There Won't Be a Tech Recession Next Year. Stop Worrying, You're Safe.
Updated: Nov 10, 2022
I saw this tweet today from the Pragmatic Engineer, Gergely Orosz, saying he saw a tech recession playing out.
The tweet, of course, is about the layoffs announced at Twitter and related layoffs and hiring freezes.
But these freezes and layoffs all seem to have one thing in common: Silicon Valley.
If you take nothing else away from this blog, take this: Silicon Valley is not synonymous with the tech industry. People insisting this are playing into a racist, sexist and classist narrative that ends up putting the very people in power that end up destroying places like Twitter.
To find out how: read on.
Was There a Tech Recession in 2022? No: There Was Ample Tech Hiring
These recession fears seem so at hand because we just went through this same conversation earlier this year. Rumors of tech having layoffs and hiring freezes – a tightening job market. Should we have been worried?
Apparently not, as despite all the warnings, much of FAANG went on to hire just as many, if not more than they had planned to initially. The tightening job market never came. Tech unemployment dipped in September to a new low of 2.1%.
Last month, we added more jobs than anticipated to the economy. Are we really to believe tech’s fortunes changed in the previous two or three weeks? Not just into recession but a job market “as bad as 2008.”
How Dismal Was the 2008 Tech Job Market? Not Very.
We should prepare ourselves for job growth. Tech had already recovered from the 2008 financial pop by 2009. The highest unemployment rate software and related professions ever saw was a paltry 5.4%.
It wasn’t that rocky a year earlier, either, with tech only losing jobs in the fourth quarter – and far less, proportionally, than the rest of the economy. Note, though, 2008 also had a lot of “hiring freezes” in Silicon Valley. So that may skew people’s memories that only focus on that one geographical area for some reason.
Why do we keep hearing about these layoffs, then?
Actually, a Typical Layoff Rate for Tech Jobs
Again, we should stop staring at Silicon Valley for a second and look at the broader trends. In that case, we’ll see that we just have a typical layoff rate. Silicon Valley is particularly sensitive to interest rates, not only due to what some of the firms do – Lyft and cars, for example – but because of its weird location.
It’s a costly place to buy a house, which makes the labor force there particularly expensive and sensitive to interest rates. This housing cost can cause wide swings in hiring because they refuse to build more affordable housing.
The layoff rate isn’t even that high if you look at VC-backed firms.
One reason is, despite the job losses, more talent is exiting the pool over time due to boomer retirements. And we need to remember something that I doubt you’ll find in a CNBC headline: More than one million people just died from a pandemic, and hundreds of thousands are now rendered disabled. That’s going to shrink the labor pool.
(Maybe those firms shouldn’t have insisted on keeping their offices open while their employees died if they wanted cheaper labor, but oh well!)
Sure, there’s some scaling back, but remember that they over-hired last quarter. They wanted to institute freezes earlier in 2022, said they would, and then ended up hiring anyway.
Note: many of these layoffs are coming from the continued unraveling of the crypto hype. That shouldn’t surprise anyone who wasn’t convinced to spend millions on a picture of a monkey.
So it’s not widespread, and many of these point causes (interest rates, crypto) seem obvious when you look at them. Is there another driver for these specific layoffs?
Toxic Leadership Causes Tech Layoffs
Outside of interest rate-related sectors and crypto, there’s another telling pattern: bad leadership.
That’s the headline number that’s probably got you concerned – massive layoffs at Twitter as well as layoffs at Facebook.
Google and Amazon, for instance, have only intimated hiring freezes. The layoffs seem to be at companies that are being run into the ground.
Twitter was a bad purchase for Musk, and he has yet to learn what he’s doing. Meta’s weird bet on VR was a terrible choice from the beginning and has caused them to under-invest in actual revenue-generating projects. This bad leadership is hurting people.
Why does it feel like there is a tech recession, then?
The Media Myopically Focuses on Silicon Valley and the Cult Surrounding It
The best talent is in Silicon Valley
The best companies are in Silicon Valley, and
The best leaders run companies in Silicon Valley
We have zero evidence any of these things is valid outside of people from Silicon Valley (or those obsessed with it) telling us so. It gets even worse when you focus on FAANG, which is – a reminder to everyone – a stock designation made up by Jim Cramer. They have no claim to good company culture, reasonable compensation, or exemplary leadership. We just all believe they do.
This worship of Silicon Valley is damaging. How?
Silicon Valley is Racist and Sexist
These companies struggle to hire and retain people of color. They can bemoan a “pipeline problem” all they want, but if your firm is just Stanford grads hiring other Stanford grads, well, you’re going to have a diversity issue. We also need to acknowledge that Silicon Valley’s “mystique” plays a significant role in the culture of high school and college computer science programs.
They aren’t providing leadership on what “talent” looks like; thus, their followers – students in these undergrad programs – end up following what Silicon Valley says talent looks like.
They’ve struggled to hire and retain women as well. Again, I want to emphasize that “sourcing” isn’t their problem because they set the tone for who enters software in the first place. By not making hiring women and people of color their number one priority, they’re reinforcing the very systems they complain about and refusing to acknowledge their huge role in it.
This toxicity all gets worse when you recall that Silicon Valley is an insanely expensive place to live for two reasons:
They originally and intentionally made it that way to keep people of color out
They are keeping it that way to keep people of color out
Worse still is Silicon Valley’s insistence that we all “return to the office,” which would reinforce its expensive housing’s effect on hiring and retaining diverse talent.
Silicon Valley is Classist
Let’s get back to the original tweet. He’s responding to another account, which is also recommending people prepare for layoffs.
Specifically, this account recommends, “Put in more effort at work to reach the top 25% of performance.”
How tone-deaf can you be?
Let’s review. The most significant layoffs in the news right now are due to leaders making predictably bad choices. They’ve made bad choices, and now others will suffer for them.
And yet, apparently, the solution here is for the people most likely to suffer (the employees) to work harder.
Why is it that whether Silicon Valley is growing, shrinking, or staying the same, the solution is for talent to work harder?
No matter what these oligarch leaders do to cause suffering to labor and talent, apparently, it’s on the rest of us to work harder to cover their asses.
This sort of advice just gets repeated in Silicon Valley and FAANG circles. You can see it in Musk fanboys who insist he just works harder than anyone else despite having an Emerald mine.
Stop hustling for oligarchs.
Silicon Valley Caters to Malignant Narcissists
If all of the above didn’t make it clear, let’s spell it out: the hostile and toxic cult of Silicon Valley creates the need for cult leaders. We get these through a string of poisonous leaders we routinely worship until they finally fall out of favor – often leaving a trail of destruction in their wake.
We feed into this narrative when we implicitly buy into the idea that Silicon Valley is tech. We feed the myth that Musk and Zuckerberg are great men, the leaders we’ve been waiting for that will help us get rich and powerful with them if we just hustle.
This hype is equally played out when we assume Silicon Valley companies are the best to work for either from a cultural standpoint or pay, which has never been the case.
There may be a hiring slowdown, but it’s not here yet. And overly panicking about companies you’ve heard of (but don’t work for) who have headwinds you don’t have isn’t going to help. Animal spirits are alive in investing, and folks talk – will there be a recession due to worries of recession? We’ll have to see.
In many cases, the few companies doing layoffs got themselves into this mess by insisting on having co-located staff in a super expensive part of town, making them more sensitive to interest rates and also, well, kinda racist.
Our focus on FAANG and Silicon Valley ends up doing little but supporting the cult and the cult leaders who, again, are not equipped for the job, as we can all see in plain site right now. Cult leaders exist solely to exploit their followers.
I really like Gergely, and he has a lot of good advice. But he’s just as susceptible to mistaking anecdotes for data here. The rumor mill of the companies he works most closely with churns – all out in Silicon Valley. And he, like the rest of us, mistakes this for a broader phenomenon because Silicon Valley is the world to many people.
Silicon Valley’s cult response is, of course, to hustle harder. But we ignore that our worship of this geographical area, of these companies, is a bit circular. These are the best engineers because they insist they are. (Anyone who’s worked in engineering long enough should recognize the folks insisting they’re the best has no correlation with actual talent.) Their leaders are the most visionary because everyone agrees they are, even as they pilot social media into the ground by hitting mistakes most folks saw coming miles away.
What’s the real takeaway? If you’re in tech, you’ll probably be fine. But pay attention to who’s at the helm of your company. Pay attention to who you get your news from on Twitter. Are they part of the cult narrative of Silicon Valley (whether or not they work in the area)? If so, they may be prone to write $44B checks their ass can’t cash – or apologize for those who do. Don’t hustle for people who won’t hustle for you.
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