2022 Mass Layoffs – How they are and Top reason explained

We heard a lot of news about mass layoffs these days. The job cuts were announced not only by small companies, and new startups but also by giant and established corporates. They occurred in almost all industries, from Technology, Real Estate, and Finance to Manufacturing, Media, Fashion, and even Food and Beverage. The incident left many employees jobless and the labor market anxiety and fear of job insecurity. But why are there such mass layoffs across most industries? In this article, we will give an overview of the incident and analyze data to draw some reasons for these mass layoffs.  

The Mass Layoff Overview

As summarized by Forbes, we have witnessed mass layoffs across all industries. In the technology sector, some of the giant and established firms to mention are Meta, Amazon, Twitter, Microsoft, Adobe, Intel, and Cisco. The tech startups to be named are Lyft in the ride-share sector, Door Dash in delivery services, and Nuro in transportation (AI delivery vehicles). In the Fintech sector, we heard about Stripe, Upstart, Chime, and Plaid. Pluralsight in the Edtech industry is also mentioned. In Foodtech, Beyond Meat (plant-based meat) also announced the job cut. These others are BigCommerce in the E-commerce industry and Redfin, Opendoor, and Zillow in online real estate. Most of the laid-off positions are tech engineers, operation, and business development staff. In the Financial sector, we witnessed job cuts mostly in retail banking, trading, and home mortgage positions. The banks that announced the layoffs are Goldman Sacks, Well Fargo, Morgan Stanley, Barclays, and Citigroup. The media sector also announced the layoffs. The names can be mentioned are Buzz Feed which owns Huffington Post, CNN, AMC Networks, and Garnett – the parent company of USA Today. Without standing out of the trend, H&M, Gap, and Nordstrom in Fashion, Pepsico in F&B, and HP, Phillips, and Ford in manufacturing also join the talk.   The list is not exhausted yet. So, we see that the mass layoffs are occurring in a large scope like a domino effect, and have a severe impact on the stability of the labor market. But what are the reasons for this negative trend?

Reasons for the Mass Layoffs

Global downturn

In October 2022, IMF cut its global economic growth outlook for 2023, estimating that one-third of the world economy will be in recession. As analyzed by economists, the first reason for the recession is the war in Ukraine which has worsened inflation. The second is the higher interest rates that the central bank applied to rein inflation. And finally, it is the recurrence of Covid-19 in China which announced it will open its border again in January 2023.
Impact of Global Downturn on the mass layoffs
The mentioned above issues not only affect the economy in general but also households and businesses. For households, inflation will reduce the purchasing power of the currency, forcing them to tighten their belt and reduce their demand for real estate and goods purchasing. Businesses not only suffer from declining customer demand, but inflation and higher interest rates will also increase their costs and eat into their profit. Meanwhile, high inflation, high-interest rate, and the lack of growth will give signals for investors to pull their money out of the economy. The evidence is the VC funding for startups in the first three quarters of 2022 dropped by 53% year on year and down by 42% in the first 11 months of 2022. So, we can see that the impact of the macroeconomic downturn on the mass layoff is apparent. The cut in investment and funding of investors will slow down the growth plans and expectations of many startups, especially those that mainly aim for growth and depend on VC funding, forcing them to cut off their staff. Inflation and high-interest rates have resulted in the real estate downturn, following its temporary boom amid the pandemic periods. This made many companies in the real estate industry, both traditional businesses and tech startups, narrow down their scope. Under the domino effect, Banks are also affected since fewer clients visits for mortgage contracts. With inflation, household demand will also be kept at an affordable level. Therefore, consumers will seek cheaper alternatives to plant-based meat, putting Beyond Meat in the decision of reducing their staff.
mass layoffs and top reasons explained

The over-hiring

The story will not be complete if we only look at the global recession outlook as the reason for the current mass layoffs. A report from the U.S. Bureau of Labour Statistics revealed that almost all major industries experienced steep employment gains in 2021, after the slump in early 2020 due to the covid-19 pandemic outbreak. Professional and technical services saw the highest increase in employment, reaching 1.1 billion and exceeding its pre-pandemic level by 428,000 jobs. Following are transportation and warehousing, information services and publishing industries, retail trade, and the financial industry. The reason for this over-hiring in the labor market is because of the increase in demand during the covid-19 pandemic outbreak in some sectors, leading to unprecedented expansions. The sectors to be named are online finance, online communication, E-Commerce, Food delivery, and Real Estate. Besides, the demand for labor in almost all sectors for business recovery after the pandemic also increased. Since most of the companies reduced their workforce significantly due to the pandemic, when businesses were allowed to open again, they experienced a leap in employment demand for their business recovery plan.  The year has ended now. Meanwhile, the upcoming year shows no positive and optimistic outlook. The downsizing decision is what the businesses would think of to keep their cost down for better financial performance in the challenging year.

Process and operation automation

Another reason that should be mentioned is the increase in autonomous and AI-based work processes. We all know that automation and AI-based solutions are being rapidly applied in almost all industries to automate work processes. This is because of the pressure of cost optimization and increased productivity for higher profitability. IBM Global AI Adoption Index 2022 report showed that the adoption of AI on the global scale rose from 31% in 2021 to 35% in 2022. And there is an additional 42% of companies reported that they were exploring the use of AI. The application is occurring in all aspects of the businesses, from mainstream activities (like Production, Sales, and Customer services), to support activities in the value chain (like HR, Accounting and Finance, etc). When applying these automation processes, the demand for labor workforce will decline, making the current workforce redundant and needing to be restructured.

New business requirements

As the era is changing, the demand is changing too. Therefore, businesses also change their strategies, goals, and plan to meet the new requirements. This is when the workforce restructures come in. 

Since technology is changing the world, including customer demand, businesses need to adapt. Otherwise, they will die like Block Buster being disrupted by Netflix or the Nokia phone being replaced by Apple’s smartphones in the past. Companies cannot stand out from the trend. It is an adapt-or-die decision for them. And, to lead the change, companies need workers with the skills of the new era. So, employees who do not keep their skills up to date will become obsolete and have their names listed in the companies’ restructuring plan. Not only technology, but all the PESTEL factors also affect businesses’ decisions. As in Ford’s case, the reason they used to explain their job cuts is to support their strategy to move to electric vehicle production. This is because electric vehicles are promising to be in higher demand as climate change is becoming a big concern of all countries, both the governments and the people.

Summary

We witnessed job cuts in almost industries. The negative global macroeconomic outlook is the top reason. The other reasons contributing to the mass layoffs are over-hiring, AI and automation adoption for cost optimization, and the requirements to adapt to the new era.
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