Fact Pattern

It was perhaps only a matter of time before the next round of layoffs arrived. Two weeks ago, Goldman Sachs laid off approximately 3,200 employees of 6.5% of its workforce. Last week, Microsoft laid off approximately 10,000 employees. Alphabet, the parent company of Google, has been the latest to axed approximately 12,000 employees.

Analysis

Whilst the media may sensationalise and exaggerate the scale of the layoffs, it is important to maintain perspective in performing any sensible analysis. The 12,000 employees that Alphabet laid off represents only about 6.4 per cent of its 187,000 workforce. Similarly, the 10,000 employees that Microsoft recently laid off represents only 5 per cent of its 220,000 strong workforce.

It is also important to contextualise. The number of employees being laid-off is significantly less than the number of employees added during the pandemic. Data readily available in the public domain will reveal that in 2022 alone, Alphabet hired more than 30,000 employees and Microsoft, some 40,000 employees. As such, these recent job cuts are perhaps less dramatic than what the media portrays and would be better interpreted as a pragmatic step towards normality.

Implications

Central banks such as the US Federal Reserve (‘Fed’) have been accelerating rate hikes at an almost unprecedented rate in attempt to cool inflation. Job losses or the unemployment rate is one of the key indicators that the Fed have been eyeing for signalling that inflation has slowed down to a satisfactory level, thereby greenlighting them to stop raising rates at what economists refer to as the ‘terminal rate’.

However, it is unlikely that these headline-grabbing layoffs will signal the level of sufficiency required by the Fed to cease hiking rates. This is because the entire US tech industry employs approximately 8 per cent of the total American workforce. Accordingly, even if Big Tech lays off a fraction of the aforementioned 8 per cent, the consequences are unlikely to be far-reaching. The real litmus test for ceasing rate hikes to which the Fed will undoubtedly be monitoring with cardinal interest will be an increase in unemployment rate in core sectors such as healthcare, hospitality, and retail, which employs approximately one-third of the American workforce.