The Washington Post writes The U.S. economy is booming. So why are tech companies laying off workers? This article has some good data, but I think misses the point with sub-heads like “Shine has come off the tech industry.” Really? How is that reflected in their stock prices?
I think a few things are happening.
First, tech companies are typically best at adopting new technology, which leads to productivity gains.
AI may be an obvious example of this, though for all its hype it hasn’t had a huge impact on most companies yet. I agree with Sam Altman when he says there may someday be a billion-dollar company run by one person who is able to highly leverage future AI agents to automate most traditional roles at a company. That said, I think there are advantages to teams including allowing people to go on vacation or take time off, and provide business continuity and succession, so literally one-person is probably an exaggeration. We don’t need AI to see very small teams being valued highly: Instagram had only 13 employees when it sold for a billion dollars to Facebook, in 2012!
Some of this productivity gains just come from adoption of existing tools like Google Workspace or Office 365, issue trackers and version control with tools like Gitlab, Github, or Jira. At Automattic we don’t use email to work or communicate internally, it’s all Slack and P2. We also leverage our distributed nature to effectively have teams around the world coordinating several shifts of product work per day, and 24/7 coverage for things like systems and customer support without the need for “graveyard shifts.”
The way tech companies operate, the pace and culture, would be unrecognizable to people at many more traditional companies.
At tech companies some roles are highly leveraged, like systems, engineering, and design, and everything else in the company really exists to support these. These leveraged roles can create enormous amounts of value, and that’s why it’s not unusual to hear of machine learning engineers working on ads at Google with salaries in the seven figures. (There’s been a weird accounting thing where companies put a lot of their compensation into equity, but I think that’s going away as investors are learning to better account for dilution and employees appreciate the fungibility of cash.)
Creators are also highly leveraged, which is why Joe Rogan can sign a new $250M deal with Spotify (which smartly puts him back on Youtube) after laying off 1,500 people in December. Some people like Hagen Terschüren try to tie this together and say you should avoid Spotify for it, but there’s nothing wrong with a business becoming more efficient to serve its customers, it’s the whole point of capitalism. Capitalism is, as Nicholas Stern says (via Marc), the best way to take care of people we don’t know. There’s no honor in keeping people employed inefficiently, it’s better for them to find someplace in the market where their talents will be better leveraged for society and themselves.
There was a bubble in hiring because tech had so much money it tried to throw people at problems. But the unlock in technology can come from a single person, a single insight. It’s the mythical man-month. Tech-first companies are going to become leaner and more leveraged. Fewer people are going to create more value for society, in ways that will follow power laws and I think we should investigate things like Universal Basic Income to provide for all living beings. Technological progress creates abundance, where we have more than what we need.
At Automattic last year we did not do layoffs, but allowed performance management and natural attrition (voluntary regrettable was 2.9%, non-regrettable 6.8% for us in 2023) to allow our size to shrink down more naturally, on average two people left for every person we hired last year, from a peak of about 2,064 to 1,936 today.
> There’s no honor in keeping people employed inefficiently, it’s better for them to find someplace in the market where their talents will be better leveraged for society and themselves.
Where’s this alternative market where they can quickly pivot to something else when all their previous effort has been focused on the thing that has been automated?
It’s the open market of capitalism in a free society. The US Bureau of Labor Statistics reports the unemployment rate currently at 3.7%, which is on the low end of the range. Below 3% we start to get inflation, too much demand for too few workers. (Which is when trade and immigration kicks in.)
An open market has little to no barriers to free-market activity with no regulatory barriers to entry. I don’t think that’s our system at all. And the current market have significant competitive barriers to entry.
That’s actually the U-3 unemployment rate. U-6 (including discouraged or underemployed workers) is at 8%. The labor force participation rate is even a more dismal number at 62.5%. This has been the trend since the early 00’s, so the gov’t likes to report the soft numbers so people aren’t scared.
Our economy is a heck of a lot worse that people think it is. Thankfully we can all stand together and reinvigorate the market. I believe we can do it. We just have to wake up to how bad it really is and make changes.
And when AI has driven the value of most human labor to pennies? Is “you have to justify your existence through profitable labor” the long term solution capitalism offers in the face of infinitely increasing productivity?
There are many thoughts on Thoughts on Tech Employment. Thank you again, Matt. The more I pay attention here at ma.tt and everywhere else, the more enthused I am working in the tech industry. Specifically, WordPress, which is highly humanitarian. Ma.tt is my new favorite place to wrangle up all the best topics. I recommend purchasing humattarian.com and forward to ma.tt/thumbsup 🙂
Hah, thank you for recommending that domain. I registered it on WP.com for $12/yr (only took a few seconds!) and currently redirecting it to matt.blog. Wanted to pick it up before some scammer did, and I love a good Matt-pun.
I had the exact question that you asked here. We need a major shift in the job market if we need to employ people elsewhere—it’s easier said than done.
The unemployment rate, no matter how insignificant for now, is going to increase over time given the unsteady layoffs at work. The job market is also nowhere proportional to the exponential population growth that we are experiencing. Also, I guess people won’t be able to take time off or go on vacation if they are constantly considering changing jobs.
Probably at the college and school level, we will have to start encouraging the exploration of alternative career prospects. We will also be required to cater to the needs of these young minds by creating suitable job opportunities and help boost the employment rate over time. It will take time to enforce this, but it’s the need of the hour.
Probably it was all golden about 3-4 decades back when technology started booming and growing at an accelerated rate- as it was marketed as something that people can rely on. However recognising that only fewer people are going to be needed in the future to create the apparent change in the technology aspect will be a dire need – it would be necessary to either start creating a separate market with regulations on separate offset careers or encourage all the other career options that have been overshadowed by the boom in technology.
Having said this- we can’t escape from technology. I agree with the part in the post that soon it will become a one man based company or a small team based. In that case, it is of a paramount importance to make sure that such power is distributed to a possible extent and stricter regulations are developed from an independent company/ a group of companies under the government radar that will hold it liable in case of any lapse. Automation will also create a separate set of maintenance level jobs requiring various certifications and graduate degrees/ diplomas at entry level.
This is all well and good. The idea of “one person billion dollar companies” and UBI freaks me out because it just adds to the huge wealth disparity we see with the “1%” today…if it ever got to the point where UBI is needed, I guess a small stipend is better than nothing, but I don’t think that’s good for humanity at all. People need purpose and work.
I’ve noticed more of these analysis coming out with a presumptive belief set that is in many ways wrong but also spells out a grim future I don’t think anyone wants to live in, not even the “winners” today.
Tech companies had layoffs because they could leverage the myth of inflation to justify layoffs with less public blowback. A wave of layoffs meant more companies started seeking scalps. But they all just had record profits. Across nearly every industry. How can they maintain record profits while also doing record layoffs? Well, they can’t, but they’ll try, by asking more of their current staff, for less in return. After all, they can shake the stick of recent layoffs. You don’t want to get laid off too, do you? Better put in 80 hour weeks to make up for us firing half your team.
It seems very naive in 2024 to pretend that people laid off enter a magical capitalist utopia where everyone willing to strap on a pair of boots and pull on their big boy pants can leverage their hard work and time to provide for their family. If you’re a software engineer, you need to find a software engineer job, and likely sooner rather than later. There’s no time to retrain into whatever field happens to have a bull run in hiring. And calls to “diversify skillsets” seem not only to be blaming the victim but also simply naive. The last time you were in charge of hiring, when did you ever take the generalist mechanical engineer that recently pivoted into frontend engineer over the five year fe engineer that has worked with the libraries your company uses?
Time and again we see that improving technologies serve the owners, not the workers. The luddites didn’t smash machine looms because they were scared of technology, they did it because they thought the improved efficiency would benefit everyone at a mill. When it turned out it just meant them losing their jobs, they decided to take matters into their own hands. It didn’t have to be that way – their mills could have invested in their workers by retraining them and finding new roles, or, if it was structured like a co-op, simply letting everyone work less for the same or even more money, distributing the increased profits to the people that actually make a company money.
The deeper we get into the 2000s the less capitalism as a means of allocating resources makes sense. There will be a day when the value of human labor in nearly every field is pennies, and capitalism has no answer for what we do with people when that day comes. Utopians talking about people doing art and music and whatever they want are not describing capitalist society, they are describing a socialist one. Under capitalism, you have to justify your existence by laboring for an owner, and how are we going to create an entire labor market out of the arts? Absurd.
We need new social solutions to deal with the incredible new technologies we’re inventing.
I’m excited about the potential of AI, particular tools giving creatives leverage to build more ideas. Imagine being able to build a video game one week, write a children’s book the next week and test out a social app after that. (Perhaps the timeline is a little naive, but you get the idea ha .)
I do feel a little weird about all the layoffs. I’m all for more efficiency. But as someone recently unemployed, I do find it challenging to know what the best thing(s) to do for landing a good job. I wish there was a more straightforward way. At this point I’d work for free for a while if it was a path that led towards something full time.
Thoughts?
The best way to build up your resume if you don’t have traditional credentials is by getting involved in open source!
Honestly this is a good thing. Automattic letting people go more naturally, that is. But I do fear that it’s more semantics with non-regret vs volunteer-regret. I’m sure you guys had to fire some people who weren’t cutting it. That’s natural.