Google joined a list of tech companies announcing layoffs as part of a strategy to prepare for an across-the-board decline in economic activity that could squeeze corporate profits. Firms including tech companies, banks and internet media have gotten rid of more than 100,000 workers since the beginning of last year, according to the Forbes Layoff Tracker. Most of the companies have claimed the economy forced their hand.
“Maybe there’s a slowdown coming, but the main driver of layoffs was that they extraordinarily overdid hiring in the first year of the pandemic and now they’re pulling back,” Mark Muro, policy director of the Metropolitan Policy Program at the Brookings Institution, told HuffPost. “Groupthink got them into the problem and now they’re using groupthink to explain their steps to fix it.”
“In this inflationary environment, if you cannot deliver inflation-adjusted returns, and you’re out there pursuing moonshot ideas, it’s not gonna work,” Gulati said. Meta has suffered massive losses associated with its efforts to create an alternate digital universe accessed via virtual reality headset.
The biggest threat to the economy actually comes from the Federal Reserve and its efforts to curtail inflation. The central bank has been raising interest rates, making money more expensive to borrow, so that consumers spend less, eventually putting pressure on companies to offer lower prices. If the Fed pushes too hard, it could create a self-reinforcing cycle of layoffs.
Federal Reserve Chair Jerome Powell has said the Fed’s actions could cause a recession, but he’s emphasized that nobody knows whether one will occur. (The actual onset of a recession is determined after the fact by a committee at the National Bureau of Economic Research). The Fed has been trying to engineer a “soft landing” by slowing growth just enough to kill inflation without causing mass layoffs, a key component of any recession.
“Six months ago, when inflation was escalating and economic output had flattened, I argued that a soft landing was still possible ― that it was quite plausible to make progress on inflation without seriously damaging the labor market,” Waller said. “So far, we have managed to do so, and I remain optimistic that this progress can continue.”
But the high-profile layoffs announced in recent weeks may encourage copycat behavior. Jeffrey Pfeffer, a professor at Stanford University’s business school, says the tech sector’s layoffs are an instance of “social contagion,” and that the firms letting workers go are making plenty of money.
A Capital One employee who did not lose his job, speaking on condition of anonymity, told HuffPost that a manager told employees that “although it’s sad these roles are being eliminated, shifting their responsibilities to the remaining team members will make us more like other tech companies.” A Capital One spokesperson did not respond to a request for comment.
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