The Canary in the Coal Mine

Is technology the canary in the jobs coal mine?

So far, 2023 hasn’t been a happy new year for workers in technology.

Actually, the latter part of 2022 wasn’t too great either. As both interest rates and inflation began their upwards march, the global tech giants started trimming the size of their workforce.

Most of the big names began shedding staff. In November, Cisco responded to record revenue results by sacking 5 per cent of its workforce. HP’s declining income saw it go further, warning that 12 per cent of jobs would go within three years.

Amazon put the wind up its workforce of 1.5 million, putting a freeze on hiring new staff, after rumblings in the media about massive job cuts in the wings.

And after taking control of Twitter, Elon Musk wasted no time in sacking half his staff, including the entire leadership team.

Things get serious in 2023

Before most people had even gone back to work, Salesforce announced that one in ten of its staff would be made redundant, a total of 8,000 staff. A day later, Amazon confirmed 18,000 workers would be leaving the company.

Within days, after more job-shedding declarations from some of the world’s largest companies including Meta and Alphabet, bankers joined the party.

Staff at Goldman Sachs were told via Zoom to collect their things and leave the office within 30 minutes. Around 3,200 staff, or 6.5 per cent of the company’s workforce were gone.

In January, most of the big names in technology announced massive layoffs, including Microsoft, Spotify, IBM, PayPal, Dell, and Zoom.

The impact on Australia was minimal, in terms of perception at least. While all the global companies had a presence in Australia, the impact of the job cuts wasn’t enough to raise any eyebrows.

And then, one of Australia’s most successful businesses said it was cutting 500 jobs from its workforce.

Atlassian? Who? What?

Just over a year ago, Atlassian’s market value was around $170 billion. For perspective, the biggest company listed on the ASX is currently BHP, with a market capitalisation of $145 billion.

Yes, Atlassian is an Australian software company. The company’s headquarters are in Sydney, co-founders Mike Cannon-Brookes and Scott Farquhar are Australian, and both have been buying up nearly all of Sydney’s prime waterfront property in recent years. But Atlassian is listed on the NASDAQ, not the ASX. As a result, it doesn’t get the same level of media scrutiny that a large company listed in Australia might.

And of those 500 jobs to be scrapped, only around 120 are in Australia. So, what’s the big deal?

Tech jobs aren’t normal jobs

For decades, kids at school have been encouraged to consider a career in technology, and not without reason. In nearly every developed country, the biggest in-demand jobs are in software and IT.

Tech jobs are also some of the highest-paying, least reliant on geography (unlike a plumber, a software engineer can work from anywhere on the globe) and don’t need skills in any particular language. Look at the CV of the top people in tech, and you’ll see they’ve worked for a number of companies in many different countries.

They tend to be flexible, adaptable, highly employable, and dispensable.

Dispensable? Yes, because they can be quickly re-hired…

Most of the job losses announced in the last year have been in response to deteriorating global economic conditions. When revenue is threated, the first thing bean-counters will do is look for ways for save money.

But there is a limit to how much you can haggle over your rent, defer outstanding loan repayments or save on your energy bill. A simple fix is to cut the head count. And if labour is your biggest expense, like it is for most technology companies, the solution can be straightforward. Reduce the headcount now; hire them back when things improve.

That can result in an instant improvement in the bottom line, which tends to make investors and market analysts happy. And because many technology jobs involve working on projects to enhance future profitability (sometimes many years in the future), it’s easier to disguise some of the financial impacts.

Is tech the canary in the jobs coalmine?

Most businesses don’t have the ability to make savage workforce cuts without impacting their ability to produce goods and services. As an example, a bakery can’t sack half its workforce without major disruptions to production of bread.

But many businesses are facing the same economic pressures as those in technology. So far, most are concerned about staffing shortages, rather than planning a round of redundancies.

But if economic conditions continue to worsen, there’s a good chance business across the board will be looking to cut staff.

With the likelihood of a global recession increasing by the day, the scale of job losses we’ve seen in the last few months could be just the beginning.

And although Australia’s job market is still resilient, we won’t be immune from the impacts of a worldwide slowdown.

This article contains factual information only and is not intended to be general or personal financial advice, and is for educational purposes only.