Why Silicon Valley Companies Keep Laying Off and What to Expect in 2023

Just before Thanksgiving, Amazon CEO Andy Jassy confirmed rumors that layoffs had begun across several departments at the e-commerce giant and said he would review staffing needs in the new year.

On Wednesday, Jassy provided a sobering update on that overhaul: Amazon is cutting more than 18,000 jobs, nearly double the 10,000 previously reported and marking the largest absolute number of layoffs of any tech company in the recent recession.

At Amazon and other tech companies, the second half of last year was marked by hiring freezes, layoffs and other cost-cutting measures at several well-known names in Silicon Valley.

But if 2022 was the year the good times ended for these tech companies, 2023 is already shaping up to be a year when people at those companies brace themselves for how much worse things could get.

On the same day that Amazon announced layoffs, cloud computing company Salesforce said it was laying off about 10% of its staff – a number that easily reaches thousands of workers – and video-sharing channel Vimeo said it was cutting 11% of its workforce.

The following day, digital fashion platform Stitch Fix said it planned to cut 20% of its salaried staff, after cutting 15% of its salaried staff last year.

The ongoing fallout in the industry comes as tech companies grapple with a seemingly perfect storm of factors. After initially seeing a boom in demand for digital services amid the onset of the pandemic, many companies hired aggressively.

Then came a wave of demand as Covid-19 restrictions eased and people returned to their offline lives. Rising interest rates also depleted the easy money tech companies used to fuel big bets on future innovations and slashed their sky-high valuations.

Heading into 2023, fears of recession and economic uncertainty still weigh heavily on the minds of consumers and policymakers, and interest rate hikes are expected to continue.

What’s more, the rising number of layoffs may also give certain tech companies some cover to take tougher steps to cut costs now than they might otherwise have done.

While there have been some layoffs recently in the consumer goods sector and signs that more will happen elsewhere, the situation in Silicon Valley remains in stark contrast to the wider economy.

The latest US Department of Labor employment report on Friday pointed to a year of extraordinary job growth in 2022, marking the second-best year for the job market in records going back to 1939.

Meanwhile, a separate report by outplacement firm Challenger, Gray & Christmas found that tech layoffs increased 649% in 2022 compared to the previous year, versus just a 13% increase in job cuts in the wider economy during the same period.

In her note to employees this month, Jassy attributed the need for significant cost cuts at Amazon to the “uncertain economy and that we’ve contracted quickly in recent years.” Others across the industry echoed these points, with varying degrees of atonement.

In a series of excuses that are starting to sound alike, Silicon Valley business leaders from Mark Zuckerberg of Meta to Marc Benioff of Salesforce have blamed the wave of job cuts on their own misinterpretation of how demand for tech products fueled by the pandemic would unfold.

Benioff started a memo to Salesforce employees last week invoking, as he often does, the Hawaiian word for family. “As an ‘Ohana,” he wrote, “we have never been so critical of our customers.” But the economic environment was “challenging,” Benioff wrote. “With that in mind, we have made the difficult decision to reduce our workforce by around 10%, particularly in the coming weeks.”

“As our revenue accelerated during the pandemic, we hired a lot of people leading to this economic downturn we are facing and I take responsibility for that,” continued Benioff. Like other tech leaders, however, it’s unclear whether Benioff will face any repercussions for his title or compensation.

Patricia Campos-Medina, executive director of the Worker’s Institute at Cornell University’s School of Industrial and Labor Relations, blasted this wave of mea culpas as “empty apologies” to workers who now pay for their miscalculations.

While there is a lot of near-term uncertainty for these tech workers, as well as “a big economic blow to their lives,” Campos-Medina added, “I think this is a very skilled workforce that will find a way to re-engage in the economy”.

She predicts that many of the laid-off tech workers will likely be able to find jobs and “we’ll see more stability in the medium to long term.”

But the end may not yet be in sight. Dan Ives, an analyst at Wedbush Securities, said last week that the Salesforce and Amazon layoffs “add to a trend that we expect to continue into 2023 as the tech industry adjusts to a softer demand environment.”

The industry is now being forced to cut costs after “spending money like 1980s rock stars to keep up with demand”, he added.

And despite the overall robust job market, there are growing concerns that tech layoffs could spill over elsewhere.

“I think we are seeing a tipping point; the rate of job growth is slowing and a lot of these tech layoffs that we’re hearing about, I think are going to start to materialize across the economy by the end of the first quarter,” said John Leer, chief economist at Morning Consult. Chief Business Correspondent CNN Christine Romans, in an interview on Friday.

In that sense, at least, Silicon Valley may once again be ahead of the curve, but not in the way it wants.