As the tech industry prepares for a possible recession, many companies are laying off workers and freezing hiring. The impact of the hiring freeze is being felt by various companies, from startups to large corporations. Rising interest rates and inflation are also contributing to the slowing growth of the industry.
During the peak of the pandemic, tech firms were able to hire many workers due to the low interest rates and the stock market’s rapid growth. However, the current economic situation has forced many companies to rethink their hiring strategies.
According to Dan Ives, an analyst at Gleacher & Co., the current economic situation is the “perfect storm” for tech companies. Since the stock market’s high prices and the low interest rates during the pandemic created an unprecedented hiring opportunity, the pace of growth has slowed down significantly.
Since May, tech startups have reportedly laid off around 27,000 workers, which is more than double the number of people who were laid off in all of 2021. According to Layoffs.fyi, this figure is expected to continue rising.
According to Steven Weber, a professor at the UC Berkeley Graduate School of Information, tech companies are reining in their hiring. He noted that many smaller tech firms used to believe that they could grow into profitability even if they didn’t have the necessary resources to support it. However, during times of recessions and valuation shifts, these companies are getting killed.
The Federal Reserve is currently raising interest rates to fight the country’s highest inflation in four decades. This move is expected to bring down prices and curb consumer demand.
Economists believe that the interest rate increases could cause the U.S. to enter a recession next year. It makes it more difficult for companies to access capital and increase the risk of a financial crisis.
The uncertainty surrounding the country’s economic outlook has caused investors to pull money out of risky assets, such as tech startup stocks. The tech-heavy Nasdaq composite has lost around 30% since the beginning of the year.
In response to the uncertainty surrounding the country’s economic outlook, several tech companies, including Uber and Spotify, have reportedly started to reduce their hiring.
Dil Bole Oberoi
