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From Meta to Twitter, tech firms have different numbers in mind when making layoffs

Autor: Article based upon analysis from Reuters Breakingviews | Link: Tech firms can’t swing the axe equally
Timp de citit: 2 minute

Tech giants are starting to cut staff. Elon Musk, Twitter’s new owner, was firing employees while speaking at an investment conference on Friday morning.

Roughly 3,700 workers were receiving notifications that they had been laid off from the company. That would be half of the social network’s workforce of 7,500.

In the eve of an economic recession, technology companies from Meta Platforms to Snap or Google are all making or planning layoffs, so that payrolls don’t add as much to sliding revenues.

Nevertheless, other industries may argue that mass cuts could hamper innovation, thus development.

Snap plans to chop 20% of its headcount after disappointing results, while Google parent Alphabet wants to keep a lid on costs and is eyeing slashing payrolls.

Meta is preparing to send home thousands of workers this week. Amazon.com has a more conservative approach, putting a stop to hiring.

Cutting numbers should be done very carefully, that’s why measuring productivity could help. The indicator is calculated on how much revenue a company earns per employee.

For instance, each Meta employee represented $1.6 million in revenue last year, against a $776,000 per employee at Twitter in 2018 – the company’s best year.

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With a workforce of 72,000, no wonder Meta increased its revenue 37% last year against 2020, to $118 billion.

That jump could be awarded to increasing its workforce by nearly a quarter. Based on productivity, it seems that Twitter can afford to lose far more employees.

But chopping the workforce could mean fewer new products just as well as saving labor costs. For the tech business, innovation is their lifeblood.

Less employees means less innovation. In the end, it should all translate in less business. Another argument for taking it easy with layoffs is what happened in the airlines industry. Here, roughly 90,000 jobs disappeared in 2020.

When travel rebounded, Delta, American and their rivals were caught flat-footed without enough staff. Also, overpaying junior employees when the market returns has become a bad practice in some industries.

That’s happening in the investment banking business too, notoriously known for its ruthless firing practices.