I'll keep saying it everytime: don't call it "overhiring". This was intentional and layoffs are a feature, not a consequence. Moreover, look at the hiring numbers in earnings calls. These companies did not slow down hiring. They slowed down hiring in North America. THey clearly didn't "overhire", they want to cheap out on wages and use AI as the scapegoat to impress shareholders.
This is a naive explanation. Tech companies increased headcount by more than 2x since 2018. Was this intentional? Did they intentionally double the headcount? To what gain?
Why would they deliberately give up their profits by doubling headcount just to layoff around 10% in aggregate? They still have to pay the rest 90%… so they just did that so that the 10% could be laid off?
> Was this intentional? Did they intentionally double the headcount?
Yes
>To what gain?
- reporting explosive growth
- launching a lot of initiatives, of which more than half of are probably shelved c. 2025. Seriously, peek into any company and see all the odd products they were announcing back then.
- to gain more of a global foothold. If you want to operate in a new country, you'll need to hire a lot of staff to manage compliance, run offices, work with local companies, etc.
- to have a lot of bodies to throw at a problem should they need it. Since hiring was basically "free" is was convinent to have talent on hold just in case.
- to poach, be it from competitors or from potential future competition. There's been reports of skilled hires who'd proceed to be on standby for quite a while. But paid very well. That's not something you do normally.
>Why would they deliberately give up their profits by doubling headcount just to layoff around 10% in aggregate?
That's the oversimplification of S174. They weren't losing much revenue because those labor costs would be balanced out from the taxes they didn't have to pay. It just cancels out.
Layoffs started quick once that ended. Remeber, they don't see layoffs as a "bad thing" as a business. The stock even bumps up a tiny bit back on 2022/2023 over layoff news. Something about "being responsible" or some drek.
S174 will be back next year, but I think there's multiple other issues that mean the market won't quickly bounce back.
So the companies reacted rationally to the tax laws? Seems like a much better way to put rather than “use AI as a scapegoat” which is not substantiated.
There were a lot of things in 2022 happening all at once, so while S178 is a highly underreported issue in the tech sector,it wasn't the only catalyst.
Fed rates increased, ad yields plummeted, and a cooling off of the COVID tech boom meant that companies quickly left "growth mode". The transition to maintenance mode also caused a new wave of outsourcing to cut the cost of "no longer free money" North American devs.
That's why hiring actually isn't down as much in earning calls. They are still hiring, just not from here.
