Covid-19 Brings a Reckoning of Layoffs to Silicon Valley

May 28, 2020, 5:00 AM EDT

Layoffs have slammed tech companies both large and small since the start of the coronavirus pandemic in mid-March. The industry has cut more than 40,000 jobs so far, but this month was the cruelest yet. In a single week in early May, Uber Technologies Inc. announced it would slash 3,700 positions, Airbnb Inc. said it would cut 1,900 and Lyft Inc. fired or furloughed more than 1,000.

Bloomberg analyzed the data on job cuts, working with Layoffs.fyi, which compiles public layoff announcements in the technology industry. While the pandemic fallout has cut hard across the economy, tech merits particular attention. In recent years it’s juiced stock market gains, boosted U.S. gross domestic product and created services that helped other sectors grow. The hobbling of tech companies will have an outsized effect on the pace of the overall American recovery.

For the first half of the last decade, the performance of tech startups, the lifeblood of the industry, surged along with the Nasdaq 100 Index, a technology-heavy mix of large non-financial companies. Then, in 2018, startups pulled well ahead of their publicly traded counterparts, driven in part by big gains in valuations at late-stage private companies. That momentum stalled this year. The Bloomberg Startup Index, a barometer for the health of the sector using metrics like funding and valuations, is now trailing the Nasdaq 100.

As tech companies have cut jobs, so has the rest of the country. Recent U.S. layoffs now exceed those during the Great Depression in sheer numbers, and could end up rivaling the 1930s in percentage terms. At the Depression’s height in 1933, almost a quarter of Americans were unemployed, according to estimates from the Bureau of Labor Statistics. Currently, about 15% of Americans are unemployed, up from 3.6% in January.

Although technology companies often employ fewer workers than their counterparts in other industries, tech makes up the biggest chunk of the stock market, meaning its performance has a disproportionate impact on individual retirement portfolios and other assets. At the end of the first quarter, seven of the top 10 companies ranked by market capitalization globally were technology giants.

Not all technology companies have been equally affected by the pandemic. E-commerce giant Amazon is adding 175,000 workers to help handle a surge in orders, while other tech behemoths, including Facebook Inc. and Apple Inc., haven’t made public any plans to cut jobs. Alphabet Inc.’s Google, however, has said it will slow hiring, while International Business Machines Corp. is cutting thousands of jobs.

Travel and transportation has been the hardest hit sector in terms of job losses. Besides Uber and Airbnb, scooter company Bird and bookings site TripAdvisor have fired employees en masse. Retail and food services have also suffered, including discount business Groupon Inc. and fitness studio operator Flywheel Sports Inc. The third-most affected group is consumer services, including review site Yelp Inc. and events company Eventbrite Inc.

Many of these businesses sprang from insights into how software could reimagine a traditional industry, like Uber did for taxis or Groupon did for coupon-clipping. Layoffs in these sectors won’t turn back those transformations, but they could slow the rate of change, as well as the knock-on innovation sparked by those companies.

The recent startup reckoning could also discourage people who were thinking of launching their own companies. “If you see a lot of your friends or colleagues losing their jobs, you’re going to be less willing to change,” said Brandy Aven, associate professor of entrepreneurship at Carnegie Mellon University’s business school.

The mass layoffs could continue for months to come, as more companies cut costs in order to survive what may be a prolonged downturn. Many economists have given up hope of a so-called V-shaped recovery, believing instead that a return to normal will take more time, even if the public health crisis is brought under control.

But there are flickers of hope. “A lot of people who are out of work could become really innovative, and create really disruptive technology,” Aven said. A recommitment to core businesses could help some companies grow stronger. Promising ventures that still have cash—U.S. startups raised about $34 billion in the first quarter of 2020, according to the National Venture Capital Association—will have their pick of talent to hire. And a poor economy could help sharpen executives’ focus on eliminating waste, honing products and hitting sales goals.

Technology veterans like to tell themselves, especially now, that some of today’s most valuable companies were forged in the 2008 financial crisis, including Airbnb, Dropbox Inc. and Uber. Similarly, this crisis may produce a new class of giants. But that won’t be much comfort to the tens of thousands of tech workers newly out of a job.

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