I wanted to drop a quick note about the endless spate of layoff announcements — and why you should (mostly) ignore them.
Let’s start with some numbers:
Microsoft 22,000 (10%)
Amazon 18,000 (1%)
Google 12,000 (6.4%)
Salesforce 7,000 (10%)
Tesla 10,000 (10%)
Twitter 3,700 (50%)
Apple 0 (0%)
Keep in mind a few things as you consider those big tech layoffs:
First, as Sam Ro reminds us, Tech employment represents about 3% of the workforce. The big scary tech layoffs are a small portion of the overall workforce. It’s a classic case of context-free data; my favorite phrase for this is “Denominator Blindness.”
Second, what looks like giant layoffs are in fact a tiny percentage of just the recent hiring (to say nothing of the total workforce) of these same firms. Amazon, now has 1.5 million employees, more than half of whom were hired in 2020-2022. Google just fired 12,000 people; they hired 57,000 over the past two years. Microsoft laid off 10% of its 221,000 workforce bringing headcount back to mid-2021 levels. Tesla, Netflix, Salesforce, and others seem to be undoing a modest percentage of the recent (excess) hiring over the past two years.
Last, the Labor market remains very robust. Unemployment is low, job openings are still high, and many salaries are still rising.
I have a very vivid recollection of massive firings during the 2007-09 financial crisis. As the chart above shows, Unemployment spiked to 10%, layoffs were ubiquitous. It was very ugly period, especially so close to the dotcom debacle a few years earlier. Even that implosion sent unemployment 6.3%, nearly double current levels.
Put away your GFC-based PTSD. The present era of interest rate normalization is not remotely comparable to those eras.
At least, not yet . . .
UPDATE 2 January 28, 2023 7:35am
This chart puts the layoffs versus recent hiring into some broader context:
Yahoo Finance via Jonathan Miller
UPDATE January 23, 2023 4:45pm
Chartr is on this as well; Tech layoffs are reversing the last leg of the recent hiring sprees:
Mind the anecdata 🤏 (Sam Ro, Jan 22, 2023)
The American Rescue Plan was the best economic policy in forty years (Claudia Sahm, Dec 7, 2021)
Why Aren’t There Enough Workers? (December 9, 2022)
The Plural of Anecdote IS Data (February 4, 2019).
Fearing the Dramatic, Complacent for the Mundane (April 29, 2019)
Denominator Blindness, Shark Attack edition (February 5, 2019)
Shark Attacks Illustrate an Investing Problem (February 4, 2019)
Don’t Suffer From Denominator Blindness (October 14, 2015)