The layoffs in tech announced over the past month or so have many asking if this is a bellwether for the broader labor market. Will employment in the U.S. follow the path being blazed by Silicon Valley?
There are good reasons to believe it will not, especially if the economy avoids a deep recession. In the first place, employment in the non-tech economy has not followed the path of tech on the way up, so there’s no reason it has to follow it on the way down. Similarly, some non-tech parts of the economy are still rising toward pre-pandemic sales levels, while tech sales of all types—software, advertising, subscriptions, etc.—exploded higher during the pandemic and are now experiencing lower growth or even retreating to more normal levels.
The Tech Jobs Boom
Let’s start with the fact that the tech employment boom has been remarkably resilient, growing relentlessly for quite a long time. The government data on employment does not directly track the jobs that investors tend to lump together as tech. But a category called “other information services” can serve as a nice stand-in. The main component of this sub-sector are what the government describes as “news syndicates, libraries, archives, exclusive Internet publishing and/or broadcasting, and web search portals.”
If this seems too narrow, it can be expanded to include another broad category of tech jobs that get categorized as “data processing, hosting, and related services.” This roughly doubles the number of employees counted, but it does very little to change the overall picture.
The charts show a big decline after the busting of the dot com bubble and then a few years of stagnation. The financial crisis, however, is barely visible. It just looks like a continuation of the years of low to no growth following the bust. Starting in 2011, however, employment starts growing and never looks back. There’s a small hiccup in 2020 but nothing like what was seen in so many other areas of the economy. And right after that, it was back to the races.
The decade or so of nonstop growth in employment is likely one of the reasons that the layoff announcements have come as such a shock to workers. They are telling journalists that they feel “disposable.” One laid off tech worker asked, “How are we supposed to ever feel safe again?” Workers in sectors of the economy that have had much more employment volatility, especially during the last two recessions, are not asking these questions because they already understand that their jobs are at risk from negative financial and economic conditions. This is not tech’s first downturn, but it is the first in over two decades.
The Post-Pandemic Hiring Spree
Our chart of employment in tech also reveals that the pandemic barely disrupted hiring at all. In fact, hiring has continued above trend in the post-pandemic years, represented by a slightly steeper slope on the right side of the grey recession line than on the left.
There was also a huge surge in hiring by non-store retailers, the category that includes Amazon. This leveled off in late 2021, and employment slipped a bit last year. But even after the reversal, employment at non-store retailers remains 24 percent higher than it was pre-pandemic.
A recent client note from Bank of America ran the numbers on some particular companies. Microsoft’s payroll grew 53 percent from 2019 through 2022. Google parent Alphabet’s headcount rose 63 percent. Facebook and Instagram’s parent Meta more than doubled its headcount—as did Amazon. Salesforce, which recently cut 10 percent of its employees, grew by 67 percent during the period.
In other words, many of the biggest players in tech and likely many of the smaller companies and start-ups appear to have reacted to the boom in demand for their services and products during the pandemic and reopening by going on a shopping spree for workers. As demand has cooled, they’re over-staffed. This is much like retailers expecting a huge holiday shopping season and ending up with too much inventory. But unlike department store merchandise, wages tend to be sticky and not easily slashed when there is an oversupply.
A Tale of Two Economies
Why isn’t this true for the rest of the economy? In large part, the answer is that while there has been a lot of hiring in other sectors, many still have only recently approached pre-pandemic employment levels.
Here’s a chart of employment in leisure and hospitality. As you can see, although employment is way up from the pandemic trough, we are still below the pre-pandemic level. What’s more, the pace of hiring was already slowing throughout most of last year.
The next chart is employment in construction. The number of people working in construction reached the pre-pandemic high in May of 2022 and has continued to rise. As of December, however, employment is only two percent higher in construction than it was in February 2020.
One interesting question raised by these charts is whether the tech sector is an unheralded culprit in the labor shortage that businesses in so many other parts of the economy have experienced. Tech’s rapid growth may have drained the labor pool for other sectors. It may also have resulted in a somewhat inefficient distribution of human capital if tech companies hired workers that may have been more productive in other parts of the economy.
Boom to Bust
The boom in employment has probably made tech jobs more vulnerable to a downturn than other sectors. This does not mean that the rest of the economy is immune to a recession. The Fed’s monetary tightening could slow demand enough in the rest of the economy that layoffs become inevitable. But for now, many businesses outside of tech are still hoarding workers and may even attempt to hire the laid off tech people.
The noise coming out of Silicon Valley about layoffs should not be taken as a signal for the broader macroeconomy. Just as tech employment followed a different path up, it is likely to follow a different path down.
We’ll Be Right Back
A brief programming note: this will be the last Breitbart Business Digest this week. We will resume our normal Monday through Friday publication schedule next Tuesday, just in time for the Federal Open Market Committee meeting.
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