technology era The superstition and overpayment of the giants is over, at least for now. But talent floods the market, and those who are still working are forced to take on all the work—a huge opportunity for savvy recruiters to poach top performers.
Today’s job market is a baffling paradox. Despite record-low unemployment and labor shortages in healthcare and hospitality, the tech industry has seen nonstop layoffs, with 166,044 workers lost in the first quarter of 2023 alone. That’s more than the record total of 161,411 technology company layoffs in 2022.
Most unprecedented of all, these layoffs are hitting software engineers, including top talent at FAANG companies previously considered untouchable. That’s in stark contrast to the 2008 recession, when the U.S. high-tech industry added about 77,000 jobs in the fourth quarter, mostly software development jobs, even as the overall U.S. labor market lost 38,000 jobs.
The start-up funding boom and continued optimism in 2021 has led to a particularly brutal reversal of fortune for engineers. To achieve sustained growth, companies preempt growth with hiring spree that far exceeds their metrics.
But by the summer of 2022, “big resignations” and “quiet exits” have given way to mass layoffs at four of the Big Five — Meta (Facebook), Apple, Amazon, Netflix, and Alphabet (Google), the FAANGs. All but Apple have made deep cuts, including deep cuts to software developers.
SignalFire’s State of Talent report explores the macro picture of the tech space and top talent flow trends to identify practical strategies for winning in today’s recruiting market. Key findings include:
- As post-pandemic layoffs and budget cuts lead to a “big reboot” of pay norms at big tech companies, hiring power is shifting to startups that can no longer overpay to win the best talent
- In the first quarter of 2023, an unprecedented 166,000 jobs were cut from the tech sector, more than in all of 2022, including previously untouchable software engineers.
- Big tech talent flooding the market – 69% of FAANG engineers who were fired or left after May 15, 2022 still had no current job listed as of March 15, 2023.
- 28% of rehired FAANG engineers played a game of grabbing chairs and jumped ship to another tech giant, while 6% went to early-stage startups — an 82% increase from 2021
- Startups can take advantage of this shift in power by recruiting passive talent who have survived layoffs at large tech companies—often loyal top employees who are overworked after their teammates are let go.
- SignalFire uses its Beacon AI engine and recruiting team to help startups find and hire top passive talent.
Mass layoffs and the “Great Reboot”
To explain the sudden explosion in the tech talent market, here’s a timeline of what led to the imbalance between supply and demand for talent.
In the first quarter of 2023 alone, the technology industry has seen uninterrupted layoffs, with a total of 166,044 layoffs. That’s more than the record total of 161,411 technology company layoffs in 2022.
- The 2020 pandemic accelerated the growth of online commerce, collaboration, and entertainment, bringing prosperity to many tech companies in 2021.
- Hiring accelerated in 2021, creating a candidate-centric market, which, combined with the “Great Resignation,” has prompted many companies to use above-market salaries to attract and retain top talent.
- Heading into 2022, the cost of doing business in general has begun to rise steadily as inflation, coupled with the return of in-person activities, disrupts demand for the online services that fueled the pandemic tech’s growth.
- Mid-2022, tech stock valuations and cryptocurrency prices reset.
- Ambitious early hires are a strategic lever to achieve ambitious revenue targets, and when those targets are missed, both public and private companies adjust to reduce capital burn and extend runway.
The upshot: Companies choose to balance the decline in demand for their products and services by reducing their workforce. Notably, top engineers have not been spared either.
In this report, we share a data-based analysis of changes in the talent landscape from May 15, 2022 (when some of the most significant changes start to occur) to March 15, 2023, which captures most of the relevant data , but does not include all activity to date.
We demystify the talent marketplace on behalf of top engineers and the companies where top talent might find a new home. We specifically focused on engineers ranked in the top 25% relative to their peers (calculated by Signalfire’s Beacon AI data platform), which utilizes a proprietary machine learning algorithm we developed to measure the quality of an engineer (whether an individual engineer in a company or collective engineers).
We used data including the Bureau of Labor Statistics and Layoffs are for reference only To capture the point in time of the peak of tech layoffs, stick around long enough to see the outcomes for the groups affected. For more information on our methodology, please see the appendix at the end of the report.
how we got here
The U.S. Bureau of Labor Statistics reported that a record number of U.S. workers resigned during the “Great Resignation” period between January and December 2021, with nearly 47.8 million workers resigning. That’s double the number of people who stayed or were laid off during the Great Recession of 2009 and 2010.
Fundraising grew in speed and size in the years leading up to the implosion. Brochure NVCA Risk Monitoring The report highlights that the number of completed deals (18,521) and investment value ($344.7 billion) peaked in 2021, before falling sharply in 2022, with the number of deals falling for four consecutive quarters. Presumably, investor demand for both early-stage and late-stage investments has declined.
To avoid a round of downturns—or possibly due to a complete lack of new available capital—companies began to focus on growing their runway by reducing capital burn. Headcount and salaries are almost always the largest items in a company’s budget. Many companies use capital to hire ahead of expected revenue growth, only to miss revenue targets. They are suddenly in an unsustainable predicament due to increased wages.
As shown in the figure below, compared with 2020, the number of layoffs in the technology industry will almost double in 2022; the first quarter of 2023 has just passed, and this year is already another record-breaking year for layoffs.
Over the past decade, FAANG companies have been viewed as safe choices for job seekers, known for their generous compensation packages and high job security. Starting in summer 2022, hiring freezes and layoffs will bring a new reality.