Tech Layoffs: Exploring the Trends and Industry Shifts
Introduction
During the pandemic, a significant shift occurred as most employees transitioned to a work-from-home model, relying heavily on technology to carry out their tasks. This led to a hiring boom as companies sought to equip themselves with the necessary technology to support their employees' needs. The tech industry continued to flourish even while the economy was hard hit by the pandemic.In 2021, there were 364,000 layoffs across all industries and only 13,000 of those were in the tech industry, marking the lowest number on record since tracking began in 1993. However, towards the end of 2022, the situation changed, and we started seeing tech layoffs at major companies in headlines regularly. This blog post aims to understand the reasons behind these layoffs and examine the impact on various industries within the tech sector by analyzing data and trends. The chart below illustrates the timeline of layoff announcements and the number of employees laid off each month.
The Data
To conduct this analysis, I utilized data from layoffs.fyi, which is updated daily. As of January 2023, the dataset contains 1,859 observations; each one represents a company's layoff announcement. Each announcement consists of 9 variables, the most important of which include the company name, date, total number of employees laid off, percentage of the workforce affected, location, and funding stage.
The dataset contained several missing values. For some variables, such as industry, filling in the missing data was straightforward with a quick Google search. Additionally, some companies had multiple rounds of layoffs but only had missing values for the total number of employees laid off or the percentage of workforce affected in one of the rounds. I addressed this by creating a new column for the total number of employees, which allowed me to calculate the missing values if a company appeared more than once in the dataset. This approach helped fill in almost 100 missing values.
Key Findings
As over 70% of the announcements originate from US-based companies, I chose to focus on layoffs in the United States. The top 20 companies with the highest number of layoffs span 12 different industries. This observation suggests that all industries reliant on technology are affected by these layoffs. The chart below shows the top 20 companies with the most layoffs.
Industry Trends
Analyzing the layoffs in each industry by year reveals noticeable differences in the distribution of layoffs across industries between 2020 and 2022. The graph below provides a visual representation of this trend, highlighting the varying impact on industries during these periods.
The recruiting and travel industries witnessed substantial layoffs during the early stages of the COVID-19 pandemic. However, as time progressed and travel resumed alongside companies expanding their workforce, these industries experienced a decline in layoffs in 2021. The chart below further illustrates this trend:
Conversely, some industries initially thrived at the onset of the pandemic but began facing a notable increase in layoffs starting in the second half of 2022. The graph below provides a visual representation of this shift in workforce dynamics:
Subsequently, I examined the percentage of a company's workforce affected by layoffs. The first boxplot reveals that as companies mature, they tend to let go of a smaller proportion of their workforce. This observation aligns with the fact that more than 90% of startups fail, ultimately leading to 100% of their workforce being laid off.
The subsequent boxplot concentrates on the percentage of a company's workforce laid off each year. By excluding the outlier of 2021, which saw very few layoffs, a clear trend emerges. Over time, companies have been laying off a smaller proportion of their workforce.
Taking this into consideration, I examined a few industries more closely. The food industry experienced significant changes over the past two years. Initially, restaurants were forced to close, and food delivery companies did very well during that period. The chart clearly shows that some food delivery companies eventually laid off their entire staff as the industry transitioned back to in-person dining.
The crypto industry also underwent a similar shift as the era of easy money began to wind down. This chart illustrates that some companies in this industry went out of business, ultimately laying off their entire staff.
The following chart depicts the retail industry. It is important to note that Amazon is a dominant force in this sector, and its substantial number of layoffs greatly impacts the overall tally. However, the retail industry has been undergoing a transformation, with brick-and-mortar stores gradually being replaced by e-commerce. This has led to layoffs in certain areas while fostering growth in others.
Final Thoughts:
In 2021, most layoffs appeared to stem from companies going out of business, with many industries experiencing only a small percentage of workforce reduction. Tech job cuts in 2022 increased by 649% compared to 2021; however, 2022 also had the second-lowest recorded layoffs, with 2021 taking the top spot. This data-driven analysis suggests that the recent tech layoffs were more a result of companies adapting to shifting market conditions rather than a major decline in technology needs. In other words, while there has been a general trend upward toward behaviors such as online ordering for the past 20 years, the hockey stick type growth activated by the pandemic was not sustainable, and so it is coming back down to what it likely would have been without the pandemic disruption. Future research would involve gaining access to hiring data for a more comprehensive understanding of the situation and delving deeper into the job titles of those laid off.
Visit my Github to explore the code.
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