Tech Companies Start Layoffs Amid Talent Shortage... What's Happening? [Jjinbit]

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunjin Jung] "We will be cautious about when and where to increase manpower." - Statement by Dara Khosrowshahi, CEO of Uber, on the 8th

Global tech companies have suddenly announced hiring freezes and layoffs one after another. We are talking about Meta Platforms, Facebook's parent company, Uber, the world's largest ride-sharing company, and Netflix, a global streaming service. It seems like it was just recently that the tech industry was crying out that finding talent in the 'Great Resignation era' was as difficult as catching stars in the sky, so why has their stance changed so quickly? Let's first take a look at the statements they have released.

Uber CEO Dara Khosrowshahi stated, "It is clear that the market is undergoing a major tectonic shift, and we need to respond accordingly," adding that "we will be strict about costs across all sectors" and will be cautious about new hiring. In Meta's case, on the 4th, they sent a memo to employees stating that due to the Ukraine war, strengthened privacy regulations, and the IT industry downturn, they would halt or reduce mid-level and senior-level new hires.

Netflix and Robinhood, which thrived during the COVID-19 period but are now struggling, have gone as far as layoffs. Netflix has reportedly started laying off employees related to content information provision, and Robinhood announced it would reduce about 9% of its full-time staff, describing the decision as one to "improve efficiency, increase speed, and respond to customer demands for change."

What happened to them? ... Suddenly the mission changed to "Increase profitability"

The U.S. business magazine Fortune, reporting on this situation, asked, "Is the job market starting to cool down?" The job market had been hot enough to coin the term 'Great Resignation era,' and companies were struggling with talent shortages, so the question is whether the market's heat is now cooling. To understand this, we first need to look at why tech companies made these decisions.

The biggest reason is growing concerns about corporate profitability. The market underwent significant changes during the COVID-19 pandemic, and there were concerns about the growth of some tech companies during this process. Meta, Netflix, and Robinhood, which announced deteriorating performance due to a significant drop in subscribers or users, are representative examples. Companies saw the need to cut costs immediately to improve profitability and productivity.

The measures taken to reduce costs are hiring freezes or layoffs. During the COVID-19 era, tech companies conducted large-scale hiring, expanding salaries and benefits to secure talent. They focused on employment by increasing base pay, providing more company stock than before, and ensuring work flexibility. Naturally, labor costs increased, and reducing these costs has become a crucial factor in securing profitability now.

Given this situation, tech stocks have been falling relentlessly. On the 4th, the U.S. Federal Reserve's interest rate hike also hit the stock market, and in just three trading days, the market capitalization of seven big tech companies dropped by over $1 trillion. High inflation, China's COVID-19 lockdowns, and the Ukraine war are complex factors increasing recession concerns. In this uncertain environment, companies are reducing the large-scale hiring they had been doing and adopting a conservative stance to monitor the situation.

The Great Resignation era is not over... The imbalance problem is also a headache

That said, not all tech companies are reducing employment. Many companies are still actively working to secure talent. Especially in specific fields like AI and the metaverse, or for certain roles such as engineers and developers, demand still exceeds supply, and companies are busy meeting the conditions these workers want. Retaining employees who are dissatisfied with their pay and considering quitting is also important.

Another challenge tech companies face is the wage imbalance among employees within the same company. There is a growing wage gap between new hires and existing employees. In the overheated job market, companies offered high salaries to attract talent, causing disparities with existing staff. This has led to internal dissatisfaction and an increase in employees wanting to leave. To address this, companies need to consider changing internal wage policies or raising existing employees' salaries, which leads to further cost increases.

A representative example is Amazon. According to Business Insider, Amazon announced a salary increase including base pay in February, but after implementation, the rate of increase varied among employees, causing internal dissatisfaction. A manager who worked at the enterprise software company Salesforce told Business Insider that employees repeatedly complained about the wage gap with new hires, and when discussing this with HR, was told there were "budget issues" and that competitive hiring took priority over raises for current employees.

To address this, tech companies have recently changed employee compensation methods. Last month, U.S. delivery platform DoorDash shortened the vesting period for stock compensation from four years to two years so employees can receive rewards faster. E-commerce company Shopify reportedly is preparing a different compensation system as employees expressed strong dissatisfaction due to tech stock declines. Reports of employees refusing stock compensation due to falling tech stocks have been reported before as well. (April 2nd article 'Don't want stock compensation? Why employees of tech companies who dreamed of big gains are turning away')

So far, you can feel the turmoil surrounding employment in tech companies, right? The Great Resignation, salary increases, securing flexible work environments, profitability, and concerns over stock price declines?all these factors are pouring in. It means there is great confusion after experiencing the major event of COVID-19. Daniel Zhao, Chief Economist at Glassdoor, recently said on CNBC, "The job market will be fierce in the coming months. But since there is no guarantee this situation will continue, now is the time for workers to take advantage of the tight job market." We will have to watch whether the chaotic employment situation in tech companies will undergo another major change when it meets the wave of economic recession.

Editor's Note[Jjinbit] is short for 'Hyunjin Jung's Business Trend' and 'Real Business Trend,' a corner that shows trends in corporate management such as organizational culture and HR systems. Based on analyses from foreign media and major overseas institutions that have not received much attention so far, we will deliver fresh and differentiated information and perspectives.