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Elon Musk’s Massive Twitter Layoffs Foreshadow Future Tech Downsizings

Workers in the tech and startup sectors need to brace for escalating layoffs. The current economic conditions will cause tech companies of all sizes to reconsider their hiring policies to stay competitive and solvent.

The era of artificially low interest rates is over. Federal Reserve chair Jerome Powell seeks to significantly bring down the 40-year, record-level inflation rates to 2%. To achieve this goal, Powell said there will be a lot of “pain.” Jobs will be cut and hiring freezes will continue to be implemented. Workers will be closely monitored and put on performance improvement plans, as the low-end producers will be targeted for downsizing.

The Fed’s intention of raising the borrowing rates to more than 4% substantially changes the way businesses will operate. By comparison, in March 2020, interest rates were at around 0 to 0.25%. The access to cheap money enabled companies to go on a hiring binge.

When corporations borrow money at a high rate, they need to return a multiple much higher to pay back the interest and debt, employee salaries and the daily costs of running the business. The hurdles will be higher than what the tech firms became accustomed to. Some companies won’t be able to survive this new environment. Private equity firms or companies with the capital to purchase assets at a discount to their prior prices may take them over.

Elon Musk, the newly self-appointed “chief twit” at Twitter, feels the pressure to turn the social media company around fast. Musk acquired the tech platform for $44 billion, although Twitter has failed to be profitable for the last eight years. According to the New York Timesto finance his Twitter acquisition, Musk saddled the company with $13 billion in debt, “putting it on the hook to pay more than $1 billion annually in interest alone.”

The social media platform is burning through cash with no end in sight. The $8 blue-check proposal is not nearly enough to make a difference. The company will need to conduct massive layoffs, come up with attractive and innovative features that members actually want and woo advertisers back. This type of scenario will play out all across the tech sector.

Too Many Workers?

Bobby Goodlatte, one of the first 200 employees at Facebook, stirred up a heated debate Saturday, tweeting, “I’ve never understood why Facebook needs 20,000 employees. And less than the 70,000 employees Meta has now.” He added, “@elonmusk’s Twitter layoffs are appropriate. Unfortunate, but appropriate. These businesses just don’t require that many people.”

Given the current zeitgeist on the site, this did not go over well with the laid-off workers and many users on the platform. Although, there was strong agreement over his assessment that there are too many workers at large tech companies.

This does not mean that Goodlatte and others who say big tech is too bloated agree with how Musk conducted the layoffs. Also, it doesn’t advocate for indiscriminately downsizing reportedly half of Twitter’s workforce—7,500 employees before Musk’s job cuts—for the sake of quickly cutting headcount, as livelihoods are at stake.

The Cold Job Cuts

The process looked to the public as callous, undisciplined and cavalier. Musk and leadership should have been candid about how the layoffs would be handled, what to expect and why they were given the pink slip. It would not have cost anything to be empathetic, offer some counseling, provide references for when they start searching for a new job and give some gratitude for all their hard work and efforts.

Musk tweeted that he had “no choice,” as the company is losing over $4 million daily. He offered the departing employees three months of severance, which he stated is “50% more than legally required.”

Former staffers are suing Twitter, alleging violation of the Workers Adjustment and Retraining Notification Act, for failing to give at least a 60-day notice, the minimum required by the law.

Given the current state of economic uncertainty and the likelihood of a recession and challenging times ahead, there is an argument to be made that by cutting costs and jobs now, companies will have more funds at their disposal to weather a long and drawn-out economy slowdown. As ugly as it feels, it’s more humane to make one big cut than continue laying off people over an extended period. The remainers, who escaped the ax, will be perpetually worried about holding onto their jobs and unable to focus or perform well. Understandably, they’ll spend most of their workday searching for new employment and speaking with recruiters. This scenario is not attractive for workers nor the company.

Why Are There So Many Workers?

Former CEO Jack Dorsey weighed in on the topic by taking the blame. He apologized for growing the size of the company “too quickly.”

There are several reasons why tech companies went on a robust hiring spree. Social media companies need to invest heavily in personnel to oversee the moderation of billions of posts.

Additionally, once a person is hired, it’s hard to let them go. Companies get used to hiring and holding onto employees. With the threat of litigation, businesses like to avoid situations where they can be accused of discriminatory practices. Institutional inertia takes hold.

Hiring can be viewed as an arms race. The company wants to get the best and brightest before its rivals scoop them up and they’ll hoard talent. Managers feed their egos by building a fiefdom to make themselves look important.

Ironically, Twitter is allegedly canceling layoffs and asking dozens of workers to return to the social media platform.

Meta reportedly plans for “large-scale” layoffs of thousands of professionals this week.

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