By HERMAN MORRIS
The second half of 2022 saw one of the most interesting developments in the tech sector of the U.S. economy since the dot-com bubble crash. After nearly two decades straight of unimpeded growth and investment, several large tech companies have seemingly reversed course and begun laying off employees. Meta has laid off eleven thousand (-13% of the total workforce), Amazon has laid off ten thousand (-3% of the corporate workforce), and Cisco has laid off four thousand (-5% of its total workforce). This does not include nearly every tech company considered a “startup,” which across the board are seeing layoffs hit which can be tracked at sites like layoffs.fyi. This phenomenon is a curious one, given that the overall U.S. economy and even the tech industry specifically is still adding more jobs every month than are being lost.
It raises the question: Why is the tech industry trimming jobs now? And what does this portend for the future of the tech sector of the economy?
The first event to take note of is the rampant inflation of the U.S. dollar. As the U.S. economy completes its detachment from Russian goods and labor, and as we enter the third year of a post pandemic economy, the U.S. dollar is rapidly falling in value in relation to the commodities and capital assets it is used to exchange with. This has the direct result of also giving American families less to spend on consumer products and impacting the sales of these large tech companies. Many of these companies also rapidly expanded during the pandemic quarantine and expected continued success that was caused by a captive market that had more cash on hand from tax cuts and government welfare checks. Now that money does not go as far as previously, people are spending less and lowering the gross sales of consumer-facing tech firms.
Inflation is a matter of high concern to the U.S. bourgeois state due to its potential to wreck a national economy, and its go-to solution to the problem of inflation is to instruct the Federal Reserve Bank to begin raising the required interest rates for banks to loan money to one another. This has the trickle-down effect of limiting how easily capital can flow throughout the economy, making attaining new investment much more difficult than beforehand. For the titans of the tech industry (Amazon, Facebook, Google, Microsoft, etc.), this means an economic environment in which taking on debt or other additional investments from the finance bureaucracy is going to be much harder, pushing these companies to be “self-reliant” and to focus less on growth and more on maintaining profitability. For a large majority of the “startup phase” tech sector, this environment will be much more dire.
To understand why, we must first understand what separates a startup company from a more established tech company like Apple or Google. In general, tech startups are chartered by a mix of engineers and recent college graduates from the tech sector who are looking try their hand at becoming bourgeois. Often, they have little to no personal funds beyond self-sustaining savings and require investment from so-called “angel” investment funds or from a more proper “venture” capital fund to keep afloat.
Most startups are not profitable, and many are not interested in becoming profitable until they feel they have already cornered the market and can afford to begin extracting monopoly profits after undercutting their competitors with subsidized funding from venture capital. Examples of these types of companies include the gig economy startups such as Lyft, Uber, and DoorDash; none of them had a profitable quarter before 2020, and all three have had layoffs since 2020. These companies are different from an institutional tech company such as Apple, which has been reporting profits for decades and attracts more institutional investments from the likes of BlackRock and Berkshire Hathaway (Warren Buffett’s firm), which expect Apple to maintain a positive profit margin for years to come.
For the smaller startups, it has been considered an acceptable trade-off to be non-profitable so long as certain growth metrics were being hit (for example, more users and more gross revenue growing year over year). Now that the financial firms that prop up these startups with easy money may have a harder time securing additional capital, these startups are going to feel an immense pressure to either start becoming profitable as soon as possible or to get acquired by a larger tech firm that is willing to write off their operational losses. Until they hit one of those two finish lines or declare bankruptcy, they will look to cut costs anywhere they can. A large part of that is going to come from laying off employees.
As for the more institutional tech companies, they are less directly affected by the Fed rate increases in that it’s going to be difficult for them to get more investment through debt financing. Most of these companies, though, have enough cash reserves and historically have been profitable enough to not rely on outside investment to stay afloat.
The main issue these companies face is their massive growth, as they have undertaken a massive hiring spree in the past two years, with 200,000 jobs being added to the tech industry in 2022 alone. With this massive increase in investment while gross revenue is shrinking, a small crisis is underway at these historically rock steady firms. To make sure the books are balanced, these corporations have begun to carry out “fat-trimming” layoffs, cancelling projects that have been long time losses on investments, and trying to push out individual low performers while pushing those who remain to work harder than before to make up for lost labor power.
Why do layoffs help achieve profitability? From the Marxist definition of profit, we know that it comes from what is known as surplus value or unpaid labor time that is done by the employee after they contribute the labor time that their paycheck comprises. By laying off workers and expecting the same total throughput from the workers who remain, these tech companies can drop both their capital expenses through lowering their payroll costs and raise the absolute surplus value they extract from the workers who remain through longer work hours. Doing so means that in the aggregate, the relative surplus value increases from the workforce and restores profitability to a more acceptable level.
The core issue with this tactic, though, is that there are natural human limits on how much work can be accomplished in a workweek. If a team was already working 12-hour days, laying off a couple of people does not automatically mean the company can then get 15-hour days from those who remain. If a project cannot reach profitability with the human head count desired by management, then it could be facing project cancellations (the likes of which are being reported at Amazon and Meta).
It is also important to note that this analysis is simpler for the management due to the salary status of most software engineers—since a salary is a flat rate, surplus value comes for free to management who works this workforce longer and avoids the incurrence of overtime pay. Hourly workers such as contractors can secure overtime pay but are at even greater risk of being laid off due to the company’s ability to cancel or not renew their contracts.
Even with these layoffs, the overall U.S. economy expects to vastly increase investment in the tech industry. Tech unemployment is at 2% and still trending below the national average, even as the number of open job postings go down. The American bourgeois state, leading U.S. financial firms, and private corporations are growing their investments in the tech industry: The CHIPS act was signed by the Biden administration, which will add hundreds of billions of dollars of new semiconductor investments to the U.S. economy, Berkshire Hathaway has added stock investments in HP and Apple, and there are additional labor investments happening in the industry from outside of traditional tech employers, such as Walmart, JPMorgan Chase, and Optum.
What does this mean for tech workers? While the job availability reports still look good, there are numerous warning signs that the situation could still get much worse. With increased speculation (for example, the crypto industry still receiving billions in venture capital funding, Meta spending billions of dollars trying to open a new market in the form of the Metaverse), it is possible that a serious loss of value through misallocated labor can lead to a capital flight and shock the industry, putting many out of a job at a scale comparable to the dot-com crash.
Failing that, though, there are already multiple investor letters demanding that tech labor be cut and paid less, which will implicitly mean that those who remain will be worked harder—the same rulebook that has been rolled out on every other industry that once was highly profitable. Some tech workers are already reacting to these developments through their own self-organizing: the Amazon Labor Union landing a landmark union election victory, the ongoing CWA Quality Assurance worker unionization wave going through Blizzard in the wake of its acquisition by Microsoft, and the ongoing wave of union votes at Apple Stores.
As always, the development of a strong militant organization to protect the working class is critical. Workers in the tech industry need unions to fight layoffs and for their economic self-defense in general. Wherever it is possible, socialists should work to support unionization, and to tie that work into the larger social project of toppling capitalism for socialism.