Do Tech Layoffs Signal Future Economic Stressors?

"Now hiring!" How many signs have you seen that beg for job applicants in recent months? As the economy and society return to offices and in-person activities, many businesses have pleaded for applicants. The continued demand for employees makes recent news about massive layoffs so confusing and troubling.

Layoffs and Consumer Preference

The layoffs are coming from one specific sector: tech. The last couple of years saw a drastic expansion in the tech industry as consumer shopping preferences shifted online. Now that brick-and-mortar establishments are reopening, the economy is once again experiencing a preference shift, resulting in less digital consumer demand.

In 2020, when quarantines affected nearly every American, tech behemoths like Amazon increased hiring to meet rising consumer demands. Now, quarantines are essentially non-existent for the broad public, meaning people are returning to conventional shopping preferences. Amazon's CFO now claims the return to brick-and-mortar shopping has left warehouses over-staffed, meaning layoffs are necessary to maintain operations.

The layoffs in the tech industry involve more than distribution hubs like Amazon; Uber, Peloton, and Robinhood — the investment app — also announced significant layoffs. Economists explain layoffs are unique to the tech industry and follow a period of rapid expansion. Some experts believe that while the expansion was necessary, the reversal of fortune was predictable.

Employee Bargaining Power Remains

Despite the massive layoffs and hiring freezes within the tech industry, workers in other economic sectors maintain substantial bargaining power. Other industries struggle with limited workforces and disinterested applicants. After two years of remote work and quarantines, employees are not enthusiastic about returning to positions of low pay and high demands.

Employers need to combat disinterest and retention problems with increased wages or improved benefits. Companies that cannot meet the demands of an invigorated workforce stand to lose profits and economic standing.

Tech Struggles and Future Chaos

The developing tech crisis may eventually force another shift in the power dynamics between employees and employers. Widespread industry layoffs may affect economic performance as unemployed individuals lose disposable income and restrict spending habits. Skilled workers may need to settle for lower positions for pay and benefits.

When skilled, educated, and experienced workers need to settle for positions beneath their qualifications, it alters the dynamics. Employees lose bargaining power because empty positions become occupied, and progress, once again, takes a giant step back.

Fortunately, most economic experts do not believe the current struggles of the tech industry will develop into a significant disaster. Currently, the problems in the tech industry are unique to that sector, and there is no reason to assume the issue will spread.

Layoffs a Result of Too Much Good Fortune

While it is challenging to consider the events of the past several years as positive, the consequences of recent events resulted in good fortune for the tech industry. When nearly every other sector experienced significant losses and struggles, tech experienced soaring profits and a hiring boom. Many economists referred to the change as a preference shift. Today, the economy is experiencing a reversal of fortune as people return to past preferences.

The current layoffs in the tech industry are unfortunate and dramatic, but as of now, they do not signal future economic stress. While the current prognosis can change, economists remain positive with multiple sector growth and a growing job market.