Recent tech layoffs cause fears of another dot-com bust
RACHEL MARTIN, HOST:
Meta, Amazon and Twitter have all announced job cuts in recent weeks, adding to a growing list of tech layoffs. Are we headed for another dot-com bust, which helped create the recession back in the early 2000s? Adrian Ma and Darian Woods from our daily economics podcast The Indicator take a look.
DARIAN WOODS, BYLINE: So we've all heard the story about how the pandemic changed consumption patterns a lot, like a lot more laptop and Netflix at home, working from home, et cetera, et cetera. But at the same time, the Fed was making interest rates very, very low, and so that meant that tech investors could afford to make these big bets that might pay off way into the future.
JULIA POLLAK: And so tech companies expanded really rapidly to take advantage of that opportunity, and investors were 100% behind that strategy. Investors said, grow at all costs; go for broke.
ADRIAN MA, BYLINE: So that's Julia Pollak, chief economist at the job site ZipRecruiter. And Julia says Facebook's parent company, Meta, is a prime example of this. During the pandemic, its staff grew by around 50%.
WOODS: But then the world changed. By spring of this year, the pandemic had eased in the U.S. A lot of people didn't want to be tethered to their TVs and their phones and Peloton so much. Plus, because of all the inflation, the Fed had started raising interest rates, and there were recession fears. So ad revenue shrank, and venture capital was running dry. And as these headwinds started building, tech companies quietly started to pump the brakes on their hiring spree. Nick Bunker is with Indeed Hiring Lab.
NICK BUNKER: We saw the real pullback earlier this year. We could see job postings start to come down.
MA: So we had a period of exuberance where investors are chucking money at tech companies, followed by a big fall in tech stocks and a lot of headline-grabbing layoffs in the tech industry. Could this be another dot-com bubble in the bursting? Well, this is where Nick essentially told me to take a deep breath.
BUNKER: What we're seeing now sort of rhymes with the year 2000 in some sense, but I don't think it's at quite the scale.
MA: So for a sense of that scale, in the past year the stocks on the tech-heavy Nasdaq exchange lost about 25% of their value, which is a lot. We shouldn't downplay that. But during the dot-com bust, the Nasdaq fell by almost 80%.
WOODS: Another thing that Nick said to keep in mind is that the tech workforce is pretty small compared to the overall workforce in America.
BUNKER: If you try to line up, you know, the companies that we're talking about with their sort of share of overall employment, somewhere around 2% of all employment.
MA: Another reason we should not worry about tech dragging down the rest of the economy right now is that the job market is still pretty strong. And Julia Pollak at ZipRecruiter, she says when you look at the data on all the sectors, not just tech, the economy is adding 60% more jobs each month than it was before the pandemic.
POLLAK: Weakness in Silicon Valley and on Wall Street is still largely being offset by strength on Main Street. And there's very little risk of these tech layoffs causing us to go into a recession.
MA: There have been tens of thousands of tech layoffs, but Julia says a lot of big tech companies are still much bigger than they were before the pandemic because of the hiring sprees they went on.
WOODS: OK, so there you go. So do we have a dot-com bust?
MA: Not right now - at least not yet.
WOODS: Darian Woods.
MA: Adrian Ma, NPR News. Transcript provided by NPR, Copyright NPR.