The television news in the Bay Area currently knows only one topic: the mass layoffs at Silicon Valley tech companies. Around 60,000 employees have lost their jobs in the region between San Francisco and San Jose in recent weeks. All professional groups are affected – software developers, marketing and PR people, employees from legal and HR departments.

Google laid off 12,000 employees, the retail giant and cloud provider Amazon has so far laid off 18,000, Microsoft around 10,000. The list could go on and on. Much smaller companies and start-ups are also currently reducing their workforce

In my calendar there was suddenly an invitation to a meeting. I was a bit surprised and got the message that I should leave my job. I was employed by Facebook through a temporary employment agency. Overnight, there was suddenly nothing to do. They said we don’t need your services anymore. Mail your laptop back to us.

Jennifer lost her job at Facebook right at the beginning of the layoff wave – last October. Her area of responsibility: the management of large projects and campaigns. The 37-year-old marketing and PR specialist has asked not to use her real first name.

I was easily working 60 hours a week. Most of my team was based on the East Coast, so three hours time difference from here. I probably worked 12 hours a day to get through the workload. You couldn’t take vacation, you weren’t paid overtime. It was pretty brutal. There were ups and downs. We had quite a lot to do and then suddenly everything ended abruptly.

During the pandemic, the mother of two started working for the social network. She earned a good 12,000 euros per month. Before that, she was employed by a small marketing agency in San Francisco. She had high hopes for the Facebook job. She thought she had a good chance of being taken on permanently at some point.

As a rule, the companies justify the layoffs as follows: too many people were hired too quickly during the pandemic. In addition, high inflation is threatening a recession. But that is probably only half the truth – more on that later.

Helena, who also does not want to make her real name public, lost her job only two weeks ago. She comes from southern Germany, has a doctorate in natural sciences. A highly qualified expert in her field. The 35-year-old was supposed to develop medical devices at a Californian tech company. Two years ago, she left her secure job at a German company and accepted the offer from Silicon Valley.

 

That was fantastic, a dream come true. I wanted to work in Silicon Valley. I was already here in the U.S., working for a German company, and I was looking at Silicon Valley from the sidelines. And one thought ‘Wow, that’s where I want to work’. That’s where the world is being changed. And then when I got the job offer – that was just gigantic.

Then, in mid-January, everything was suddenly over, after just under two years. That she would lose her job, without warning, without any sign, was something Helena did not expect.

And then, in classic fashion, an email
arrived one morning with the subject ‘Your role in our company’. And a few minutes later everything was gone, access to emails, calendars, to internal systems, everything was gone. The house pass was disabled, you couldn’t get into the offices, the phone was turned off. So it was very American, like you see in the movies.

The clock is now ticking for Helena. Her employer has given her leave of absence until the end of March. Then she has 60 days to find a new employer. If she does not succeed, she will have to leave the USA. Like many other tech employees, she has an H1B visa. It is linked to her employer. If she wants to work elsewhere, she has to find a company that will take over her visa and can justify to the US immigration authorities why she is the only candidate for the new job.

The woman from Germany has it comparatively good. She is unattached. And she is a German citizen. If she finds a new employer, he can also apply for a green card for her. She would then have to wait a good two years and would end up with a permanent right of residence in the USA and could work for any company in the USA. The thousands of tech workers from India who have also lost their jobs, on the other hand, are at a disadvantage. Even if they find a new job within 60 days, the option of a green card will probably be denied to most of them for life. The waiting period is very long. One of those affected is Akhilesh, a software developer who has been living in the U.S. with his wife and small children for a good ten years.

We have all applied for a green card and meet the requirements. The only problem is that we have to wait 150 years to actually get it. But I will be dead by then.

Unlike for most people from Europe; for those who come from India, it is almost impossible to obtain a green card. Because immigration from countries like India, China or Mexico is particularly high, the U.S. government has heavily regulated unrestricted residence and work permits for immigrants from these regions.

Programmer Akhilesh has repeatedly helped organize small demonstrations in recent days to draw attention to his situation and that of his compatriots. The developer bought a house just a few years ago. “Treat us fairly and according to our abilities,” he demands, “and not according to which country we come from.”

What we are fighting for is for basic equality. You know, treat us based on what skills we bring to this nation, and not necessarily based on where we were born.

The mass layoffs are now also worrying many business owners in the region. Restaurants, suppliers, and property owners are all impacted. In San Francisco, hundreds of thousands of square feet of office space are vacant. First there was the pandemic, now the mass layoffs. Facebook consolidated its offices in the city into one building a few days ago. The short message service Twitter is outright refusing to pay any rent. Other companies canceled entire floors during the pandemic, and now more are joining them.

The mayor of San Francisco, London Breed, therefore wants to make it possible to convert office space into apartments without red tape. This is intended to help alleviate the housing shortage and depress the high rents. People pay the equivalent of 3,000 euros for a small one-room apartment. The mayor also sees opportunities in the tech industry’s layoffs:

We are looking at clean technologies, we want to become more attractive in the green energy sector. We want to attract more manufacturing jobs again. But it’s going to be a tough road.

Silicon Valley is currently experiencing a great awakening – after a decade of steady growth. During the pandemic, the tech industry experienced even more accelerated growth. Amazon and Facebook parent Meta grew particularly aggressively. They nearly doubled their workforce during the pandemic years. By the time of the layoffs, Meta had 87,000 employees, while Amazon had more than 1.5 million.

Olaf Groth is an economics professor at the University of Berkeley. For 30 years, the expert from near Düsseldorf has been observing the corporations in neighboring Silicon Valley. The pandemic has created a mega-boom, says Groth:

The digital service providers then also took up this wave quite quickly. And we have to be grateful that these tools were available to us right away. Just think of Zoom, which already existed, but which of course got a huge boost from this pandemic. And that’s actually what happened with all digital forums and tools. This was then also quickly welcomed by employers and supported, also financially supported. And that led to a euphoria, a buying and selling euphoria, which of course is not continuing now.

Groth believes that talking about a major crisis is exaggerated at the moment. Companies such as Google’s parent company Alphabet, Apple, Meta, and Amazon have cash reserves worth billions and are still making high profits.

The corporations’ quarterly balance sheets prove Groth right: Microsoft earned $16 billion in the last quarter of 2022 alone. Meta did lament a 52 percent year-over-year drop in profits for its fall quarter. Still, it was able to post more than $4.4 billion on the credit side. Amazon had a similar story. It suffered a significant decline in profits, but still earned nearly $3 billion in the third quarter last year.

This is certainly a ‘bloodletting’ that is very unpleasant. It also has media impact, of course, and must lead to a bit of self-awareness and self-awareness on the part of the tech companies. But it’s nothing compared to the catastrophe we experienced in 2000 when the dot-com bubble burst. We lost around 25 percent of all employees over a certain period of time and were only able to rebuild them very slowly.

The wave of layoffs began back in October of last year. The first to do so was Facebook parent company Meta, which cut 11,000 jobs. Its boss and co-founder Mark Zuckerberg apologized profusely to those affected:

I take full responsibility for this decision. I am the founder and CEO, and I am responsible for the well-being of our company, for our direction and for how we implement it, including things like this. And that was ultimately my decision.

 

Zuckerberg gave as his reason that too many people had been hired too quickly during the pandemic. The economy was threatened by a recession. Costs had to be reduced. Many observers and analysts believe that Zuckerberg provided the script for the layoffs.

His arguments were adopted by most other tech CEOs recently—they admitted to having misjudged the boom phase during the pandemic. That’s certainly true, but it’s only part of the truth. Publicly traded companies have suffered particularly badly from plummeting stock prices over the past year. Meta, for example, lost 65 percent of its stock market value, while Google parent Alphabet lost just under 39 percent. The layoffs helped the companies to reduce their costs and thus improve their balance sheets.

Olaf Groth also says that companies were primarily looking at stock market performance when they decided to reduce their workforces.

Wall Street, of course, works in such a way that it always likes to see
this field hockey stick, field hockey stick as they say here, in terms of growth. That means that if these expectations are disappointed, then this is also reflected very quickly in the share prices. And from there, of course, these CEOs then try to at least not disappoint these expectations too much. In other words, even if they earn billions and are still super profitable, they try not to let this gap between what is still very good and what is expected become too large.

Another reason for the wave of layoffs is likely to be the general economic situation for companies. Inflation in the U.S. and Europe has been slowly declining, so that even the U.S. Federal Reserve raised key interest rates by only a quarter of a percentage point this week. Nevertheless, t he 330 million Americans have now adjusted their consumer behavior. For example, they are spending less money at the supermarket checkout. Likewise for services such as the hairdresser. Rental prices are also stagnating after adjusting for inflation. Car manufacturers in the USA have just had their worst sales year in more than a decade. So it’s no wonder that tech companies are adapting to this development.

Bernhard Gold wrote his doctorate at the University of Munich. The topic: the innovative power of the Californian tech industry. Gold has lived and worked as a venture capitalist in Silicon Valley for 13 years. On behalf of a Canadian venture capitalist, he invests in young, new start-ups. He sees the layoffs primarily as a normalization in the industry:

On the one hand, the mood is no longer so good. It has become harder for startups to raise money. Many tech companies have now started to lay off at least some employees. […] On the other hand, it is also positive for us investors in particular, because it means that there is a certain normalization in the market. So valuations are coming down to a normal level. Also, what we’ve had a lot of here in Silicon Valley is simply the shortage of labor and sometimes absurdly high wages and salaries, which are all coming down a bit now because of the tensions in the market. Honestly, as an investor, I’ve been waiting for years for the party to be over and for there to be a little bit of ‘more normal times’. 

Gold believes that with the layoffs, the companies have proven that they have recognized the signs of the times. He no longer expects any significant further mass layoffs.

Microsoft has now laid off I think ten or 12,000 employees, but they also hired 40,000 last year. The same goes for Google, or Alphabet – which has now also laid off 10,000 employees, but hired 30,000 new employees last year. We’re coming out of this tremendous growth and boom phase.  As long as there is no further external shock in the form of a recession over the summer, then I would say that the worst is actually over and we are now back in somewhat calmer waters.

And that’s precisely what could have a positive impact on the rest of the U.S. economy. Nearly nine million people work in the tech industry in the US, which together contributes $1.8 trillion to the American economy.

Many other industries in the U.S. see Silicon Valley as a pace-setter and look to the tech industry for guidance on spending, hiring and key strategic decisions. Initial studies conclude that employees who lost their jobs in the wake of the wave of layoffs find new employment at another company within three months.

Forty percent, according to job platform ZipRecruiter, reportedly find a new job after just one month.

Startup investor Gold says Silicon Valley is not running out of ideas. Even though a German news magazine recently claimed otherwise. He reckons that many of those laid off will be quickly rehired, especially if they come from software development.

Of course, we still have the big trend topics such as cloud computing, autonomous driving, and electric cars. Through ChatGPT, of course, we have a big topic with artificial intelligence. Everything that is AI will change the market even more than Marc Andreesen said back then with his famous phrase “Software Eats The World”.

Jennifer, the former project manager at Facebook, could start working again at her old agency in San Francisco. She even received an offer from Facebook, albeit on much worse terms. But she decided against it. She would rather not work for a tech company again for now. The working hours put her off. And she felt exploited.

I focus on my family. One of the most important things I’ve learned is that balancing career and family is crucial, especially when you have young children, when you’re a mother. And right now is the time to focus on your family and maybe put your career on the back burner for a couple of years.

Helena from southern Germany has also decided against Silicon Valley. She has already given notice on her apartment in San Francisco and packed her first boxes. She plans to return to Europe in a few weeks.

I know what I can do. I know that I am good at what I do. And on my resume, of course, it looks great. I was in Silicon Valley at a big tech company. I’m looking at it in a very positive way. I’m looking forward to the next step that’s coming up. This attitude here in the U.S. – hire and fire – this mentality, it doesn’t hit you quite as hard as it might in Germany, where the whole thing is somehow such a stigma. You get fired, that’s something bad. Here in the U.S., maybe it’s not like that after all.