Turns out, this is a story about the dangers of drawing conclusions by reading headlines without the full story. Despite understanding the importance of getting the details and knowing that journalism favours sensational story titles, I fell prey to scanning the news to keep on top of things.
Trying to follow employment trends over the past two years was whiplash inducing.1 First, there was massive unemployment in the early days of the pandemic, then mass resignation (an unprecedentedly high fraction of people quit their jobs to pursue more meaningful things2), followed by record low unemployment3. Beginning early this year, there have been many layoffs reported, particularly in the US tech industry4.
These were the headlines. They’re contradictory. Something doesn’t make sense.
Job availability and employment are related to economic cycles, product demand, social attitudes, and can differ between industries. It wasn’t too long ago there was talk of a shortage of programmers in AI and related fields. Now there aren’t enough workers in lower-wage jobs in industries such as retail, restaurant, and tourism.
That said, these factors aren’t independent either. There’s circularity: in expansive economic times, when product demand is high, job creation occurs to increase production. This can increase demand as more people are employed and have money to spend. Contractions work the other way – less demand, fewer jobs, leading to less demand and fewer jobs.
Shifts in supply and demand over the past two years aren’t surprising. We were ordered to stay at home, so demand crashed for many things such as tourism, entertainment outside the home, and related items like formal wear, makeup and travel insurance. As many businesses and industries shut down, unemployment skyrocketed. This was the first employment trend of the pandemic and logically connects to the economic situation.
Demand then rose for supplies that supported home eating, entertainment, and activities including working. When we stop being home-bound, enthusiasm for these products declined, while others, related to being out and about and social, are now popular.
Understanding the Great Resignation involves more than economic trends, but is not independent of them. Even if you didn’t resign, the social isolation we all experienced during the pandemic brought questions of many sorts to people’s minds, such as ‘is this the right job for me’ or ‘do I need a job at all’? Economics – especially rising prices, and low unemployment – especially an abundance of available positions, contributed to people’s interest in looking for a better job.
Shifts in demand and the Great Resignation are both contributing factors to record low unemployment. Some of the low unemployment we are currently seeing results from there being fewer people who identify as unemployed. Some have left the work force, retiring or simply choosing not to work. With reopening, new demand and expansion of many business offerings, job creation has allowed many of those seeking employment to find it.
Now that the first three employment trends of the pandemic are tied together, the final piece is the recent layoffs in the tech industry.
Many tech firms, and their bankers, are suddenly planning for the economic equivalent of nuclear winter, when 6 months previously it was full steam ahead into a new era of innovation in areas such as the metaverse, AR/VR googles, 5G communications and autonomous vehicles. This was despite expections of inflation and demand shifts to out-of-house things. There were many supply-chain issues, due to the pandemic but heightened by the war in the Ukraine. Good business planning anticipates economic trends and positions a company to flourish in the circumstances. Still, the layoffs in tech companies of 2022 seem to come as a surprise.
It didn’t surprise me that Peloton, providers of home fitness programs, saw a downturn in sales as people did more things outside the home, including their workouts. The company cut 2,800 jobs5, 20% of its workforce. These cuts were announced in Feb 2022 while sales started to decline late in 20216.
Another story was about Netflix. No surprise that consumption of home entertainment increased dramatically during the pandemic and then slowed as lockdowns lifted. Striking is that it’s Netflix revenue growth rate that has slowed, rather than total revenue, which early in the year equalled the previous year7. At mid year, headlines talked of the million subscriptions lost, however, this is on a backdrop of over 220 million subscriptions8. Yes, growth has dropped from the meteoric pace of 2021, but not catastrophically.
Coinbase9 peaked my interest as a startup that seems to have a great future but stalled in mid flight, laying off 18% of its workforce10 in early 2022. The company is a broker for cryptocurrencies ‘the easier place to buy and sell cryptocurrency’. Layoffs were explained by the crash in value of cryptocurrencies. This struck me as odd, because brokers make money as long as people are trading, and trading tends to be frenzied in crashing markets. Crashes in the cryptomarkets could easily be related to the current economy, with people liquidating investment holdings to spend on more, increasingly expensive purchases. However, reading beyond the headline, Coinbase’s story had both company specific (over exuberant hiring) and industry specific (the cryptocrash looked like sell and leave, which isn’t good for trading fees) elements.
Job cut headlines continue to break, but I’m starting to see a difference now. Microsoft11, for example, eliminated less than 1% of its positions, to realign their workforce with shifting business priorities. Now that’s more textbook! Look to the future economic and demand situation.
One simple stat adds perspective: in the first half of 2022, 24,000 workers have been laid off in the US tech industry. My sympathies to those suddenly without a job, but considering there are about 6,600 times more workers in the US12 than were laid off, a very small fraction are involved. This isn’t so much a story about economics, which might be at the root cause of the layoffs, but rather about business planning.
I was drawn in after seeing story after story about layoffs, thinking an unexpected calamity of epic proportions hit the tech industry. It’s much more explainable than that. Understandable shifts in demand have effected specific companies. And the backdrop of inflation remains, which we all have to contend with. Reading below the headlines, it makes sense, in a not very exciting way.
1 This post talks in generalities about employment trends. These trends are primarily in the US, but some are also seen in other countries.
2 https://en.wikipedia.org/wiki/Great_Resignation
3 In the US https://tradingeconomics.com/united-states/unemployment-rate and Canada https://tradingeconomics.com/canada/unemployment-rate
4 Here is a compilation from Crunchbase https://news.crunchbase.com/startups/tech-layoffs-2022/
5 https://investor.onepeloton.com/news-releases/news-release-details/peloton-announces-comprehensive-program-reduce-costs-and-drive
6 https://www.statista.com/statistics/974087/peloton-quarterly-revenue/
7 https://s22.q4cdn.com/959853165/files/doc_financials/2022/q1/FINAL-Q1-22-Shareholder-Letter.pdf
8 https://s22.q4cdn.com/959853165/files/doc_financials/2022/q2/FINAL-Q2-22-Shareholder-Letter.pdf
10 https://www.cnbc.com/2022/06/14/coinbase-lays-off-18percent-as-execs-prepare-for-recession-crypto-winter.html
11 https://techcrunch.com/2022/07/12/microsoft-lays-off-a-portion-of-its-workforce-as-part-of-a-realignment/
12 https://www.bls.gov/news.release/empsit.t01.htm