EkaLore has written about the Challenging Times brought on by changes in the supply chain, the pandemic, war, and general changes in demand and inflation. Back of the Envelope posts make simple assumptions based on publicly available data to reveal great truths.
In this Back of The Envelope (BOTE), EkaLore will look superficially at the cascade economic effects of layoffs still in progress at colossal global tech enterprises.
The purpose of this BOTE is to highlight the impact on the globally important "tech sector" of economies of large scale reductions-in-force (RIFs)--- layoffs and contractor terminations –still in progress.
Background
In previously devastating RIFs in globally important economic sectors several common effects have been observed:
1) Many jobs never come back
2) Restructuring and transformations change the entire public perceptions of jobs in the sector
3) Economic job refugees flee into new careers and find jobs very different from those they held in the devastated economic sector
Prior examples of devastation:
A) US Telecommunications Industry (AT&T/RBOC's in a shared government monopoly)
B) US and global automobile/vehicle industry
C) US Mortgage lending and financial services (multiple waves)
D) Global Steel and Metals industry
There are counter-examples where recoveries did come about:
I) Global energy exploration and production (oil and gas)
II) Nuclear Electrical Power/energy infrastructure
III) Internet Tech
IV) Vehicle Manufacturing
V) Steel Mills
EkaLore looks at the counterexamples to illustrate common threads:
1) Devastation often has a major scandal or fraud found, or a traumatic event
a. Mortgage Banking/Financial - Lehmann Brothers Collapse, Countrywide, others
b. Savings and Loan Crisis – Many savings and loans
c. Tech Crisis – FTX
d. Nuclear Power – Three Mile Island, Chernobyl, Fukushima
e. Internet Tech – Webvan, many many others
f. Oil/Energy – Enron, Embargos, others
2) Industry Sectors and structurally important to economies and governments
a. Finance – Orange County, LTCM, Latin American/Asian Debt
b. Home and Residential Loans – Canada, UK, USA, China
c. Steel and Metals – Many steel mill examples
d. Automotive – Fall of USA manufacturers
e. Internet/Telecommunications – AT&T
f. Airlines (Aerospace)– Covid
3) Recovery brings back industries in very different marketspaces
a. Steel/Metals
b. Vehicles
c. Aerospace/Airlines
Present Day
Meta (Facebook) has announced another significant round of RIFs. This follows many other enterprises in the tech sector where hundreds of thousands of jobs have been or are being, lost. The Federal Reserve minutes in the USA provide a central bank perspective evaluating recent tech sector job losses as following larger increases in the past few years and not reflective of the larger economic conditions. The tech sector devastation is partially documented in the media (www.Layoffs.fyi ).
Significant common factors:
1) Many jobs are at compensation and employee/contractor costs rates well above the median incomes in local societies (USA, India, Germany)
2) Many jobs were arcane and little understood outside the industries (oil field wranglers)
3) Historic changes in investment patterns and consumption are permanent – even if little understood at the time (automobile assembly workers, steel mill workers, nuclear power plant engineering and construction, mortgage processors)
The Keynesian economic theory (in various incarnations and flavors) has shown Multiplier Effects of 0.9 to 10 for spend circulating and being reused in community enclaves (geographic, industrial, or global industries). The job, compensation spend, and expense per employee spent show the cascade spreading effects of a single industrial sector's job losses not being contained (oil field worker layoffs, banking industry job destruction, 'rust belts' in USA/EU/Japan, early 2000 web development). Job devastation in the 2020's "high tech" industries will have similar effects (early indicators in San Francisco, New York, Mumbai, Shen Zhen, Russia).
A little BOTE:
Total COGS and SG&A (no interest or taxes) at META for 2022 USD$83,450,000,000
Total Employee Count (12/31): 86,482
Spend Per Employee: $965,000
Compensation per Employee (@25% of Spend) $241,250
Average estimated USA compensation per Meta/Facebook employee: USD$140,000 (USA)
Average expense per Meta/Facebook employee: (72% of SG&A etc.) USD$100,800
Total economic employee spend: USD$240,800
Layoffs: (Layoffs.fyi 2022/2023) (160997+108986) 269,983
North American/USA based: 50%
Wiped out USA economic value USD$240,000 x 135000
USD$32,400,000,000
Multiplier Effect: 4x
Community USA Effect: USD$129,600,000,000
Analysis
EkaLore's BOTE points to the common devastating effects on industrial sectors happening to High Tech. USA, China, India, EU (Russia), and others will be devastated in a historical pattern.
The total global effect is about the GDP value of New Zealand or Portugal.
Restructuring entire industries ("streamlining") can cause fundamental changes in employment categories and functions. For example, mortgage servicers (administrative paper pushing) declined after the 2008-9 Housing Bubble and have never returned to the economy in such numbers. Automotive workers seeing significant pushes for automation have never seen numbers return (shown by the average number of labor hours spent for car assemblies across the supply chain). It is unclear exactly which categories in the tech industrial sector will decline (probably not software engineers and data specialists). The total employment for the tech sector will likely increase over the coming years though individual areas (media/publishing, media content specialists) may never fully recover.
Many high-tech leaders admitted to over hiring during the height of the pandemic. The positions laid off may not be those which were "over hired" but positions that have become obsolescent.
As with all BOTE (Back of the Envelope) posts, we made many simplifying assumptions; however, we conclude that mass layoffs of this sort will have major economic effects and can change the nature of an industry.
If you'd like to quibble with any of our figures, feel free to contact us. We'd enjoy the discussion.
N.B.
FOMC Minutes for 1/31-2/1
Facebook/Meta from Glassdoor and PayScale of up to $142,000
SG&A per employee ($59.6B at 86,482 for 12/31 from 10-K, Total spend of $83.45B or $965,000 per employee @ 25% for compensation total exp)
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