capacity for innovation to finding new ways to retain their skills and experience.