The ability to look at a singular data point (or small number of data points) -- particularly on topics with emotional or social ramifications -- and not lose sight of the bigger picture is one of Matt's best skills. It also drives some of his critics crazy.

Expand full comment

i'm excited for burrito season

Expand full comment

> Meanwhile, the tech companies doing widely covered layoffs are still employing more people than in the recent past.

This is the key point for us to keep in mind when considering these recent tech layoffs. In my opinion, this is just a correction to the extreme hiring binge of these tech companies during the pandemic. There was a massive increase in the demand for tech services and they hired aggressively to capture that.

There was also a hope that the changes in consumer and business behavior during the pandemic would lead to a permanent structural change in the economy. For example, consumers would continue to use online shopping at a much higher rate than pre-pandemic. Similarly, remote work would stick and businesses would need substantially more digital collaboration tools like Slack and Zoom.

This hope was dashed as tech usage normalized a fair bit in 2022. At most it appears that the pandemic pulled forward some growth. Eg, streaming usage exploded initially but is now growing slower than pre-pandemic such that it appears to be reverting to the projected trajectory of 2019.

Tech companies are recognizing the reality of tech usage and adjusting their business plans and staffing accordingly. Yet the economic impact and employee count of these firms still exceed pre-pandemic levels.

(If this comment looks familiar to anyone, it’s because I’m largely copying my earlier comment on this topic when Noah Smith covered these tech layoffs a week ago, https://noahpinion.substack.com/p/the-big-tech-layoffs-are-a-turning/comment/12137020)

Expand full comment

One thing I'll add here is that the digital tech sector more broadly isn't even shedding employees yet—the latest numbers show employment in software publishers, data processors/hosting, and internet publishing/broadcasting/web search portals all at essentially record highs still. Right now it's mostly a story about lower net compensation in the industry and falling job counts at a few companies. https://twitter.com/JosephPolitano/status/1620041573735202818

Expand full comment

With the news of these layoffs, I keep thinking about the convo I had here in these comments a few months ago with someone (apologies, I can’t remember who) who insisted it was totally normal and fine for his buddies to make 6 figures in tech for 2 hours of work a week. It just doesn’t pencil out.

Expand full comment
Jan 30·edited Jan 30

I work in State IT, and agencies are having a very hard time hiring qualified technical and Project Management staff. Sure, working in Sacramento -- or Harrisburg or Albany -- for state government is not as exciting, cutting edge, or high-paying as working in SF or NY for a start-up, but it is work that will pay more than enough to live comfortably.

Expand full comment

One lovely little nugget of Trump's tax cut bill was a change to 26USCs174(c), which describes how you can amortize R&D expenditure, including engineering salaries. Its repeal was (and still is) widely and bipartisan-ly expected, but when the clock struck midnight on 1/1/23, lots of software companies (my employer included) acquired an exciting new tax liability for the year 2022. For us, this was very roughly 5-10% of what we spend on total salary.

This number seems not coincidental.

Here's a short CRS writeup, so I'm not #bias: https://crsreports.congress.gov/product/pdf/IN/IN11887

Expand full comment

> A boom in startups and an expansion of technical talent outside the “tech” sector, meanwhile, would lay the foundations for a stronger economy over the long run.

I agree that this normalization of the tech labor market will be good for the economy as a whole, and I further believe it will benefit the tech industry in the long term. I say this as a software engineer who has benefited from the extremely tight labor market and will likely face slower compensation growth and fewer competing employment opportunities due to the correction.

Entrepreneurs and startup engineers on forums like Hacker News have long complained about FAANG firms hoarding talent with their high salaries and ever increasing stock prices (a good portion of senior tech worker comp is in stock that vests over four years.) While it’s easy to dismiss these “woe is me” complaints from startup execs and venture capitalists, this fierce tech labor competition almost certainly suppressed the formation and growth of startups. We can see this in the continued dominance of incumbent tech firms and the lack of competition from rising startups.

Ultimately, tech needs the creative destruction process of disruptive new startups to advance. It will be good in the long term (possibly even medium term) for tech workers to take a slight bit of pain in order for some of us to found or join new startups. While most of the new ventures will fail, the survivors will offer radically new products and create even more impactful (and lucrative) employment opportunities.

The timing is great with the current excitement around recent AI advances. While there is a lot of wishcasting and overall BS with many of the prognostications of how AI will revolutionize the world, there certainly appears to be some real potential for radically new tech products. The hype will drive a lot of experimentation across a plethora of new startups. Most will fail and if any succeed they will change the world in ways that we can’t really predict.

Further, I also think that the tightening of financial conditions and the resulting correction in tech firm valuations will actually be beneficial to these startups. While many are bemoaning the pullback in tech investment and the increased challenges in raising venture capital, I think we need this correction; similar to how we need the tech labor market normalization. There was previously too much money chasing too few opportunities and this led to numerous bad investments. Eg, the countless crypto ponzis. The return of VC investment discipline will focus capital on discerning more promising opportunities and force entrepreneurs to be more efficient in how they deploy these funds.

Overall, as a tech worker, I’m quite excited for these corrections, even if I might face a slight bit of pain in the short term.

Expand full comment

I feel like a big part of the coverage of these layoffs - more so in tech than in media - is that it's bursting a perception that jobs in tech are eternally secure, upwardly mobile, and highly prestigious. While this was probably never totally true, the average person looking at the tech industry since the mid 2000s probably felt those people had made it. They were paid far above media income and often had generous stock options in a market that only kept going up from companies that only kept going up even more. If you got a job a Google or Facebook or whatever, then there was this sense from the outside that no matter what, you were an in-demand smart person who's going to always have employment in a big company like that.

To put it differently, big corporate-style layoffs were not supposed to happen to *these people* because they were society's meritocratic winners. I know it gets laughed at now, but "learn to code" was earnest advice for most normies. There's a reason town after town attempted to create a Silicon Bayou, Alley, or Holler.

There's also a similar cadre of people posting on social media and in substack comments who have been laid off and feel aggrieved because they also believed that learning to code was somehow going to make them immune to market forces.

But hey, they could always become a cop. We need a larger, more educated police force. Perhaps this is a great time for Matt to create Police for America?

Expand full comment

“given that the labor market probably needs to get less strong for the Fed to achieve its target of 2% inflation”

Why should the target be 2%? Not only would it be nice to avoid a recession, slightly higher inflation (eg 3%) has real benefits:

1) inflation makes it easier for firms to nudge out inefficient workers by not giving them raises. pay cuts are so contentious they are rare.

2) it decreases the real value of the national debt

3) it shoves it to bond holders who try to collect rents without assuming risk

4) it encourages people to put capital into real estate and equities, the value of which tends to increase with inflation

A bit of inflation makes the dead hand of the past lighter. It prioritizes present economic activity over the economic achievements of one’s ancestors. It also seems to correlate with decreases in inequality.

Expand full comment

Do a shot, everyone. Matt mentioned Chipotle

Expand full comment

"I can’t guarantee that the economy will be all flowers and sweets across the course of 2023."

"flowers and sweets"?

That sounds like it crawled out of the uncanny valley of English idioms. Don't we usually say something like that, but not that?

Expand full comment

Good sense as usual. For me, your most provocative point is the way that the media focus on its own experience (in this case, layoffs) leads to systematic distortions of perceived reality.

Expand full comment

I am actively hiring software engineers and other related positions. There has been absolutely zero downward pressure on salaries despite the recent layoffs at the tech giants. The big picture remains incredibly robust for people with these job skills.

Expand full comment

I’ll be interested to see if big tech compensation comes down enough that other employers (government, non-tech, etc) actually match it. I doubt it.

I’ve been baffled for years about how/why tech company salaries are so much higher. I wish the government would pay competitively so we’d have top people working on the most important stuff. (Which is more important, Google search ads or the unemployment system? According to the job market, Google ads, and it’s not close)

Expand full comment

Not the main point, but why are Netflix and SalesForce tech companies? I used to find it interesting that Dell was a tech company but Ford Motor was not, even though both mainly assembled something from parts they bought. Ford recently had a patent issue called "Methods of non-destructive residual stress measurement using barkhausen noise and use of such methods." I have no clue what "barkhausen noise" is, but it sounds like advanced mechanical engineering.

Expand full comment