Post by soulflower on Feb 26, 2024 16:19:37 GMT -5
The Hill: Why tech companies are laying off thousands of workers
The most obvious answer seems to be that most of the tech companies that expanded while everyone was home and more online during the Covid pandemic, are now retracting as demand has declined.
But there do seem to be other factors at play as well, including AI and interest rates.
Major technology companies have cut thousands of jobs since the start of 2024 as the rise of artificial intelligence (AI) and interest rates upend the tech sector.
While the U.S. job market remains remarkably strong on the whole, tech companies have cut nearly 40,000 jobs in the first two months of 2024, according to Layoffs.fyi.
Just last week, Cisco announced plans to lay off about 4,250 employees, while PayPal said last month that it would cut about 2,500 jobs.
Microsoft also said it would lay off about 1,900 workers in its gaming unit in late January, shortly after eBay announced that it would cut about 1,000 jobs.
“A lot of this is really the shift and spend toward the AI revolution, which is the biggest tech trend we’ve seen since the start of the internet in 1995,” said Wedbush Securities analyst Dan Ives.
A year of explosive growth in AI is likely a key factor in the latest layoffs, experts told The Hill, as companies invest in developing the transformative technology.
“Every product division … is experimenting with how to incorporate AI into their business model and their products and their functions,” said Daniel Keum, an associate professor of management at Columbia Business School.
“That’s why you’re seeing they’re letting go some of the developers that are not related to AI, and they’re hiring new talents and people with expertise on AI,” he continued, adding, “You’re seeing a lot of reorientation, reprioritizing, repositioning across the board.”
Following the launch of the popular AI-powered ChatGPT tool in November 2022, tech companies have raced to develop and release their own AI models and tools. Google launched its AI chatbot Bard last February, while Meta released its open-source model Llama 2 for research and commercial use in July.
The tech sector has also been hit hard by whiplash from years of near-zero interest rates and boon in demand during the COVID-19 pandemic.
Interest rates, which the Federal Reserve raised to a two-decade high over the past two years, have posed a particular challenge for tech companies, since they typically represent a riskier investment, said ZipRecruiter chief economist Julia Pollak.
“Investors can go elsewhere and get a safer, higher return, and [they’re] less eager to sit around waiting for experimental investments to pay off,” she said.
Higher interest rates also strengthen the U.S. dollar, making it more difficult for tech companies to break into foreign markets, Pollak noted.
“For most tech companies, they actually generate a majority of their revenue abroad, and international growth is their biggest opportunity,” she added. “Many tech companies have basically saturated the US market.”
While the U.S. job market remains remarkably strong on the whole, tech companies have cut nearly 40,000 jobs in the first two months of 2024, according to Layoffs.fyi.
Just last week, Cisco announced plans to lay off about 4,250 employees, while PayPal said last month that it would cut about 2,500 jobs.
Microsoft also said it would lay off about 1,900 workers in its gaming unit in late January, shortly after eBay announced that it would cut about 1,000 jobs.
“A lot of this is really the shift and spend toward the AI revolution, which is the biggest tech trend we’ve seen since the start of the internet in 1995,” said Wedbush Securities analyst Dan Ives.
A year of explosive growth in AI is likely a key factor in the latest layoffs, experts told The Hill, as companies invest in developing the transformative technology.
“Every product division … is experimenting with how to incorporate AI into their business model and their products and their functions,” said Daniel Keum, an associate professor of management at Columbia Business School.
“That’s why you’re seeing they’re letting go some of the developers that are not related to AI, and they’re hiring new talents and people with expertise on AI,” he continued, adding, “You’re seeing a lot of reorientation, reprioritizing, repositioning across the board.”
Following the launch of the popular AI-powered ChatGPT tool in November 2022, tech companies have raced to develop and release their own AI models and tools. Google launched its AI chatbot Bard last February, while Meta released its open-source model Llama 2 for research and commercial use in July.
The tech sector has also been hit hard by whiplash from years of near-zero interest rates and boon in demand during the COVID-19 pandemic.
Interest rates, which the Federal Reserve raised to a two-decade high over the past two years, have posed a particular challenge for tech companies, since they typically represent a riskier investment, said ZipRecruiter chief economist Julia Pollak.
“Investors can go elsewhere and get a safer, higher return, and [they’re] less eager to sit around waiting for experimental investments to pay off,” she said.
Higher interest rates also strengthen the U.S. dollar, making it more difficult for tech companies to break into foreign markets, Pollak noted.
“For most tech companies, they actually generate a majority of their revenue abroad, and international growth is their biggest opportunity,” she added. “Many tech companies have basically saturated the US market.”
The most obvious answer seems to be that most of the tech companies that expanded while everyone was home and more online during the Covid pandemic, are now retracting as demand has declined.
But there do seem to be other factors at play as well, including AI and interest rates.