Shopify (SHOP) today joined the ranks of tech companies laying off employees, announcing that it was set to cut 10% of its workforce. The recent tech layoffs and hiring freezes stems from a so-called boomerang effect, LinkedIn Principal Economist Guy Berger told Yahoo Finance Live (video above).
“Tech just kept hiring, just kept rising and rising and rising, at least to the end of last year, and now it’s coming down much faster,” he said. “I would say it’s kind of like a boomerang in that it went up faster and is coming down more sharply. I think this is because to some extent the sector really overextended itself towards the tail-end of the bull run, and now it’s the epicenter for pulling back the fastest.”
Though we haven’t seen this kind of pull-back across the rest of the economy, it’s something Berger’s watching for, particularly as fears of recession have grown.
“If we’re all worried about a recession, one thing we’re going to be keeping an eye on closely is whether other sectors start following tech’s lead on the way down,” he told Yahoo Finance.
Where layoffs are happening matters
It’s notable that layoffs have especially roiled smaller tech companies that grew too quickly throughout the pandemic, like digital mortgage originator Better, delivery app GoPuff, online real estate brokerage Redfin, and fitness tech startup Tonal. However, what’s most important from here is whether those layoffs ultimately spread across tech and into others sectors, according to Berger.
“It does seem like the [layoff] pain is concentrated,” he said. “I think it’s worth keeping a very close eye on, is it spreading? Is it bigger companies that start laying off people in tech? Is it non-tech companies, or a few anecdotes here and there? At what point do anecdotes start turning into something else?”
While we’ve seen some layoffs at bigger tech companies, so far most large companies have instituted hiring slowdowns and freezes, including at Apple (AAPL), Alphabet (GOOGL, GOOG), and Meta (META).
Ultimately, despite hiring slowdowns in tech, workers still do have lots of agency in this labor market as it stands. The current unemployment rate in the U.S. is 3.6%, far lower than the 13% rate it hit in the second quarter of 2020 after the onset of the pandemic.
“Whatever happens in the labor market going forward, it’s still extremely tight,” Berger told Yahoo Finance. “There are indicators that the unemployment rate is back around where it was before the pandemic — and if you look at other indicators like job openings, hires, quits, it’s even tighter than that. So, there are opportunities for workers that switch to get pay raises and that’s definitely one way you can take some of the bite out of inflation.”
Allie Garfinkle is a senior tech reporter at Yahoo Finance. Find her on twitter @agarfinks.
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