The Effect of Technology Layoffs on Silicon Valley: The Case of the S&P 500, Microsoft, Alphabet, Meta and Microsoft

“There is a herding effect in tech,” said Jeff Shulman, a professor at the University of Washington’s Foster School of Business, who follows the tech industry. “The layoffs seem to be helping their stock prices, so these companies see no reason to stop.”

If it appears as if an entire sector is experiencing a downward shift, Pfeffer argues, it takes the focus off of any single individual company — which provides cover for layoffs that are undertaken to make up for bad decisions that led to investments or strategies not paying off.

Stanford business professor Jeffrey Pfeffer has called the phenomenon of companies in one industry mimicking each others’ employee terminations “copycat layoffs.” As he explained it: “Tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing.”

“You’re seeing that these tech companies are almost being rewarded by Wall Street for their cost discipline, and that might be encouraging those companies, and other companies in tech, to cut costs and layoff staff,” said Roger Lee, who runs the industry tracker layoffs.fyi.

Whatever is fueling the workforce downsizing in tech, Wall Street has taken notice. The S&P 500 has notched multiple all-time records this month, led by the so-called Magnificent Seven technology stocks. Alphabet, Meta and Microsoft all set new records, with Microsoft’s worth now exceeding $3 trillion.

Interest rates, sitting around 5.5%, are far from the near-zero rates of the pandemic. And some tech companies are reshuffling staff to prioritize new investments in generative AI. But experts say those factors do not sufficiently explain this month’s layoff frenzy.

Everybody is doing it, so they’re getting away with it. And they’re getting away with it because now it’s the new normal,” he said. “Workers are more comfortable with it, stock investors are appreciating it, and so I think we’ll see it continue for some time.”

Consumer confidence is still not back to pre-pandemic levels, and tech company workforces have largely reverted to pre-pandemic levels.

The tech industry lost more than 260,000 jobs in last year’s calendar year, the worst 12 months for Silicon Valley since the dot-com crash.