By Robert L. Cain, Copyright 2022, Cain Publications, Inc.
If they take $11 billion out of the economy, the effects will be less than pretty. They did and it isn’t pretty. As of November 18, 120,000 tech workers had been laid off in 2022. And the layoffs continue along with hiring freezes. Marc Weil, who has worked in tech since 2010, and one of the 120,000, was quoted in a Washington Post article, “Year after year goes by and the tech economy keeps getting bigger and bigger with no end in sight. Everyone in tech has been warned by people who lived through the last few decades that this will end. And so it ended.”
Just the tip of the iceberg, tech accounts for a small part of the US economy. But considering its influence on spending and business, its effects swallow a much larger piece of the economic pie than its perceived size. The average salary of a tech workers is a little more than $94,000 a year. Every dollar spent turns over seven times, advises the economic axiom. That means that one tech worker’s salary contributes more than $658,000 to the economy every year. Multiply that times 120,000 and you get more than $11 billion. Where does that money go? Much of it goes to the incomes of such small businesses as restaurants, coffee shops, gyms, movie theaters, professional services. Those businesses employ thousands of people, but may now employ fewer and fewer. The rest may well go to the government in taxes.
The layoffs and hiring freezes go beyond tech. According to a survey by LinkedIn, most industries’ hirings have plummeted with tech not even in first place. Far and away in first, or maybe last, place are holding companies whose hiring year over year dropped 23.3 percent, followed by tech at 17.1 percent. Others follow closely such as entertainment providers (small businesses) at 14.2 percent, professional services (another small business industry) at 15.6 percent, and retail at 12.5 percent (much of that small business).
Winners stand out, though. Utilities hired at a 23.3 percent increase, so if you’re an electrician, for example, and want to work for a power company, or a plumber and want to work for the water company, you’ve most likely got a job.
Also increasing in recent months, after declining year over year, were government, education, construction, farming, and health care.
Jim Harrison, of the Utility Workers of America, AFL-CIO, quoted in Money magazine, explained about utilities, “It’s a recession-proof sector for the most part. People still have to have the essentials of modern-day life. They need to have light, heat, power and water and those kinds of things.” But they don’t have to have restaurants, hair dressers, and holding companies.
“Big picture,” though says Julia Pollak, chief economist for Zip Recruiter, “companies are very much preparing for the possibility of a downturn. They’re focusing on hiring rather than nice-to-have hiring. But many are still continuing to hire because they absolutely have to.”
And they don’t “absolutely have to” keep raising wages. Sure, hourly earnings keep going up but more slowly. In September, for example, they rose just 0.3 percent to $32.46 an hour. Companies figure they can attract workers without increasing pay much.
Even so, some economists discount the tech layoffs and less hiring by citing the Labor Department figures of the 261,000 jobs added in October. They claim that the tech layoffs have no effect on the economy saying that tech accounts for an infinitesimal part of unemployment. They also point to consumer spending, which increased by 0.8 percent in October as proof that everything is all right. That increase has been skewed by the inflation that rose 0.7 percent for the month with much of the rest of it consisting of people having to catch up with their unmet needs such as buying gas and groceries and taking money out of savings, which decreased to 2.3 percent down from 2.4 percent in September.
Those laid-off tech workers will have to go job hunting with no guarantees that the jobs they get will come close to paying what they made at Facebook, Google, or Twitter. That’s a good thing, says Erik Brynjolfsson, a Stanford University economist, “I think the salaries in tech were unrealistic. Now there’s a bunch of really good coders and engineers for the rest of the economy where they are needed a lot more.” Might he have been forgetting about the effect that taking a good portion of the income they had earned out of the economy? Remember, you can’t do just one thing. The unpredictable ripples of layoffs and hiring freezes affect the economy cutting into hiring both for large and small businesses.
Layoffs don’t make up the whole problem. Jim McCoy of Manpower said, “They’re planning for uncertainty. Companies are slowing down replacing people so they don’t have to do layoffs next year.” He added that companies because of “economic uncertainty” have chosen not to hire for around one-third of the open positions. It costs money to lay off workers what with severance packages. But it costs nothing to not hire in the first place. Instead, may companies hire contractors. They may not cost less, but they are infinitely easier and cheaper to lay off.
Put the layoffs and hiring freezes together and the witches brew bubbles with a smell that bodes ill for the economy. In September, 6.1 million people got hired, the lowest level since February 2021. With job growth at 261,000, the lowest since April 2021.
The upside, if there is one, is that employers can be more selective when they actually do hire someone. They can screen thoroughly and set standards higher than they were able to before. Chad Leibundguth of Robert Half Staffing remarked in a USA Today article, that employers are “taking their time to identify the right person.” That’s if they look for new hires at all. Now is the time for businesses to describe their ideal applicant and wait for him or her to show up, which might be sooner than later.
Written for Zip Reports where they do employment and rental screening.
Contact Robert L. Cain at bob@cainpublications.com