While the tech sector continues to grow and evolve (more about this below), the start of 2024 is a time marked by a series of layoffs in various IT companies around the world. With one of the most significant - one of the tech giants SAP announcing its restructuring plan regarding 8000 employees.
But what got me off guard the most, and made me wonder about the reasons behind the return of this trend, were the mass layoffs that recently took place in our home city of Krakow. Company called Aptiv overnight laid off 250 people in a manner that is considered by many to be condemnable. Apparently employees were given notice by email and via MS Teams and an hour to pack up their belongings.
This occurrence, though not unprecedented, raises questions about the reason for this phenomenon and its potential impact on the technology sector.
The aim of this article is to explore the causes of layoffs in the first quarter of 2024, understand the impact of these shifts on the IT industry, and to identify trends that could influence this likely sequence of events. We will do this by analysing data gathered from various sources and sharing expert and industry predictions.
Tech sector continues to grow
Technology industry is persistently expanding and transforming. This is visible for example on the stock market - 7 technology companies are driving the whole market.
It is driven by the continuous development of technology itself, characterised by the introduction of new and improved hardware, software, and services. Moreover, fresh ideas, breakthroughs in technical research, innovative applications of existing technologies, and changes in IT policies or pointed market demands all contribute to this growth and evolution.
Noteworthy facets of this evolution also include digital transformation, cloud computing, quantum computing, big data, artificial intelligence (AI), machine learning, and cybersecurity trends, which continuously shape the industry landscape. Ultimately, the tech industry is marked by constant change and trend-based growth, which demands an adaptable business environment and flexible workforce.
Causes of IT industry layoffs in Q1 2024
While layoffs are part of normal business life, especially in a dynamic industry like technology, the layoffs at the start of 2024 appear to be unusually high. A number of factors contribute to this situation.
Automation and AI
The first and most obvious factor is the rise in automation. This is presumably one of the most important factors at present, so it is worth taking a closer look at it.
Artificial intelligence and robots increasingly replace humans in many aspects of work, also in creating and testing software, leading to layoffs. In 2023 this trend was at its peak, but it seems to be back in 2024 as many companies are introducing these technologies just now.
It is important to note that the introduction of new technologies has always been associated with huge changes in the economy and perhaps the most famous economist to write about this was Frédéric Bastiat. In his works, he wrote more than 100 years ago that the introduction of machinery contributes to increased productivity in production, which in turn leads to significant changes in the labour market.
Bastiat believed that, initially, the introduction of machinery could provoke fear and resistance because people feared losing their jobs. Indeed, mechanisation may lead to job losses in some sectors. But Bastiat argued that this change is temporary and is necessary for long-term economic development.
Rather than seeing machines as a threat, Bastiat saw them as tools that could increase production and innovate. In his view, machines transform work rather than eliminate it. They allow people to focus on more complex, less routine tasks, which increases their productivity.
In the long term, Bastiat believed that machines are becoming the standard and are an indispensable part of the modern economy. This is an irreversible process that leads to continuous technological and economic progress.
He also believed that the government should not interfere in this process, as this could inhibit innovation and economic freedom. For Bastiat, the free market was the best regulator that could adapt to these changes and ensure a balance between production and demand.
Looking at the AI revolution through the lens of the changes described by Bastiat is not to be feared, but rather to be observed and reacted to as changes occur. It also means that significant opportunities are arising at the same time, and those who are able to exploit them will build on this to create long-term competitive advantage.
Economic Crisis - Schrodinger's recession
Another significant factor likely contributing to the number of layoffs in the IT industry at the start of 2024 is the ongoing economic crisis and the recession that is long awaited, but has not yet materialised in full. It impacts most sectors of the economy, and the tech sector (expect the magnificent 7) is not an exception. Companies are being forced to cut costs, which is likely resulting in layoffs.
Change in Business Strategies
Additionally, tech companies constantly shift their business strategies to adapt to the changing market. This often means that some roles become less relevant or obsolete, resulting in layoffs. On the other hand it will ofcourse lead to creation of new roles like:
Prompt Engineer
AI Trainer And Operator
AI-Generated Work Auditor
AI Integration Specialist
etc
Consequences of layoffs for the IT sector
Layoffs in the tech sector can have several long-term implications. Let's discuss a few of them.
Shift in Job Market Dynamics
Layoffs in tech lead to an increased number of job seekers. As a result, the job market in the IT sector becomes more competitive. On the one hand, this could mean a wider pool of candidates for companies to recruit from, and thus decrease in engineers hourly rates. On the other hand, for employees, it means more competition and potential difficulties in finding tech jobs or need for reskilling.
Accelerated Investment in Automation
Layoffs could lead to accelerated investment in automation. Companies that are laying off workers might be looking for ways to maintain productivity without increasing employment. This could lead to greater pressure to develop and implement technologies that can replace the workers.
Increase in Remote Opportunities
Lastly, layoffs could accelerate the trend towards remote work. Many IT workers, whether laid off or in search of new employment, may prefer remote work as a more flexible and convenient option.
Predictions for the Remaining Three Quarters of 2024
Based on current trends and industry expert opinions, we can formulate several predictions about what the rest of 2024 may hold for the tech sector.
Increase in Tech Sector Employment
After the initial wave of layoffs, the tech sector is likely to experience a rebound in employment. Many companies might start hiring for new roles that align more with their changed business strategy. Furthermore, the employment levels could rise as companies attempt to rebuild their teams after the layoffs.
Surge in Tech Investments
The start of 2024 shows that companies are willing to make bigger investments in technologies like AI and automation to increase efficiency and reduce reliance on the workforce. This trend is only expected to grow.
Rising Demands for "one-man army" IT specialists
One likely consequence of layoffs is a growing demand for IT specialists, especially those who possess the skills necessary to work with new technologies and those who can work with whole technology stack and understand the business side as well. Given these technologies' growing importance, companies are likely to competitively attract and hire particular specialists.
Conclusion
While the layoffs in the tech sector at the beginning of 2024 are challenging for many individuals and companies, they also bring about a series of changes and new opportunities.
Companies and workers need to adapt to these changes to thrive in this dynamic environment. From further investments in new technologies to reshaped roles and the possibilities for remote work. These changes are part of the sector's evolution and will likely contribute to its long-term development.
Ultimately, despite the initial difficulties, the future of the tech sector looks promising. New innovations and technologies, a growing demand for digital skills, and the ability to adapt to the dynamic job market are key to the sector's continued development and bear promises of opportunities and success for those ready to face the challenges of the future.
We should react to the changes brought about by the AI revolution, inspired by the insights of Bastiat. There are opportunities emerging that can lead to long-term competitive advantage for those who can take advantage of them.