4 worrying trends in tech that are fueling Google and Amazon layoffs

Technology jobs were once synonymous with job security. But after last year, one of the biggest for layoffs in over a decade, combined with the rise of potentially job-killing artificial intelligence, a bleak horizon hovers over the humans in the technology industry who are now at risk of losing their livelihoods.

With the exception of the pandemic-driven job cuts in 2020, last year saw the highest yearly total of tech job cuts since the Great Recession, with companies cutting more than 720,000 jobs from their budgets, according to a report by Challenger, Gray & Christmas, Inc., a job market research company. And that’s continued into the first month of 2024, with Google, Amazon and smaller tech firms announcing further cuts in recent weeks.

But why are companies slashing jobs now? A drive for profitability, the remains of the pandemic hiring hangover, rapidly developing AI and—somewhat ironically—slowing inflation all play a part, according to industry watchers, while the timing can be blamed on the corporate budget calendar. But there's a silver lining, with the still-tight labor market meaning laid-off techies should be able to find work elsewhere.

Cost-cutting as Google and Amazon search for profit 

Google was clear in its job-cut announcement this week that it was cutting several hundred workers to further reduce costs. CEO Sundar Pichai told employees in a memo that the company wanted to invest more in emerging areas, including AI, while cutting costs elsewhere. “We have ambitious goals and will be investing in our big priorities this year,” he wrote in a memo confirmed by Fortune. A company spokesperson characterized the cuts as “responsibly investing in our company's biggest priorities” and said “a number of our teams made changes to become more efficient and work better.” Some Google employees pushed back against this rationale, with members of the Alphabet Workers Union blasting the company’s “senseless, misguided corporate decision making” in a press release.

Other multi-billion-dollar tech companies, like Amazon, also announced hundreds of employee cuts from its media divisions, including Prime Video, Amazon MGM Studios, video streaming platform Twitch, and Audible, its audiobook and podcast division. After tens of thousands of cuts last year, which hit areas seen as less essential to the company’s bottom line including voice-assistant Alexa, this month's cuts likewise attempts to slash costs in the high-cost, lower-profit area of content, where Amazon is the number-three spender after rivals Netflix and Disney.

Pandemic hiring boom still deflating

Another reason tech giants can keep reducing their ranks of employees is because their employee pools are still quite deep, after the “wild hiring spree” that many big companies embarked on during 2021 and 2022, as Challenger said. Last year’s cuts were a result of that spree, when many tech companies trimmed down their workforces after realizing they over-hired in prior years. With the latest cuts, some of those companies are realizing they didn’t cut enough in the first rounds.

From hiring to layoffs, “tech is one of the areas that has seen the quickest turnaround,” Challenger said.

After the pandemic boom, companies are also buckling in for slower growth ahead, with interest rates staying higher for longer—which also plays into the renewed focus on profitability. “As with many other companies in the tech space, we are now sizing our organization based upon the current scale of our business,” Twitch CEO Dan Clancy wrote last week, adding that his company is erring on the side of caution with “conservative predictions of how we expect to grow in the future.”

Relatedly, the rise of AI in other parts of the tech world has also made the climate frostier for technology hires. Since the massive popularization of AI chatbot ChatGPT, companies have been focused on hiring AI-adjacent roles in an arms race with competitors to get ahead of what’s believed to be the next tech boom. At the same time, they’re downsizing non-AI areas to manage their expenses and keep their businesses profitable. And AI’s feared job-killing aspects could have ramifications here, too, although it’s only playing a small role at the moment, Challenger said. Companies said AI was responsible for 4,000 cuts last year, per the report, but it “is something we’re concerned about for the future,” Challenger said.

Falling inflation is a bad sign

Ironically, the falling inflation that has been a boon for consumers is also a factor in the tech layoffs, according to Challenger. As of last month, annual inflation is around 3%, substantially lower than its 6% rate at the start of the year. But because prices are no longer rising as quickly, this makes it harder for companies to raise the cost of their services, as customers, whose paychecks are also stymied by inflation, may not be willing to pay more for them, Challenger said.

“It’s harder for companies to increase their prices as they have been,” while also paying for increased labor costs, he said. “So this inflationary cycle is one of the main culprits for these layoffs.”

It’s never great to find out you’re losing your job, he said, but explained that this period is better than most because “unemployment is still below 4%, and a lot of people that lose their jobs now have a high likelihood of finding more work pretty quickly.”

The right timing: layoffs are not just for year-end

There's another reason for the timing of cuts in January, and that’s simply the corporate budget calendar. Job cuts tend to spike in December and January as companies prepare for structural changes heading into the new year, economist Rachel Sederberg told USA Today.

“A lot of firms are reaching their fiscal year-end,”  Sederberg, senior economist at labor markets analytics firm Lightcast, told the outlet. “They're taking a hard look at what's going on their balance sheets as well as how the business is performing, and they make decisions along those lines. And sometimes that has implications for workers.”

Challenger told Fortune that “fiscal year-ends have shifted over time,” which allows some companies to refrain from cutting workers right before or after the holidays. That’s a bittersweet development for workers, since it can mean the pain of layoffs extends deeper into a new year than before.

In December, job cuts were down by 24% from the previous month and marked the second-lowest monthly cuts in 2023. Compared to December 2022, this year’s cuts are down by 20%. Challenger confirmed that more cuts should be expected at least into the first quarter of the new year.

Priorities in profitability

Related sectors, like media, have also seen more cuts as companies shift focus on profitability in a tough economic climate.

Job cuts in media industries have boomed even more than the rest. Last year, the industry scraped over 21,400 jobs, up more than 460% from about 3,750 jobs cut during the same period in 2022. With an exception of 2020, it’s the most jobs the industry has slashed since 2009, which saw over 22,000 jobs cut.

In a round of layoffs in November, online publisher Vox Media cut 4% of its staff. Earlier in March, the company slashed 7% of its workforce. Conde Nast, which publishes magazines like Vogue, GQ and Vanity Fair, fired 5% of its employees in November. This week, Sports Illustrated said it would cut its entire newsroom, while staff at the Los Angeles Times walked out in protest of "substantial" job cuts that the paper's owner had promised.

Looking ahead, Challenger said that the cuts are expected to continue into the new year. “We’ve seen job cuts increase over every sector in the past year,” he said. “These three have just seen the most this year.”

This story was originally featured on Fortune.com