It seems like a new tech layoff is announced every day. Some companies have done two or three layoff rounds in the last 12 months. As someone with admittedly too much free time, I can’t help but pay attention to events and ask myself if they are business as usual, or if they represent something new. Well, this is probably something new. Let’s not stick our heads in the sand and assume things will continue as they always have, and instead look directly at some facts:
In July 2018 Congress passed the Tax Cuts and Jobs Act, which changed how businesses are taxed. Before this bill, software developers, as long as they were engaged in “research & development” (which apparently has a wide definition), were actually a tax credit to companies. You employed a software developer (doing R&D) for $100k? Cool. You would cut your tax bill by $100k. That was huge. (But it makes sense, it encourages investment in new technology). But with this change, that tax credit gets spread over 5 years. This had two effects, one immediate, one going forward.
The first effect was, tech companies were hit by a large tax bill, as they suddenly shifted from getting 100% credit to only 20% credit. Note that this tax change didn’t get much news coverage when it was passed, and people who did discuss it acted as though it was a mistake and - surely - the government would realize it’s a mistake and repeal it before the tax deadline. And so many companies were unprepared for or even blindsided by a much higher 2023 tax bill than they expected (in some cases, 50%+). This probably contributed to some recent layoffs.
The second effect is that companies will have to put a greater emphasis on profitability. Startups, famously un-profitable as a competitive strategy, will try to get around this in two ways: By remaining in stealth mode for longer to try to secure revenue streams before attempting to scale (a reversion of the startup strategy thus far), and by taking on larger investment earlier (but investors will be choosier who they invest in).
Ultimately, this is a huge shake-up in the tech industry and I think it will take at least 4 years for the industry to reach any kind of equilibrium again. Personally, I’m thinking of becoming a farmer.