Oakland resident Jessie Norden was relieved when she got the email from her employer, Palo Alto’s VMWare, even though it said she was being laid off from her role as a senior product manager.
“At least I know I have a job until Jan. 31,” she said. “And I was quite pleased with the amount of severance they were giving, 6.25 months.”
She knew the writing was on the wall because San Jose’s Broadcom was acquiring VMWare, a cloud computing company, for $69 billion, in one of the biggest tech deals ever. Now, hundreds of VMWare’s 38,000 employees are getting pink slips.
They’re among a new surge of tech layoffs this autumn.
After rising steadily last autumn and peaking in January, tech layoffs had declined for eight straight months this year “but ticked up again last month,” said Roger Lee, a San Francisco entrepreneur who runs Layoffs.fyi, which has become the most definitive and timely source of information on workforce reductions at tech and venture-backed companies.
In October, 7,381 employees were laid off, up from 4,707 in September, Lee said. Still, the October number was less than 10 percent of the January peak.
While the companies are shrinking staff worldwide, “the Bay Area does dominate these tech layoffs,” Lee said. About 30 percent of laid-off tech employees are from Bay Area companies, although they could be based anywhere.
The average layoff size is smaller now, about 100 employees per layoff compared with almost 200 in the first quarter, Lee said. That’s because the first quarter was dominated by head-count reductions at heavyweight companies — Google, Meta, Salesforce, Microsoft and Amazon — which number their layoffs in the thousands.
Several factors are at play, he and other experts said — and unfortunately, they mean that the layoffs are likely to continue.
The overall economy with sky-high interest rates is the main culprit.
“A whole host of factors are tied to high interest rates that all hurt tech at once and make it more exposed than other sectors,” said Julia Pollak, chief economist at job-hunting site ZipRecruiter. “The environment for tech is just not that fruitful when people can get risk-free returns elsewhere.”
Specifically, borrowing costs are high, depressing investments in general, she said. Then, many tech companies rely on international sales for growth, but “that’s tricky when the dollar is this strong,” Pollak said. “The high cost to foreigners reduces their consumption and non-dollar sales are worth less.”
Continued post-pandemic restructuring is another factor for the new pile of pink slips.
During the pandemic, many tech companies bulked up to take advantage of higher sales from all the people stuck at home. But those sales didn’t last, so companies had to retrench, starting late last year.
That remains a factor, Lee and Pollak said.
But there’s another new cause for recent layoffs: the rise of artificial intelligence.
AI’s impact comes in different forms.
Santa Clara ed-tech firm Chegg cut 4 percent of its staff, or about 80 people, because students are switching to use OpenAI’s ChatGPT for homework help.
Cloud storage company Dropbox of San Francisco laid off 16 percent of its staff, or 500 people, as part of a pivot to a stronger AI focus. It will hire in AI roles while shedding staff in other areas.
IBM and Meta both suggested that they believe AI can help them accomplish more with fewer employees. IBM plans to pause hiring for about 7,800 jobs and over time replace them with AI, starting with back-office functions like human resources. Separately, it laid off 3,900 employees earlier this year, plus dozens in its Israel office this summer.
Meta, which has laid off some 20,000 people in the past year, didn’t directly attribute the cuts to AI, but it seems like a subtext in CEO Mark Zuckerberg’s memos about increasing efficiency, Lee said.
For laid-off workers, the job market is tighter.
ZipRecruiter sees tech job postings down 53 percent in November compared with a year ago, Pollak said. “Ever since the Fed started supersized rate hikes, tech job postings have been declining.”
Salaries are shrinking in sync with the layoffs.
Lee is also CEO and founder of Comprehensive.io, a startup that tracks salaries on the careers pages of 5,000 tech companies.
“Tech salaries have stayed flat for nearly two years now, after years of steady increases prior to that,” he said. “It’s correlated with layoffs. With more people on the market and fewer job openings, the job market is tougher, causing tech salaries to remain stagnant.”
One notable exception is salaries for AI engineers, which are up.
Even for people who kept their tech jobs, compensation is shrinking, Pollak said.
“Stock grants are worth less, merit increases are on pause, annual bonuses shrunk or were canceled,” she said.
Still, tech remains a magnet for job seekers.
JobHackers, a nonprofit that offers free training and placement assistance for knowledge work, is getting an influx of laid-off workers, said Edward Gordon, its chairman.
“There are a lot of people still interested in moving into tech sectors even in the face of these layoffs,” he said. “The demand for these classes is only going up as more people seek to better understand how to work in a world that has complex problems.”
The prospects for the overall job and layoff market are less clear.
“If interest rates stay high or the Fed keeps raising them, then I think we’ll see more layoffs in tech,” Lee said. “But if interest rates have peaked and might be cut as early as the first half of next year, hopefully that will mean a reprieve in the tech layoffs.”
Pollak had similar thoughts.
“There are lots of reasons to be optimistic about inflation, and if inflation continues to come down meaningfully, it’s possible the Fed could start reducing rates as soon as the summer,” she said. “That would buoy investors’ moods tremendously and business confidence in tech. That could finally unleash pent-up demand for stocks, and for tech workers.”
(c)2023 the San Francisco Chronicle. Distributed by Tribune Content Agency LLC.
