Tech jobs, which were once in extremely high demand due to seemingly unending growth in the tech industry, are getting increasingly difficult to find. With layoffs in the tech sector showing no signs of abating, artificial intelligence (AI) has been a saving grace for the industry, driving demand among employers.

AI is holding these tech companies and their employees afloat for now but if it turns out to be a bubble, there is no telling what carnage could be wrought by a stock market crash like the dotcom crash in the early 2000s.

Tech Companies Overhired Between 2020 and 2021

The roots of the current meltdown in tech jobs were sown in 2020. Back then, the demand for tech workers spiked as the COVID-19 lockdowns expedited the pace of digital transformation. Tech companies’ revenues rose sharply as many people pivoted towards digital technology – whether it was shopping online instead of in stores, making digital payments, or interacting through Zoom calls.

Back then, companies extrapolated the high growth that they witnessed in 2020 and 2021 and added to their workforce, expecting the growth to continue at a fast pace in the coming years. Thanks to the massive labor shortage in those times, companies overhired workers to ensure that they have ample people in their workforce.

That wasn’t the case as we know now and 2022 was a particularly troublesome year for tech companies. As topline growth sagged, companies came under pressure from shareholders to cut their costs and resorted to mass layoffs.

Leading tech names including Amazon, Alphabet, Meta Platforms, and Microsoft fired thousands of workers which helped them lower their cost base structurally.

Tech Companies Resorted to Mass Layoffs Amid Sagging Growth

Notably, in October 2022, Brad Gerstner of Altimeter wrote an open letter to Meta Platforms’ CEO Mark Zuckerberg, and the company’s board that perhaps best summed up the situation.

In his letter, Gerstner said, “It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people.”

He added, “I would take it a step further and argue that these incredible companies would run even better and more efficiently without the layers and lethargy that comes with this extreme rate of employee expansion.”

Meta eventually shed its workforce by a quarter, which in percentage terms was the highest among Big Tech companies. Stock markets have been more than supportive of tech companies’ cost-cut efforts and sent their shares north on aggressive belt-tightening, with Meta stock nearly tripling last year.

Startup Meltdown Has Also Negatively Impacted Hiring

Another reason why tech jobs dried up over the last couple of years is the implosion of the startup ecosystem. Many high-flying tech startups – both in the listed and private space – have either gone bankrupt or are fighting for survival.

These startups were once competing with Big Tech companies for the limited pool of tech talent but are now facing a slump, in part due to high interest rates that squeezed their funding.

Meanwhile, Gerstner’s observation of Silicon Valley tech companies being grossly overstaffed was quite prophetic as nearly two years after his letter all major tech companies have a bigger revenue base with a lower headcount.

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Tech Layoffs Seems to Have Bottomed

According to Layoffs.fyi, a useful site that keeps track of tech layoffs, 438 tech companies have laid off 137,500 employees so far this year. However, there are signs that things are bottoming out in the tech job market and data shows that tech layoffs have gradually come down after peaking in Q1 2023 – which was the time when all major tech companies went on a cost-cutting spree after the brutal crash in their shares in the previous year.

That said, there are more tech workers than jobs in the industry for now, shifting the power back into the hands of employers.

Is the Worst Over for Software Jobs?

While the overstaffing situation in the tech industry is much better than it was in 2021, there are several other factors that could impact the hiring environment. These include

  • Macroeconomic slowdown: The US economy has slowed down which is impacting all sectors with tech being no exception.
  • Election uncertainty: There is a lot of uncertainty ahead of the upcoming US presidential elections with Donald Trump and Kamala Harris proposing diametrically opposite policies in several sectors. A lot of companies might wait until the election results to make major hiring decisions
  • AI: A lot of companies have been using AI to replace workers with technology. IBM, for instance, has said that it would pause hiring for the nearly 7,800 roles that can be replaced by AI.
  • Tech companies look to do more with less: After having seen the upward movement in their stock prices following massive layoffs, tech companies are now looking to do more with a smaller number of employees. Companies are looking for workers with a diverse set of talent instead of just core technical skills.

The slump in tech jobs is particularly severe for entry-level jobs where jobs have been quite scarce. Also, tech companies have also cut down on the internships that they offer which is impacting entry-level jobs as many companies insist on having that experience before hiring inexperienced employees.

Is It Still Worth Pursuing a Career in Tech?

While the tech industry is known for its mass layoffs – and these invariably get more media attention than those in other industries – the sector still holds promise in the long term. According to the US Bureau of Labor Statistics (BLS), the median annual wage for employees in the computer and information technology sector was $104,420 in May 2023, twice the median wage for other sectors. Tech jobs are still much better (in terms of pay, benefits, etc.) than in most other industries. It’s just getting harder to land those jobs.

The BLS expects employment in the tech sector to grow much faster than other sectors between 2023 and 2033. “About 356,700 openings are projected each year, on average, in these occupations due to employment growth and the need to replace workers who leave the occupations permanently,” said the BLS in its release.

That said, experts believe that tech employees would need to broaden their skill set to increase their employability. AI is among the skills that are in hot demand as while tech companies have scaled back on spending (and hiring) their purse strings are wide open for AI.

One risk that the tech sector faces is however related to AI as some observers believe that it is now like a bubble – much like the dotcom bubble of the 90s. If AI pessimists are right, the last bastion of the tech job market would also fall making things even worse in the short term.

However, over the long term, tech remains an attractive sector even as it remains debatable how many jobs AI might eat away. Entry-level tech jobs like coding look at the most risk though as companies seek to replace such jobs with AI.