There may not be a recession, but tech and media companies are laying people off anyway

Tech giant Google announced it was laying off 12,000 workers last week to prepare for an economic downturn.

“Over the past two years we have seen periods of spectacular growth,” Google CEO Sundar Pichai said in a statement. public blog post targeted at your workforce. “To match and fuel that growth, we hired for a different economic reality than what we face today.”

The new economic reality includes a possible recession.

Google joined a list of technology companies announcing layoffs as part of a strategy to prepare for a widespread drop in economic activity that could reduce corporate profits. Companies including technology companies, banks and Internet media have shed more than 100,000 workers since the beginning of last year, according to the Forbes layoff tracker. Most companies have claimed that the economy forced them to.

But recent data suggests that a recession may be less likely now than it seemed last year. It could be that the layoffs are due more to herd mentality and overhiring due to the pandemic than economic conditions.

Maybe a slowdown is coming, but the main driver of the layoffs was that they grossly overstated hiring in the first year of the pandemic and are now regressing,” Mark M.uro, policy director of the Brookings Institution’s Metropolitan Policy Program, told HuffPost. “Groupthink got them into trouble and now they are using groupthink to explain the steps to fix it.”

Several CEOs acknowledged in their layoff announcements that they misjudged a surge in digital commerce as a permanent change rather than a pandemic phenomenon.

“Not only has online commerce returned to previous trends, but the macroeconomic downturn, increased competition and loss of advertising signals have caused our revenue to be much lower than I expected,” said the chief executive. of Meta, Mark Zuckerberg, in a statement. November email announcing mass layoffs to the staff.

On Monday, Spotify CEO Daniel Ek offered Zuckerberg-like language in a layoff announcement, lamenting his inability to anticipate post-pandemic trends plus the “challenging macro environment.” (Unlike Meta, Spotify is not profitable.)

The economic environment may be more challenging, but there is no full-blown recession as Zuckerberg suggested. The economy has been growing overall, adding jobs each month at a rapid rate.

Still, inflation can be a significant challenge for publicly traded companies whose investors want returns that outpace the general rise in prices, said Ranjay Gulati, the Paul Lawrence Professor of Business Administration at Harvard Business School.

“In this inflationary environment, if you can’t offer inflation-adjusted returns and you’re looking for crazy ideas, it won’t work,” Gulati said. Meta has suffered massive losses associated with her efforts to create an alternate digital universe accessed through a virtual reality headset.

The biggest threat to the economy actually comes from the Federal Reserve and its efforts to reduce inflation. The central bank has been raising interest rates, making money more expensive to borrow so consumers spend less, ultimately putting pressure on companies to offer lower prices. If the Fed pushes too hard, it could create a self-reinforcing cycle of layoffs.

Federal Reserve Chairman Jerome Powell said the Fed’s actions could cause a recession, but stressed that no one knows if it will. (The actual start of a recession is determined after the fact by a committee of the National Bureau of Economic Research.) The Fed has been trying to engineer a “soft landing” by slowing growth enough to kill inflation without causing mass layoffs, a key component of any recession.

Last year, rising prices seemed impervious to Fed rate hikes, raising fears that the central bank would be more aggressive in its efforts to stifle growth. economists surveyed by Bloomberg in December He said there was a 70% chance of a recession this year.

In a December email announcing layoffs, BuzzFeed CEO Jonah Peretti told staff that a recession could be right around the corner. The company reported a net loss of $27 million in the third quarter of 2022.

“For BuzzFeed to weather an economic downturn that I believe will extend well into 2023, we must adapt, invest in our strategy to better serve our audience, and readjust our cost structure,” Peretti said. (BuzzFeed is the parent company of HuffPost.)

But the past few weeks have brought encouraging signs that the soft landing might happen after all. The last Consumer’s price index The report, released this month, found month-on-month inflation fell in December and year-on-year prices had risen 6.5%, down from the 9% peak in June. If the trend continues, the Fed could soften interest rate increases, reducing pressure on the broader economy.

Christopher Waller, a member of the Fed’s board of governors, made a case for cautious optimism in a speech last weekciting the recent CPI report more data on salaries and job offers.

“Six months ago, when inflation was rising and economic output had stagnated, I argued that a soft landing was still possible, that it was quite plausible to push inflation without seriously hurting the labor market,” Waller said. “So far, we have managed to do that, and I remain optimistic that this progress can continue.”

Most companies are not laying off staff and new jobless claims have remained low. Many companies in the US have been hesitant to lay off workers despite slowing demand for goods and services. according to the most recent Fed surveys from business leaders and local economists.

But the high-profile layoffs announced in recent weeks may encourage copycat behavior. Jeffrey Pfeffer, a professor at Stanford University’s business school, says the layoffs in the tech sector are an example of “social contagion” and that companies that lay off workers are making a lot of money.

“If you look for reasons companies are laying off, the reason is that everyone else is doing it,” Pfeffer said in a statement. December interview with Stanford News. “The firings are the result of imitative behavior and are not particularly evidence-based.”

Capital One bank joined the layoff frenzy last week, cutting tech jobs in a move that The Wall Street Journal reported it could be a sign that layoffs in the tech sector are spilling over into corporate IT departments.

A Capital One employee who did not lose his job, speaking on condition of anonymity, told HuffPost that a manager told employees that “although it’s sad that these roles are being eliminated, transferring their responsibilities to the remaining team members it will make us more like other members of technology.” companies.” A Capital One spokesman did not respond to a request for comment.

The Tech Workers Coalition, a network of software employees and contractors, as well as allies such as lawyers and labor organizers, said tech firms are deliberately trying to weaken workers’ bargaining power and lower wage standards.

“Flooding the job market with people looking for work at once is a scare tactic that strengthens your position,” the group said in a statement.

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