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Why All the Layoffs?

Really. Why so many, and why now? I’ve been sniffing around looking for insights. The insights have been thin. I have some thoughts that may seem a little blue-sky. Let me put a few of them in front of you to see what y’all think.

  1. Elon Musk did it. Well, not exactly. Elon Musk started it, by buying Twitter and owning it completely. The first thing you do after buying the meat is cut the fat, which he proceeded to do, bigtime. What came next was a classic instance of monkey see, monkey do. Once Musk showed the tech world that it was possible, the tech world, perhaps terrified of their employees before, began to do the same. Once corporate management saw that they wouldn’t be hung from the lampposts, they began cutting their own (considerable) fat.
  2. Higher interest rates did it. Elon Musk started it, but now that the Fed is raising interest rates to bring money-supply inflation down, the cost of cash is going up fast. Cash flow matters more than profitability in some respects. You can be profitable on paper and not have enough cash on hand to make payroll. Shrink payroll, and your cash flow requirements ease up a little. I’ve lived this issue. I know that it’s true. But the core problem here is actually my next insight:
  3. Tech firms hired all the heads they could afford, rather than all the heads they needed. Heads are easier to afford when interest rates are hovering close to zero, as they have for quite a few years now. Once again, Elon Musk put this problem up in lights. He said that all over Twitter there were managers who managed managers who managed…nothing. Thousands of people working at Twitter had absolutely nothing to do. Musk realized that Twitter would work just fine with 7,500 fewer people on the payroll. Predictions that Twitter would implode without all those idle bodies never came true. That was back in November. When January arrived and Twitter was working just fine, the rest of the tech world dove into that admittedly chilly pond. Yes, but why did they overhire? Maybe this:
  4. Tech firms were afraid that in a tight job market, they might not be able to hire the people they needed. So they hired more than they needed, to keep other tech firms from snapping all the talent up first. I can almost understand this, given how much airtime was given to the supposedly desperate search for workers over the COVID era. (I had my doubts about its truth back then. I still do.) So in a sense there was an employment bubble in tech…and Elon Musk popped it.

Those are my insights. The chattering classes, who now (with devalued bluechecks) loathe Musk down to the last person, haven’t tried to blame him for it, though I think they could make a good case if they wanted to. Musk won’t care. He’s laughing at them, as well he should. I’ve heard rumors that if Starlink rolls out as designed, Musk will have his talent design an iPhone workalike capable of connecting to Starlink. That would be one helluva game-changer. The guy can land rocket boosters on a barge and use them again and again. Don’t be too quick to decide what other bubbles he can’t possibly pop.


  1. James P Fuerstenberg says:

    nice analysis Jeff…interesting point no. 4….that could explain the overstaffing….even if some of those hires were marginal. It is funny to observe, that despite the hue and cry over Musk buying Twitter and predictions it would soon implode, that does not at all seem imminent.

    1. Right you are. I’m having fun on Twitter again, because I can post on COVID and climate without being censored. All those predictions that Twitter would implode after the layoffs were just bullshit. Didn’t happen. Won’t happen. And now the other social networks are (finally) cleaning house in the same way.

  2. Tom Byers says:

    This round of layoffs is nothing compared to the dot-com crash of the early 2000’s when entire companies folded over night. According to BLS statistics over 1 million lost their jobs.

    1. Dead-on. I think of that unfortunate event as “Too much money chasing WAY too much imagination.”

  3. John Hall says:

    Despite those highly visible layoffs from the biggest tech firms, there are plenty of tech jobs around. Unemployment is low.

  4. Elon did do it, IMHO. He made it clear and very public that social media companies aren’t particularly profitable, despite their truly astonishing popularity. I think this is going to come home to roost in the entire advertising-funded world very soon.

    1. I think so too. When there were relatively few places you could see ads (radio, TV, magazines, newspapers) there was some hope an ad would leave an impression and lead to a sale. Today, there are so many ads in so many places online that no single ad has much chance of getting attention. They all pretty much blur together, along with the clickbait sites where they run.

      What’s likely to happen is that more and more online sites go behind paywalls. This may or may not work in terms of profitability, but it will have side effects: People will each be able to afford just a small handful of pay sites, and those sites will dominate in their subscribers’ experience. There’s an occasional article I would pay to read in the NYT…but I will not buy the whole damned “paper.” My notion of an “article gumball machine” (basically, pay for online content by the piece) apparently won’t work due to transaction costs. I have to wonder if Amazon makes any money selling short stories for 99c each, or if it’s a loss leader and no more than that.

      There’s another Contra entry in that issue which I will take up as time permits.

  5. 3 weeks later: Ha! I was right! Google hired a bunch of people it didn’t need to keep them from signing on with competitors!! I’m guessing that Google wasn’t the only tech firm doing this. Interest rates that used to hover just above zero have risen substantially, so now cash costs money and those fake staffers have to go.

  6. […] I’ve had this suspicion for some time, but it appears to be true:  Tech companies overhired for “vanity” reasons, and to keep […]

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