Decoding the tech sector layoffs

Firms are designated by analysts or themselves³ as tech firms on the basis of how integral technology is to their production processes. Employment at companies commonly thought of as making up the tech sector are counted by government statisticians in many different industries; indeed, this is the case for any business that operates in more than one location. The unit of measurement for employment surveys is the establishment—defined by BLS as “an economic unit that produces goods or services, usually at a single physical location, and is engaged in one or predominantly one activity, not the firm.” Therefore, any business entity that engages in different activities in different locations—think warehouses versus corporate offices—will have its employment distributed across the applicable industries. Therefore, it is not possible to define a set of industries as composing the tech sector.

However, we do have some information on the prevalence of tech workers by industry. In Barua’s earlier piece, he found the largest numbers of tech workers in professional and business services, finance and insurance, and information services.⁴

Tech employment in perspective

As of 2021 (the latest complete data available), the tech workforce from all six occupational categories accounted for only 4% of total employment.⁵ But before we dismiss shifts in this relatively small occupational category, recall that the monthly changes in employment that are the focus of intense scrutiny the first Friday of every month (mostly) are exceeding small compared to total employment: Over the last 12 months (ending February 2023), employment gains have averaged 403,000 per month—an average monthly increase in total employment of only 0.26%.⁶

It should also be remembered that these monthly changes in employment are net changes. They are a combination of the number of new hires and those who have left their jobs voluntarily (quits) or involuntarily (layoffs and discharges), and these underlying shifts dwarf the net change. One of the concerns about the tech layoffs highlighted in the press is that they were layoffs—and layoffs have not been in the news since the height of the pandemic.

As shown in figure 2, layoffs and discharges dominated the two-month period that marked the COVID-19 recession. As the economy began to reopen and businesses adjusted to allow for remote work, job openings and quits rose and layoffs fell. At present, layoffs are running slightly below their prepandemic level and have averaged 1.4 million per month over the last 12 months. Whatever collection of companies are included in your definition of the tech sector, there is no combination that results in announced tech sector layoffs being any meaningful proportion of the almost 17 million layoffs that occurred over the last 12 months. As noted above, quits—which are viewed as positive indication that replacement jobs are available—have been substantially outpacing layoffs. Further, as shown in figure 2, the differential between the two has been more pronounced postpandemic: In the 12 months ending January 2023, on average, almost four million people per month quit their jobs.⁷ Figure 2 highlights another postpandemic change in the labor market—a surge in job openings.

What’s happening in the tech occupation–heavy industries?

Might these numbers for the overall economy be obscuring trends in the more tech-heavy industries? The industries identified as being tech-heavy are a much wider group than what is generally thought of as the tech sector.

As noted above, the three industry groups found by Barua’s research to employ the largest number of tech workers were professional and business services, finance and insurance, and information services. During the pandemic, employment in professional and business services and information services fell somewhat less than that in private sector employment on a percentage basis, but these drops were very sharp. However, employment levels in finance and insurance were barely impacted. Figure 3 is limited to a more recent period because the extreme size of the employment swings during the pandemic period obscures the patterns in growth during the recent, more normal, period. The information industry, which likely houses sizable portions of tech sector employment, is definitely on a downswing. Employment in finance and insurance is trending flat, while employment in professional and business services is generally tracking changes in private industry employment.

To consider what is occurring in job openings, quits, and layoffs at the industry level, we switch from levels to rates, with the denominator being the total employment in each industry.

Job opening rates

As shown in figure 4, even during the height of the pandemic, these industries were still posting job openings. The job opening rate in information services started falling about the same time as employment (figure 3). The job opening rate in finance and insurance continues to run well below the private industry average but, like employment, is trending flat. Professional and business services have been exhibiting the strongest labor demand of these three tech-heavy industries and have job openings above the private sector average, although, like the private sector, the job opening rate is trending down.

Quit rates

Quit rates for these three industries follow the private sector trend of being higher postpandemic than prepandemic, with professional and business services showing the highest increase of the three post-pandemic and closely tracking the private sector average. Quit rates for both are running at about 3% of total employment each month. Quit rates are lower for finance and insurance and information services, hovering just under 1.5% for the past few months.

Layoffs and discharges

Mirroring the lack of change seen in employment levels, the finance and insurance industry did not see a major spike in layoffs during the pandemic, and layoff rates remained subdued in the postpandemic period. Layoff rates were high during the pandemic in professional and business services and information services, although they didn’t match the private industry peak—not a surprising finding given that the layoff rates in accommodation and food services peaked at 33.4% in March 2020. Layoff rates in professional and business services continue to be above the private industry average in both the pre- and postpandemic periods, while the layoff rate for information services continues to track the private industry average, with the exception of the last few months where it has shown an uptick.

Taken together, the data paints a mixed picture. There has definitely been softening in information services, with employment contracting, job openings back to their prepandemic rates, quit rates low, and layoffs starting to rise (although the increase has been modest). Employment in finance and insurance remains stable, with no major movement in job opening, quit, or layoff rates. Professional and business services is the only one of the three industries where employment continues to grow and the job opening rate, although declining, remains high. Both the quit rate and the layoff rate are also relatively high. This combination makes it likely that establishments in professional and business services are undergoing a shift in business focus. With employment continuing to increase and job openings and quits remaining high overall, it appears layoffs in the economy are occurring to make room for different workers, not necessarily fewer workers.