My understanding is that all of these major tech companies still have more employees after the layoffs than they did before the pandemic. Therefore, to me, this just looks like a correction after a massive hiring binge during the pandemic when tech usage soared. A lot of companies wanted to seize the opportunity to offer more services, and they hired aggressively to do so.
There was also a hope that the changes in consumer and business behavior during the pandemic would lead to a permanent structural change in the economy. For example, consumers would continue to use online shopping at a much higher rate than pre-pandemic. Similarly, remote work would stick and businesses would need substantially more digital collaboration tools like Slack and Zoom.
This hope was dashed as tech usage normalized a fair bit in 2022. At most it appears that the pandemic pulled forward some growth. Eg, streaming usage exploded initially but is now growing slower than pre-pandemic such that it appears to be reverting to the projected trajectory of 2019.
Tech companies are recognizing the reality of tech usage and adjusting their business plans and staffing accordingly. Yet the economic impact and employee count of these firms still exceed pre-pandemic levels.
Yes, I don't expect the big tech companies to decline relative to their levels of a few years ago. Not for a while, at least...their fundamental business models seem quite strong...
I agree, but there does also appear to be some thinning of the ranks at these companies as well. While they have more workers now, the recent rounds of layoffs have touched some senior level workers that people assumed weren't going anywhere due to their expertise.
The first round of tech layoffs from Meta, some data-scientist heavy tech companies, and crypto definitely had an air of, "Oops, lets cut back on some of these wild investments with layoffs." But this round seems a bit more of, "We see the tides shifting so we're going to tighten a little."
A recent paper pointed out that the consumer behavior is trending back to pre-pandemic level. So I will not be so sure if there is a permanent strctural change in the economy.
In your recent Google survey you asked some questions about what your subscribers wanted to see more of and what areas interest them more than others. This posting is an example of what I like reading about. I’m an old man now and not ever returning to the work force. Nobody wants to employ old ailing en who have deaf issues, and like to nap. But, I’m interested in the marketplace, and learning about these things is just plain fun. Thanks for researching and writing about these industries and how they affect our lives.
It’ll be hard for us tech workers to go from primarily modern software companies to other industries like auto, not just because of compensation but also because other industries work environments tend to be more traditional. My current job has flexible time off, flexible working hours, many perks, rapidly moving/iterating teams, etc.
I think it'd be really hard for them to do such a drastic cultural pivot, but if they want to compete for all the newly available top talent, it would be a good idea for them to make an attempt. One big barrier is software companies sell software as their primary product, so their primary capital is their software engineers. Car companies cannot say the same, though the balance of importance is rapidly shifting in favor of software engineers (chips in a car many times more than 10 years ago, for example)
Eventually, sure. But how long will it take? How long did it take US car companies to catch up with the Japanese car company quality revolution of the 1970s? How long did it take WalMart to shift after Amazon started eating their lunch? How long did it take old brick and mortar banks to modernize after newcomers like ING started putting pressure on them?
The phrase "software is eating the world" is 12 years old now, enough for an entire generation of executives to come and go, and most industries still haven't shifted.
There's that old saying about how science advances one funeral at a time. Business kind of works the same way.
After they have been out of work for six months, they will either find a way or perhaps move to different industries. I lived through the dotcom bust of 2001 and at least half of the "software engineers" I knew switched professions. There were far fewer people with CS degrees then and far more self-taught programmers of very uneven quality.
I think the companies that provide some of the perks you provide will find it much easier to recruit the best, but most of them will just get a modest injection of new talent, while the already competitive FAANG jobs will get even more competitive. It is already quite a bit harder to get a job at Google than to get into Harvard.
I think the industry dynamics are quite different today than during the dot com boom/bust cycle, so it’s tough to make any predictions based on that. The labor composition consists of far more CS grads proportionally, for example.
I think it depends on the level of amenities. I worked at a large, traditional healthcare corporation in the midwest, and we had an office gym, a nice cafeteria, a lounge with comfy chairs, a foosball table, and free snacks. We also had work from home twice a week.
It wasn't as spectacular as a Google campus, but it wasn't Dunder Mifflin either.
Honestly, this slight tech dip is probably a case of a blessing in disguise. With the end of ZIRP, these companies need to grow up a bit now. And for those they're looseing out into unemploymentland, a not insignificant number will go off and start their own start-ups. 5 years from now I fully expect we'll see some article in Bloomberg or WSJ gushing over some start-up coming out of series B that got started by folks laid off in the last few weeks.
The real question in my mind is whether the layoffs start to change the corporate dynamic and slow the velocity of these companies in some of the many sectors they compete in. It doesn't make sense to continue to run a loss in a sector if you are not a clear leader, does this ultimately result in an unlocking of the tremendous value by spin-offs and divestitures? This would truly be a boon for technology and growth. Much like the unlock of MaBell was a boom for the development of the Internet.
Another awesome article! I think one other destination for engineers is healthcare/med tech. Seems like a big industry that could benefit from a surplus of talent.
It strikes me many of the upsides you see (capital and talent flowing to underserved areas) accomplish in the US many of the supposed goals of the China tech crackdown of last year.
However the tech crackdown in China I think you rated as largely a bad thing likely to be (mostly) unsuccessful in its aims whereas you are more hopeful in the case of rising interests rates doing (superficially) the same sort of disruption to the US tech industry.
Now, I suspect there are a great many relevant differences (probably not least that China is an authoritarian country) that explain this divergence in trajectory from two superficially similar scenarios but I'd be curious as to what you take to be the biggest differentiating factors in the Chinese and US "Big Tech" shakeups.
Right. China's leaders weren't insane to want to reallocate talent between sectors, I think. It was just the way they went about it that was pretty boneheaded. You can't just smash one sector and expect talent to just flow seamlessly to the ones that you like better.
I take your point but also it does feel like the end of the pandemic and easy money is something of a “smashing” of the tech sector, albeit in an indirect way.
Just a couple of things to quibble with as an insider: tech companies mechanically cut total compensation (we say "TC," not "salary") when their stock prices go down. They can also issue smaller refreshers, but this acts slowly, since new-hire grants traditionally vest over 4 years. Companies may need to fire people anyway if their already-granted but not-yet-vested shares are too high. Recently there has been a move towards front-loaded vesting, which makes refreshers more important. This mitigates "rest and vest" behavior (you must earn your next year's stock vesting with performance), but also the link between employee compensation and company performance (the reason for paying in stock in the first place).
The requirement to live in expensive cities is punishing, especially for younger workers who missed the boat on house prices. Shares can help you save up a down payment, but because so much of compensation is volatile, it would be a grave mistake to rely on them to meet mortgage payments over 30 years. Sane people size their mortgages according to base salary, and mortgage payments in tech cities easily eclipse tech base salaries. Lower compensation along with permission to move to the Midwest may even be a net gain in terms of lifestyle and economic security.
The reason many of us hold out on working for non-tech companies is that they manage software engineers and software engineering work very differently. Big Tech is a land of "curious problem solvers" given the best tools and broad autonomy to go make things better within some domain. Traditional enterprises keep their software development cost centers on tight leashes, building exactly what they are told to build by the architect/consultant brought in above them, competing on work-per-dollar throughput with outsourcing body-shops, and doing a lot of bureaucratic ceremonies and paperwork to justify their existence. (This doesn't achieve very good results, but also, big corporations are pretty complacent about awful internal software). Received wisdom in the SWE community is that it is very, very important for your career and satisfaction to work at a company whose primary business is technology, and not in an IT department. A flight to IT departments is likely to make many of us miserable, although perhaps it could also nudge them towards operating more like tech companies.
I believe that mid-career (early 30s or later) software engineers can still afford houses in places like Seattle, San Francisco and Mt. View. Maybe not as large or in as nice a neighborhood as they prefer, but they certainly can. If you are willing to take more a mortgage payment than the traditional 28%, and you should if you really want to buy, you can even buy something larger. Those rules are based on areas where both incomes and homes prices are lower.
The really prudent way to do it is to save up 50% or more of the home price. One good IPO or ten years of refreshers should do that.
For the same price or even half you could have a big house in a good school district in most of the country. So I can understand the urge to go someplace else.
This whole essay suffers from the perspective of someone who has actually worked at one of these companies. They all stack rank employees and "manage our" the low performers. Best estimates that I have seen are that the percentage varies from 3-5% of their employees every year. Some push our more than others. It is a fiercely competitive environment. Most companies in 2022 are just laying off a bit more (up to double in Google's case) than they normally do. The big change is that they stopped hiring.
The salaries are indeed high, very high, but the graph is misleading. At Google most people don't make it past L5 (and in fact you will get managed out if you don't make L5 in 10 years or so). L6 is rare, maybe one in ten and higher levels are vanishingly rate. An L9 is a Director. Each Director manages 100-300 people.
Most people work at Google for a couple years, get their "Google stamp" on their resume and then go work somewhere else. Last I checked Google had high six digit employee numbers and about 170,000 employees.
Source: guy who has worked at multiple FAANG companies.
I think at Google L8 is a director and L9 is a VP role IIRC? But I agree that making L7 or up is very very challenging and the number of people who are L8 or L9 is very small. L10 is so small that you could likely count the number of L10 Engineers at Google (Google Fellows) without taking off your boots.
A big part of the problem was the Chicago revolution in antitrust*. None of the mergers you mention should have been allowed, and all should be reversed by antitrust action.
Actually, a pretty good policy agenda would be to google "Chicago revolution" + "economics" and repeal every policy item that came up as a result.
A large problem with the public sector recruiting tech talent is that they are constrained by a federal pay structure (GS system) that legally won’t let them pay anything close to market value. The government won’t let an engineer in his 20s make more than the retired Colonel who runs the department and that promise of the federal pension is laughable compared to private sector TC
I am afraid you're description here is very inaccurate:
"In other words, for a whole generation of elite knowledge workers, FAANG provided the ultimate career exit strategy. If your startup failed or you didn’t like academia or you were just looking for a second act in life and were decently good with numbers, Big Tech was there waiting for you with an offer that would land you a nice house in a fancy coastal city, a bunch of brilliant and friendly co-workers, and a comfortable retirement."
- Amazon, in particular, is more of a "career starter", not a career ender. It has very high turnover, and it hires (or, I guess hired) very aggressively in college campuses. It's also a highly stressful environment.
- Amazon also "backloads" their stock compensation in their vesting plan, so to really get rich, you have to last 3+ years. This is actually quite difficult (you can verify by taking a look at their turnover).
- Netflix (the N in FAANG) is also a company very well known for aggressively churning employees, turning over (read: firing) a rather large portion of the "weakest performers" every year. It's a part of their culture they are actively proud of. This is not an environment conducive to being your retirement gig.
- You very greatly underestimate how difficult it is to get jobs at these companies, particularly in the very well paid senior engineering positions
As another point, the layoffs were not really necessary in terms of correcting the hiring market a bit here. For most companies, it was impossible to compete with FAANG salaries because of the stock. But even the most bullish investors knew that stock prices doubling every year wasn't sustainable, so salaries were going to come back down. Or, more accurately, FAANG companies' ability to *pay* $100k in stock that gives the employee $200k compensation by the time it vests wasn't going to last. In many ways, the stock market was paying salaries for them. But as you noted, that can go the other way. If you started in January 2022, and Meta granted you $100k in stock compensation, that's worth $47k (or less) by the time you can vest it.
The downward pressure of those salaries was going to work on the market even if the layoffs never happened.
Just to douse the "automakers will snap up laid off tech workers idea", the pay scale for software engineers working for American automakers is WAY below the rest of the market (like half of what small software companies pay), even when just considering salary.
My understanding is that all of these major tech companies still have more employees after the layoffs than they did before the pandemic. Therefore, to me, this just looks like a correction after a massive hiring binge during the pandemic when tech usage soared. A lot of companies wanted to seize the opportunity to offer more services, and they hired aggressively to do so.
There was also a hope that the changes in consumer and business behavior during the pandemic would lead to a permanent structural change in the economy. For example, consumers would continue to use online shopping at a much higher rate than pre-pandemic. Similarly, remote work would stick and businesses would need substantially more digital collaboration tools like Slack and Zoom.
This hope was dashed as tech usage normalized a fair bit in 2022. At most it appears that the pandemic pulled forward some growth. Eg, streaming usage exploded initially but is now growing slower than pre-pandemic such that it appears to be reverting to the projected trajectory of 2019.
Tech companies are recognizing the reality of tech usage and adjusting their business plans and staffing accordingly. Yet the economic impact and employee count of these firms still exceed pre-pandemic levels.
Yes, I don't expect the big tech companies to decline relative to their levels of a few years ago. Not for a while, at least...their fundamental business models seem quite strong...
I agree, but there does also appear to be some thinning of the ranks at these companies as well. While they have more workers now, the recent rounds of layoffs have touched some senior level workers that people assumed weren't going anywhere due to their expertise.
The first round of tech layoffs from Meta, some data-scientist heavy tech companies, and crypto definitely had an air of, "Oops, lets cut back on some of these wild investments with layoffs." But this round seems a bit more of, "We see the tides shifting so we're going to tighten a little."
A recent paper pointed out that the consumer behavior is trending back to pre-pandemic level. So I will not be so sure if there is a permanent strctural change in the economy.
FYI - https://twitter.com/ManFerGal/status/1613931431071469570
Hi Noah,
In your recent Google survey you asked some questions about what your subscribers wanted to see more of and what areas interest them more than others. This posting is an example of what I like reading about. I’m an old man now and not ever returning to the work force. Nobody wants to employ old ailing en who have deaf issues, and like to nap. But, I’m interested in the marketplace, and learning about these things is just plain fun. Thanks for researching and writing about these industries and how they affect our lives.
Thank you, sir! I'm glad you're enjoying it. 😊
It’ll be hard for us tech workers to go from primarily modern software companies to other industries like auto, not just because of compensation but also because other industries work environments tend to be more traditional. My current job has flexible time off, flexible working hours, many perks, rapidly moving/iterating teams, etc.
Do you think there will be a culture change at the old-line industries, due to the need to hire an influx of tech workers who do things differently?
I think it'd be really hard for them to do such a drastic cultural pivot, but if they want to compete for all the newly available top talent, it would be a good idea for them to make an attempt. One big barrier is software companies sell software as their primary product, so their primary capital is their software engineers. Car companies cannot say the same, though the balance of importance is rapidly shifting in favor of software engineers (chips in a car many times more than 10 years ago, for example)
Eventually, sure. But how long will it take? How long did it take US car companies to catch up with the Japanese car company quality revolution of the 1970s? How long did it take WalMart to shift after Amazon started eating their lunch? How long did it take old brick and mortar banks to modernize after newcomers like ING started putting pressure on them?
The phrase "software is eating the world" is 12 years old now, enough for an entire generation of executives to come and go, and most industries still haven't shifted.
There's that old saying about how science advances one funeral at a time. Business kind of works the same way.
After they have been out of work for six months, they will either find a way or perhaps move to different industries. I lived through the dotcom bust of 2001 and at least half of the "software engineers" I knew switched professions. There were far fewer people with CS degrees then and far more self-taught programmers of very uneven quality.
I think the companies that provide some of the perks you provide will find it much easier to recruit the best, but most of them will just get a modest injection of new talent, while the already competitive FAANG jobs will get even more competitive. It is already quite a bit harder to get a job at Google than to get into Harvard.
I think the industry dynamics are quite different today than during the dot com boom/bust cycle, so it’s tough to make any predictions based on that. The labor composition consists of far more CS grads proportionally, for example.
The market itself is drastically different too.
I think it depends on the level of amenities. I worked at a large, traditional healthcare corporation in the midwest, and we had an office gym, a nice cafeteria, a lounge with comfy chairs, a foosball table, and free snacks. We also had work from home twice a week.
It wasn't as spectacular as a Google campus, but it wasn't Dunder Mifflin either.
Honestly, this slight tech dip is probably a case of a blessing in disguise. With the end of ZIRP, these companies need to grow up a bit now. And for those they're looseing out into unemploymentland, a not insignificant number will go off and start their own start-ups. 5 years from now I fully expect we'll see some article in Bloomberg or WSJ gushing over some start-up coming out of series B that got started by folks laid off in the last few weeks.
Yeah!
Hey Noah. Will you write a follow up piece about the shift to hard tech, or green tech?
There seems to be momentum there.
Yep. That will definitely be a big theme of mine.
The real question in my mind is whether the layoffs start to change the corporate dynamic and slow the velocity of these companies in some of the many sectors they compete in. It doesn't make sense to continue to run a loss in a sector if you are not a clear leader, does this ultimately result in an unlocking of the tremendous value by spin-offs and divestitures? This would truly be a boon for technology and growth. Much like the unlock of MaBell was a boom for the development of the Internet.
That's a good point! Though all the telecom equipment makers who succeeded MaBell did ultimately fail...
Another awesome article! I think one other destination for engineers is healthcare/med tech. Seems like a big industry that could benefit from a surplus of talent.
Ooh yeah I should mention that one!
It strikes me many of the upsides you see (capital and talent flowing to underserved areas) accomplish in the US many of the supposed goals of the China tech crackdown of last year.
However the tech crackdown in China I think you rated as largely a bad thing likely to be (mostly) unsuccessful in its aims whereas you are more hopeful in the case of rising interests rates doing (superficially) the same sort of disruption to the US tech industry.
Now, I suspect there are a great many relevant differences (probably not least that China is an authoritarian country) that explain this divergence in trajectory from two superficially similar scenarios but I'd be curious as to what you take to be the biggest differentiating factors in the Chinese and US "Big Tech" shakeups.
Right. China's leaders weren't insane to want to reallocate talent between sectors, I think. It was just the way they went about it that was pretty boneheaded. You can't just smash one sector and expect talent to just flow seamlessly to the ones that you like better.
I take your point but also it does feel like the end of the pandemic and easy money is something of a “smashing” of the tech sector, albeit in an indirect way.
Just a couple of things to quibble with as an insider: tech companies mechanically cut total compensation (we say "TC," not "salary") when their stock prices go down. They can also issue smaller refreshers, but this acts slowly, since new-hire grants traditionally vest over 4 years. Companies may need to fire people anyway if their already-granted but not-yet-vested shares are too high. Recently there has been a move towards front-loaded vesting, which makes refreshers more important. This mitigates "rest and vest" behavior (you must earn your next year's stock vesting with performance), but also the link between employee compensation and company performance (the reason for paying in stock in the first place).
The requirement to live in expensive cities is punishing, especially for younger workers who missed the boat on house prices. Shares can help you save up a down payment, but because so much of compensation is volatile, it would be a grave mistake to rely on them to meet mortgage payments over 30 years. Sane people size their mortgages according to base salary, and mortgage payments in tech cities easily eclipse tech base salaries. Lower compensation along with permission to move to the Midwest may even be a net gain in terms of lifestyle and economic security.
The reason many of us hold out on working for non-tech companies is that they manage software engineers and software engineering work very differently. Big Tech is a land of "curious problem solvers" given the best tools and broad autonomy to go make things better within some domain. Traditional enterprises keep their software development cost centers on tight leashes, building exactly what they are told to build by the architect/consultant brought in above them, competing on work-per-dollar throughput with outsourcing body-shops, and doing a lot of bureaucratic ceremonies and paperwork to justify their existence. (This doesn't achieve very good results, but also, big corporations are pretty complacent about awful internal software). Received wisdom in the SWE community is that it is very, very important for your career and satisfaction to work at a company whose primary business is technology, and not in an IT department. A flight to IT departments is likely to make many of us miserable, although perhaps it could also nudge them towards operating more like tech companies.
I believe that mid-career (early 30s or later) software engineers can still afford houses in places like Seattle, San Francisco and Mt. View. Maybe not as large or in as nice a neighborhood as they prefer, but they certainly can. If you are willing to take more a mortgage payment than the traditional 28%, and you should if you really want to buy, you can even buy something larger. Those rules are based on areas where both incomes and homes prices are lower.
The really prudent way to do it is to save up 50% or more of the home price. One good IPO or ten years of refreshers should do that.
For the same price or even half you could have a big house in a good school district in most of the country. So I can understand the urge to go someplace else.
"... and a comfortable retirement."
This whole essay suffers from the perspective of someone who has actually worked at one of these companies. They all stack rank employees and "manage our" the low performers. Best estimates that I have seen are that the percentage varies from 3-5% of their employees every year. Some push our more than others. It is a fiercely competitive environment. Most companies in 2022 are just laying off a bit more (up to double in Google's case) than they normally do. The big change is that they stopped hiring.
The salaries are indeed high, very high, but the graph is misleading. At Google most people don't make it past L5 (and in fact you will get managed out if you don't make L5 in 10 years or so). L6 is rare, maybe one in ten and higher levels are vanishingly rate. An L9 is a Director. Each Director manages 100-300 people.
Most people work at Google for a couple years, get their "Google stamp" on their resume and then go work somewhere else. Last I checked Google had high six digit employee numbers and about 170,000 employees.
Source: guy who has worked at multiple FAANG companies.
I think at Google L8 is a director and L9 is a VP role IIRC? But I agree that making L7 or up is very very challenging and the number of people who are L8 or L9 is very small. L10 is so small that you could likely count the number of L10 Engineers at Google (Google Fellows) without taking off your boots.
A big part of the problem was the Chicago revolution in antitrust*. None of the mergers you mention should have been allowed, and all should be reversed by antitrust action.
Actually, a pretty good policy agenda would be to google "Chicago revolution" + "economics" and repeal every policy item that came up as a result.
A large problem with the public sector recruiting tech talent is that they are constrained by a federal pay structure (GS system) that legally won’t let them pay anything close to market value. The government won’t let an engineer in his 20s make more than the retired Colonel who runs the department and that promise of the federal pension is laughable compared to private sector TC
"This means that there will be far reason" --> far fewer reasons (?)
"Once again their will have to keep" --> they
I am afraid you're description here is very inaccurate:
"In other words, for a whole generation of elite knowledge workers, FAANG provided the ultimate career exit strategy. If your startup failed or you didn’t like academia or you were just looking for a second act in life and were decently good with numbers, Big Tech was there waiting for you with an offer that would land you a nice house in a fancy coastal city, a bunch of brilliant and friendly co-workers, and a comfortable retirement."
- Amazon, in particular, is more of a "career starter", not a career ender. It has very high turnover, and it hires (or, I guess hired) very aggressively in college campuses. It's also a highly stressful environment.
- Amazon also "backloads" their stock compensation in their vesting plan, so to really get rich, you have to last 3+ years. This is actually quite difficult (you can verify by taking a look at their turnover).
- Netflix (the N in FAANG) is also a company very well known for aggressively churning employees, turning over (read: firing) a rather large portion of the "weakest performers" every year. It's a part of their culture they are actively proud of. This is not an environment conducive to being your retirement gig.
- You very greatly underestimate how difficult it is to get jobs at these companies, particularly in the very well paid senior engineering positions
As another point, the layoffs were not really necessary in terms of correcting the hiring market a bit here. For most companies, it was impossible to compete with FAANG salaries because of the stock. But even the most bullish investors knew that stock prices doubling every year wasn't sustainable, so salaries were going to come back down. Or, more accurately, FAANG companies' ability to *pay* $100k in stock that gives the employee $200k compensation by the time it vests wasn't going to last. In many ways, the stock market was paying salaries for them. But as you noted, that can go the other way. If you started in January 2022, and Meta granted you $100k in stock compensation, that's worth $47k (or less) by the time you can vest it.
The downward pressure of those salaries was going to work on the market even if the layoffs never happened.
Just to douse the "automakers will snap up laid off tech workers idea", the pay scale for software engineers working for American automakers is WAY below the rest of the market (like half of what small software companies pay), even when just considering salary.
Hard times ahead for Chief Vibe Officers and the like.