3 Reasons Huge Layoffs in Tech Don’t Mean a Recession Is Around the World, Goldman Says

Tech companies had a dream run through 2020 and 2021, setting new records and driving stock values ​​to all-time highs.

But this year, those same companies wiped out nearly half of their early-pandemic-era profits. With headline inflation at nearly a 40-year high and lackluster stock performance, tech companies have announced a spate of layoffs. Meta has laid off 11,000 employees, while Amazon has said it will cut 10,000 corporate jobs to control costs. Twitter laid off about 50% of its employees earlier this month, although that brought with it some special circumstances. And companies like Microsoft, Stripe and Salesforce have also laid off employees in recent weeks.

The layoffs have fueled chatter about a looming economic downturn that some people say is already underway. But even if there are large-scale layoffs in the tech sector, it may not portend a looming recession in the US, analysts at Goldman Sachs said Tuesday. And they say there are three reasons for this.

First, the tech industry only made up a tiny fraction of the broader labor market, so it would not have a far-reaching impact on unemployment. While nearly 26% of the S&P 500’s market cap comes from technology companies, jobs in the space don’t reflect the same dominance, the report found. Big tech jobs accounted for only about 0.3% of the total job market, and the financial clout of tech companies doesn’t impact employment, according to the bank.

Second, given the number of vacancies, workers who are laid off from the tech industry could likely find alternative jobs. Tech job openings are higher than they were before the pandemic, offering opportunities for job seekers, according to the report.

Finally, mass layoffs have been seen in the tech industry in the past, but they didn’t always indicate job cuts elsewhere in the economy or a market downturn. The problem for the job market, according to Goldman, is that it remains too strong.

Analysts said the recent massive layoffs were due to lower profits this year rather than any sign of a slowing economy, making it costly to maintain a large workforce. For tech companies in particular, gains have been bountiful when they came — and brutal when wiped away.

The silver lining is that the appetite for tech talent is still strong, offering opportunities for laid-off employees to The New York Times reported. Startups are also making the most of tech job cuts, filling vacancies with software developers and engineers, leaving large tech companies with years of experience behind.