Analysis of the Effects of Large-Scale Layoffs in the Tech Industry: Talent Market Restructuring and Salary Normalization

The wave of layoffs that began in early 2023 has gradually subsided, but the long-term effects on tech industry workers are still emerging. Cautious customer spending and persistently high inflation have led to hundreds of thousands of job cuts across the economy, with large tech companies hit hardest. According to the self-reported layoff tracking platformLayoffs.fyistatistics, as of now in 2023, 485 companies have laid off more than 138,000 employees cumulatively.

A typical case is Facebook's parent company Meta. The company announced plans on Tuesday (March 14) tocut 10,000 jobs, marking Meta's second round of layoffs in recent months. Previously, in November 2022, the company had already cited macroeconomic downturn effects as the reason tolay off 11,000 employees。

DHI Group President and CEO Art Zeile pointed out that a theme emerging from this wave of layoffs is the "efficiency" signal management teams are sending to investors. But a clearer sign is that after a period of hiring boom, hiring trends are being recalibrated. The once surging recruitment demand is now declining—companies are beginning to scale back their competition for tech talent on a large scale.

"We overreacted before, and now the pendulum is swinging to the other side, but it will eventually return to some mean," Zeile said. "We are currently in the middle of this correction process."

Another more complex thread behind the layoff cycle is the normalization of the workforce size. In 2021, as the impact of the pandemic gradually faded, tech companies experienced explosive growth. Many companies overestimated growth expectations when hiring, and subsequently laid off employees due to revenue falling short of expectations. Despite the pullback, the demand for IT skills still exists, just growing at a slower pace than in previous years.

However, even as hiring intentions change, long-term talent appeal remains crucial for tech executives, and hiring and retention practices are indispensable.

"To some extent, for most of 2022, the tech industry poured a lot of money into the talent pool, leaving companies outside the tech industry short of talent," said Jimit Arora, partner at Everest Group.

Layoffs of hundreds of thousands of people will inevitably have far-reaching effects, and the tech labor market is unlikely to simply return to the past hiring model where companies competed for every tech talent.

Labor market effects

The series of layoffs at the beginning of the year meant that thousands of qualified tech workers suddenly began looking for their next job. While this may alleviate hiring constraints in industries outside large tech companies to some extent, the effect is not immediate.

According to data from the U.S. Bureau of Labor Statistics, the number of people employed in tech occupations across the economy has contracted slightly, while last year's (2022) hiring boom constituted a high point.

The impact of tech industry layoffs is beginning to show up in official employment data, said Tim Herbert, chief research officer at CompTIA, upon the release of the U.S. Bureau of Labor Statistics'February report. But understanding the current situation requires a broader perspective.

"The recent pullback is only a small fraction of the vast tech workforce," Herbert wrote in an email. "The long-term outlook hasn't changed; the demand for tech talent continues to drive job growth across the economy."

There is evidence that for most laid-off employees, the revolving door leads them directly back into the tech industry. Although the study was published before the large-scale layoffs in early 2023, labor intelligence firm Revelio Labs found in a December 2022 report that within three months of receiving layoff notices, more than three-quarters of laid-off employees were able tofind another job。

"I believe the huge demand for tech workers still exists, and anyone who wants a job can turn around, apply, and almost immediately get a position," Zeile said.

Some early signs indicate that the further slowdown in tech hiring is spreading to specific job categories, such as software developers, as more companies pull back staffing expectations from the 2021 hiring peak. According to Indeed data, job postings for software engineers have begun to decline. After steady growth throughout 2021 and part of 2022, demand for software engineers is slowly returning to pre-pandemic levels.

"Tech companies employ a higher proportion of software professionals, so part of the decline in job postings reflects ongoing layoff announcements," Herbert told CIO Dive.

For some companies, layoffs are more of an adjustment to the labor structure—cutting higher-level positions while retaining junior tech talent, Arora noted. This trend may cascade down and shape overall labor market dynamics.

"Entry-level and junior talent will remain in demand, but I think any oversupply that may occur will be more concentrated at the senior level," Arora said.

Janelle Hill, research director for the Gartner CIO practice, said CIOs cannot solve persistent talent shortages through hiring alone. "They have two different strategies: one is to retrain internal employees in new skills," Hill said. "The second focus is identifying non-tech employees within the company who are doing a lot of tech-related work."

Talent demands will require companies to take more collaborative efforts in workforce development, such as partnering with diverse tech talent organizations and rethinking the exact definition of a "tech worker."

Tech salaries under pressure

The overall effect of changing labor dynamics is also beginning to touch the compensation of tech workers.

The cooling hiring market has led to salary normalization. Data shows that tech worker salaries are still growing, but at a more moderate pace than in previous years.

"Layoffs may have some impact; the market has shifted more from a seller's market to a buyer's market," Zeile said.

According to theDice report, tech industry salaries grew 2.3% last year (2022), down from the 6.9% growth rate in 2021. But it should be noted that the 2021 growth rate was a statistical outlier, the highest salary increase recorded in the report's more than 17-year history.

"It's like a breather after a period of near 'sticker shock' in IT talent costs," Zeile said.

—Matt Ashare contributed reporting to this article.