The tech sector is in crisis, and for once, one of its most protected interest groups, techies, is bearing the brunt of it. Over 200,000 roles are estimated to have been cut at tech companies globally, since the beginning of 2022, a 649% increase in layoffs. This is the highest since the dot-com bubble more than a few decades ago.
Tech firms in Singapore laid off 1,270 workers from July to mid-November 2022, and the job cuts have continued into 2023. In China, in the first nine months of 2022, Xiaomi reduced its workforce by nearly 1,900, according to its financial documents. In 2023 too, it laid off thousands of its employees across a variety of functions, terming it a “routine personnel optimization and organizational streamlining”. Bilibili and Weibo are two other large tech companies in China that have been conducting mass layoffs.
Why are layoff waves becoming increasingly common and “routine” in the tech sector, and what are they symptomatic of? How do we seem to have gotten here from the great tech boom of 2020-21?
Recent research and sectoral analysis confirm that this wave of reduction is on account of workforce over-projection by tech companies who were responding to an unprecedented jump in demand for digital services during the pandemic years. But now that the world has largely gone back to pre-pandemic routines, the demand for online services has normalized. Sundar Pichai, CEO of Alphabet, admitted that tech companies had expanded “for a different economic reality than the one we face today”.
Industry analysts observe that the combination of re-opening of contact-based services, tighter financial conditions, high inflation, and a slowing economy have affected the tech sector disproportionately. Advertisement revenues have shrunk, operating costs have increased, and a stronger US dollar has meant lower global revenues. While the phenomenon seems obvious to understand, what stands out is the scale of impact that layoffs in this sector are having on the labor force. Consider this, Accenture, one of the largest tech consultancy services in the world, has recently announced that it will be laying off 2.5% of its total workforce, which amounts to 19,000 jobs. Tech companies in e-commerce, Edtech, logistics, media, and social media are on a similar path. Byju’s, India’s first Edtech unicorn and a poster child of the online education model in the country, has laid off thousands of employees over the course of the past few months, with the latest batch of 1000 employees being laid off in February 2023.
This wave of reduction is on account of workforce over-projection by tech companies who were responding to an unprecedented jump in demand for digital services during the pandemic years. But now that the world has largely gone back to pre-pandemic routines, the demand for online services has normalized.
When it comes to the question of ‘who’ gets laid off, the answers vary depending on the company. For instance, Accenture and Google are adopting the approach of culling out entire functions by labelling them as “non-essential”. Offshoring is also likely to be adopted, as a technical manager at Accenture Germany revealed. “The recent layoffs are being focused on managing directors and corporate functions. Some corporate roles are also rumored to be moved to more cost-effective locations like India and the Philippines,” they said. There is also the approach of rationalizing certain levels of employees – the mid-level manager is often targeted, as eliminating that layer saves a greater chunk of human resource costs, and fits in well with the efficiency-projecting image of making the company lean and getting rid of bureaucracy. This has also emerged as a more long-term trend, with mid-career tech professionals becoming increasingly insecure of being replaced by fresh college graduates, or their managerial roles being rendered “non-essential”.
Some companies are opting for a more individualistic, targeted process. An HR professional previously working with Indian tech company Mindtree (now acquired by Larsen and Toubro) explained how systematically laying off “benched” employees i.e., tech employees who are not currently on any projects, has been the top strategy for workforce rationalization. An employee from Google India pointed out that layoffs are erratic, also because many tech companies lack robust employee improvement plans in the first place, as opposed to say, the banking sector, which relies heavily on annual performance and improvement processes to do a more steady and regularized rationalizing of low performing employees. In tech companies, the onus of handling the mental stress of being on the bench and of looking for projects to get off the bench, is completely on the individual employee. Additionally, there have also been reports of Mindtree and other firms delaying the joining date of fresh graduates, as a short-term cost saving measure.
Such trends point towards a general lack of intent among tech companies to create human resource processes that can minimize sudden shocks for employees, resulting in making regular waves of these large-scale layoffs, a fundamental feature and a norm for the sector, rather than some kind of unavoidable SOS response to market environment.
Interviews conducted with IT employees and IT sector analysts in 2022 for an IT for Change study on the IT-ITES sector in India, had shown that this culture of quick hire and fire of the workforce was a fundamental factor for Indian tech firms being preferred by Global North clients, as this means that cheap labor becomes quickly available for a new project, but the client companies do not have to deal with the repercussions of mass layoffs that may happen after the project ends, rendering the workforce redundant, and the cycle continues. Thus, while layoffs have been fairly regular and common for countries like India over the years, the reason they are making global news currently is their sheer scale as well as the fact that they seem to be affecting Global North countries such as the US, UK, Germany, and France.
What the tech layoffs have also done is brought back into focus the phenomenon of varied types of businesses, all coalescing into the ‘tech sector’, operating and behaving in similar ways when it comes to backend inputs, revenue models, impact of external micro- and macro-economic factors, and the manifestation of those factors, such as this current one. Over the years, the term ‘tech sector’ has started to broaden in scope more and more rapidly. While the traditional, definitional understanding of the term used to be products and services relating to computer hardware, software, or telecom, now just about anything is tech – from Goldman Sachs to Monsanto.
Of course, corporations themselves were the first ones to understand and leverage this phenomenon to boost their businesses. The ex-CEO of Goldman Sachs, Llyod Blankfein famously used to say, “Goldman Sachs is a technology firm”, pointing to the fact that the company employed more engineers than companies such as Facebook, Twitter, or LinkedIn, even back in 2015.
What this means is that any regulation for the tech sector, and alternatively any exception from regulations for the tech sector, has an impact on an increasingly large number of businesses, and therefore, workers. This makes the case for moving towards a more regulated tech sector and not keeping it outside the scope of law and policy.
Follow the Money
As we continue to make sense of the scale of these layoffs, it is crucial to understand it from the standpoint of geographic concentration of finance. In the first quarter of 2023, global venture capital hit its lowest levels in three years. While capital has become increasingly agile over the years, the source of large investment remains concentrated in a few countries, with the US, China, and the UK being on top of this list. The ripple effect then, of big shifts in the Silicon Valley, is felt very rapidly on tech start-ups or companies in many other countries. In India, more than 25,000 employees have been laid off by 88 start-ups due to the ‘funding winter’ which is a result of venture capital from the US drying up. It is also notable that at least 40 Indian start-ups backed by Y-Combinator, a US based start-up accelerator, have USD 250,000 to USD 1 million in deposits with the Silicon Valley Bank which recently crashed, while more than 20 of them have deposits of more than USD 1 million.
“The recent layoffs are being focused on managing directors and corporate functions. Some corporate roles are also rumored to be moved to more cost-effective locations like India and the Philippines.”
The power that venture capitalists and investors hold in the sector becomes evident from a concerning observation by Prof. Peter Cappelli of the Wharton School of the University of Pennsylvania. “People announce layoffs because it sounds good; it’s what investors like to hear,” Cappelli said. A technical manager from Accenture, Germany, also made a similar observation, saying that “CEOs are under peer pressure to reduce costs by reducing payroll costs, which generally is seen favorably by shareholders”. This sets a scary precedent. It reinforces that it is ultimately investors that all company policies and actions must pander to – no other institution, be it the government, the judiciary, or employee organizations matter as much.
What’s the Law Got to Do with It?
There are significant differences in the legal landscape with respect to labor laws, as well as the collective bargaining capacity of tech workers in various regions, which has a real impact on workers’ resilience in negotiating layoffs. In the US and in India for example, tech companies have been able to announce and execute mass layoffs with little to no legal hindrances. On the other hand, in European countries such as France and Germany, layoffs are a much more drawn out and complicated process because of the existence of works councils.
A Google India employee who has closely observed the current wave of layoffs, points out that, “In India, since the ground is so vague from a legal standpoint, when it comes to where do we (tech companies) stand vis a vis labor laws, it is seen as a laissez-faire kind of a system. There are countries such as Japan, and within the EU as well, where unions have been involved in this process, whereas I have not seen something of that sort in India. It will be interesting to see how the role of unions will become prominent if this becomes a regular phenomenon.”
“What Google did in the US was to email people in the middle of the night and stop batches from working the next day; we have absolutely not seen this in Europe, in France, Germany, or Switzerland, because we have this protection (of workers being in unions) in Europe.”
This disparity in legal protections and worker power that they point out, is evident. In European countries, statutory works councils are informed of planned layoffs, whether individual or mass, in advance, and they have the power to negotiate the terms of these layoffs with the employers via their elected representative employees. In the UK too, employer representatives have been having regular meetings with employees to clarify and discuss the impact of upcoming layoffs. Beyond these discussions via statutory bodies, there are also trade unions that support the work of works councils through organizing and awareness-building. As the official spokesperson of a Swiss IT Workers’ union, Syndicom, reported to Business Insider: “What Google did in the US was to email people in the middle of the night and stop batches from working the next day; we have absolutely not seen this in Europe, in France, Germany, or Switzerland, because we have this protection (of workers being in unions) in Europe.”
On the other hand, countries with weaker labor regulations, which are still very much impacted by revenue losses of US tech companies as they are big client markets for them, continue to bear the brunt of mass layoffs, and in many cases, even proper severance pay. For instance, Indian law states that a retrenched employee is entitled to 15 days of last salary drawn, for every completed year of service, given that the employee has completed at least a year of service with that organization. While this provision barely covers proper severance, there are several legal tests one has to overcome to even become eligible for this compensation. Indian labor law currently makes a distinction between ‘workman’ i.e., an employee who is an individual contributor and ‘manager’ i.e., an employee who has more responsibilities and deliverables beyond their own individual contribution. Most labor laws protect the former while the latter are subject entirely to individual contracts. IT sector trade unions have been pointing out for a while now that these contracts often have clauses that would not stand legal scrutiny, such as disallowing workers from joining worker associations, and excruciatingly long notice periods. However, with the IT sector more or less left alone to operate the way it wants, this legal protection becomes mostly ex-post i.e., the burden of proof is directly on an aggrieved employee. They must first prove eligibility to be covered under the relevant labor law (in many cases it involves proving that they are in fact not managers at all, even if their designation may say so), and then going through long drawn legal proceedings or labor court conciliation processes to receive a reinstatement of employment or compensation. In China, while the law does require intervention from labor authorities if more than 20 workers are laid off, tech companies have been exploiting loopholes in the regulation and getting away with calling layoffs “business restructuring”.
While layoffs have been fairly regular and common for countries like India over the years, the reason they are making global news currently is their sheer scale as well as the fact that they seem to be affecting Global North countries such as the US, UK, Germany, and France.
All of this leaves a lot of room for robust regulation of tech companies. HR functions in tech companies are notorious for not being well versed even with the basics of labor legislation in their respective countries, as sadly, they often do not need to comply with them.
The problem of ‘who governs’, is also very prominent in such areas. In India, the IT sector is governed by the Ministry of Electronics and Information technology as well as the Ministry of Labor of Employment, however the former has more say. The IT sector was completely exempted from a lot of important labor laws under the justification of promoting a new and upcoming sector. But as the exemption is now in its 15th year, it has become clear that global precarity needs to be offset by stronger labor law protection for the sector. Especially, with more and more companies now justifiably classifying themselves as ‘tech companies’, the scope to use this exemption to weaken labor force protection on a much larger scale has opened up and does not set a progressive precedent when it comes to labor rights in the digital economy.
New Frontiers for Tech Workers’ Organizing?
With the global nature of layoffs and techies across countries closely following employer and state responses, there has been an uptake in organizing and unionizing activity, in countries where this sector is not traditionally unionized.
The Alphabet union in the US, which is currently 800 workers strong, came up as a response to unfair workplace policies and is now acting as a strong voice for laid off employees. The New York Times Tech Workers Union, with a slightly lesser membership of 600 workers, is the largest recognized tech workers’ union in the US right now, In Switzerland, Google workers staged a walkout with Swiss union body, Syndicom, in March 2023 as 200 jobs were culled in the Zurich hub, with the London office following suit. In India, tech workers’ unions started to come up in the early 2000s post the BPO sector boom, and are now gaining prominence again in the wake of recent layoffs.
In India, while interviews conducted in 2021 and 2022 revealed a very strong sense of dejection among Indian tech unions about membership uptake by techies who were wary of unionization due to a variety of reasons, more recently they have seen a rapid increase in the number of queries they are receiving on a daily basis. Laid off employees are reaching out for basic information about their rights after a layoff: what authorities they can approach and how a case can be built. It is the first step towards longer term prospective class solidarity or large-scale organizing action.
Tanmay Pereira Naik, General Secretary of the All Indian IT-ITES Employees Union, Karnataka, weighed in on the role unions are playing in this time of crisis for the tech sector. “Workers across all companies are well aware of the dire situation. What they are unaware about is their rights: that’s where the union comes in. In case of any forced resignations (since actual terminations are rare), we educate the workers about their rights and then guide them on what their next steps should be. And we have had multiple cases where people have heard of us through pure word of mouth.”
Speaking about the uptake of union membership among techies, he observed, “In general, there is definitely a lot more buzz around unions and unionization. There has definitely been a rise in unionization and employees of companies are referring each other to our union, just like how they refer each other for jobs. As always, our aim is to increase our strength in numbers to be able to make significant demands to the government. And make sure that our demands are heard.”
Trade unions have been leading legal battles for reinstatement and compensation on behalf of employees in several companies. A recent success was the summoning of Amazon to the labor commissioners’ office in Bengaluru, India, as a result of a complaint filed by Nascent Information Technology Employees Senate (NITES), an IT-ITES workers’ union, against Amazon’s recent mass layoffs in November 2022 which they claim are forced and therefore illegal.
The methods of unionizing, of course, are new and constantly evolving. Social media platforms such as TikTok, Instagram, WhatsApp, and Discord have emerged as hubs for discussion and awareness-building, as they are quick, large-scale, and importantly, do not attract the employers’ attention the way physical gatherings do. The fact that large physical spaces are constantly shrinking, with work-from-home arrangements and smaller, distributed offices also contributing to this.
In India, more than 25,000 employees have been laid off by 88 start-ups due to the ‘funding winter’ which is a result of venture capital from the US drying up.
This emergence of organizing among tech workers has also led to some heartwarming instances of worker solidarity such as this one, where coffee union workers in Bologna, Italy, hollered to Facebook workers, offering to teach them how to unionize! There is also a gradual class solidarity among software workers, and platform workers who often bear the brunt of the code written by the software workers. The All India IT and ITES Employees Union for example, works closely with its sister union All India Gig Workers Union, and they have taken up issues of both types of workers through demand charters and protests.
What’s Next for Tech?
While myopic reporting of attention-grabbing statistics about attrition rates, quarterly growth ‘booms’, and successive layoffs is an easy rinse-repeat formula, a deeper analysis of what these constant waves of layoffs are symptomatic of with respect to the organizing of the modern labor market, is necessary and long overdue. With corporate power, and specifically corporate tech power only growing, political borders are already becoming less relevant, pointing to the need for even more overarching and stricter regulations that can effectively counter this corporate power. Given this, it becomes important to be wary of repeating the same patterns of modern slavery and jobless growth that other global value chain industries such as garments and automobiles have traditionally enabled. It is also important to continue to subvert ill-researched, oft-repeated ‘ease of doing business’ logic, i.e., that more labor law regulation will, simply put, drive away prospective employers. The World Bank Ease of Doing Business Index does not in fact feature labor laws in its list of criteria, and research through the years has emphasized that firms consider electricity, tax duplicity, corruption, and access to finance as much bigger hurdles compared to labor law compliance, when it comes to business operations in the country. This opens up important questions about weighing the cost of exemptions from labor laws bestowed upon tech companies, as discussed before, in the form of precarity in the labor market and erosion of decent work, against the touted benefits of ‘ease of business’.
Further, placing a greater accountability for such layoffs on these tech companies, will create push factors for management to think responsibility about workforce planning and more sustainable cost-cutting measures. As we attempt to move to a more equitable digital economy that gives a greater share of the pie to the workers who enable the ‘digital’, reclaiming the power of public, democratic institutions is crucial. Educate, Agitate, Organize! ✊