As the skills shortage increases, tech companies are shedding workers

Job cuts and a slowdown in hiring have been the top talking points from tech leaders on earnings calls over the past few weeks.

Then there was last week’s work report.

More than half a million jobs were added in July, which was 258,000 more than expected. Wage growth rose 0.5% month over month (5.2% year over year), and the unemployment rate is now 3.5%, tied for the lowest since 1969.

In such a tight job market, when companies are still struggling to find the talent they need, why are tech companies like Amazon, Oracle, and Microsoft shedding workers?

For starters, economists point out that what is happening in one sector is not representative of the entire economy. Just as the early days of the pandemic shutdown affected industries differently (airlines and hotels were crushed, as e-commerce and streaming platforms proliferated), so will this next economic cycle.

Throughout the pandemic, tech companies have added workers at a rapid clip. Now, with a looming recession and sky-high inflation reducing consumer spending, many of those same companies are looking to cut costs and raise capital. Amazon has doubled in size over the past few years as it needs to consolidate its warehouses to meet customer demand. It is now reducing its workforce, reducing its headcount by 99,000 people to 1.52 million last month.

Shopify began adding employees in 2020 in response to a surge in the number of stores and restaurants that went digital during the Covid-19 lockdown. In July, the company announced it was laying off about 1,000 people, or 10 percent of its global workforce. In a memo to employees, CEO Toby Luttke acknowledged that he had miscalculated how long the pandemic-driven e-commerce boom would last.

Changing demographics are also at play in the current workforce picture. George Washington University management professor Christopher Keyes said the restrictive immigration policies led to fewer workers being laid off, more people retiring and early retirement after the pandemic. Working mothers are still marginalized because of their struggles with childcare. All this means that as the economy grows, fewer workers are available for the number of jobs created.

“When you combine the growth of jobs with a smaller labor pool and workers who are more selective about the jobs they take, you have this imbalance,” says Keyes.

Danny Combs, chief information security officer at Donnelly Financial Solutions, said he had never seen an environment like this. He works primarily in Austin, Texas, “and there’s no recession that I can see here. There are thousands of jobs.” At the same time, he recognizes that inflation is an undeniable factor for the company, and he has had to be creative “in our compensation packages and discounts in terms of location and flexibility.”

Sanjay McEwan, chief information officer and chief information security officer at Vonage, said the digital transformation that has exploded over the past few years has naturally required and attracted large numbers of skilled technology workers, so there is room to reduce headcount.

At the same time, industries such as retail, airlines and hospitality that collapsed quickly and at the height of the pandemic are now struggling to add workers to their payrolls. “There is a lot of misunderstanding in those industries,” he added. “Employees can be bullied and harassed by customers, so they leave and go elsewhere, which makes recruitment more difficult.”

Even amid the layoffs and labor turmoil, both Combs and McEwan are longtime bullies in technology. Combs says: “I believe there are still endless opportunities in areas like technology.”