Layoffs, recessions & what's fuelling the global economic crisis
Written on December 6th, 2022 by {"login"=>"jcbphc21", "email"=>"f20181005@hyderabad.bits-pilani.ac.in", "display_name"=>"Journal Club, BPHC", "first_name"=>"Journal Club", "last_name"=>"BPHC"}“Twitter slashes nearly half its workforce as Musk admits ‘massive drop’ in revenue”- The Guardian.
“Meta Lays Off More Than 11,000 Employees”- The New York Times
“Massive spike in unemployment coming soon; layoffs in America hit over 120,000”-The Economic Times
The above headlines are from reputed news agencies covering the massive layoffs in multi-national tech companies such as Twitter, Instagram, and Meta, and many others. This trend has also been reported in around 44 start-ups in India, including educational tech start-ups that are unicorns, such as BYJU’S and Unacademy. People are being fired at an unprecedented rate as companies face enormous losses in revenue and shuffle to cover the losses. Some reports call this a bubble burst of the tech sector, while others consider it the saturation of the tech industry. But the reason for these massive layoffs isn’t that simple, and in this article, we will try to find the reason behind these layoffs and take a deeper dive into the topic of the ongoing global economic crisis.
In the press release issued on 8th June 2020 by the World Bank, it stated, “COVID-19 to Plunge Global Economy into Worst Recession since World War II”. It seems that they were correct in their predictions about the world economy.
In a report by the IMF, global growth is expected to be 3.2% in 2022 compared to 6% in 2021 and even worse in 2023, at 2.7%. This growth profile is the weakest since 2001, excluding the global financial crisis and the COVID-19 pandemic. Global inflation is expected to be 8.8% in 2022, crossing 4.7% in 2021, but according to the forecast, it will lower to 6.5% in 2023 and then 4.1 % in 2024.
The growth rate in advanced and emerging economies is low, and the global inflation rate is increasing due to a hike in food and energy prices. The bread basket of Europe, Ukraine, is engulfed in military conflict with ex-OPEC+ member Russia, since March 2022. Consequently, the Russia-Ukraine War has turned into a significant contributor to global inflation. The supply of wheat and other grains has reduced, and the oil-producing countries have lowered production to increase crude oil prices. According to a Business Standard article, oil prices may go up to 110 dollars per barrel in 2023.
Central banks worldwide have been raising interest rates this year with a degree of synchronicity not seen over the past five decades—a trend that is likely to continue well into next year, according to a World bank report.
“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences devastating for people in emerging markets and developing economies,” said World Bank Group President David Malpass.
According to him, policymakers of the countries should focus on boosting production rather than reducing consumption. The capital allocation should be improved and focus on generating additional investments, which are critical in growth and poverty reduction.
These are some of the reasons for the unstable global economy affecting different industries and sectors worldwide. The tech industry broadly has seen a string of layoffs in 2022 in the face of uncertain economic conditions. An additional factor in the tech sector is the policy amendment in Apple’s privacy policy, due to which the targeted ad business of social media and other companies has been hurt.
Facebook’s parent company, META, fired around 11,000 employees, stating the reason for the over-estimation of growth after the pandemic and under-performance of other avenues of the company, such as the company’s Reality Labs division which has lost $9.4 billion so far in this year due to CEO Mark Zuckerberg’s commitment to the metaverse.
Shortly after closing his $44 billion purchase of Twitter late last month, Musk cut around 3,700 Twitter employees; Musk said the layoffs come as Twitter loses over $4 million daily. In the second quarter, the last time Twitter reported earnings, revenue fell 1% from a year earlier. The list of companies cutting off jobs continues with big names such as Amazon, Netflix, Snapchat, Coinbase, etc.
These events will lead to problems for both individuals and authorities as it will lead to an increase in unemployment rates, and this unemployment will cause stress and anxiety, taking a toll on the mental health of the workforce. Other disadvantages of layoffs or downsizing in an organization include reduced skilled workers and low morale, as the employees experience mixed emotions, dismay, stress, guilt, or envy. Governments will also face problems as people may organize protests and marches on a large scale. An increase in crime rates is observed as the unemployment rate increases.
There’s no light at the end of the tunnel, as the predictions suggest further worsening of the world economy. More people may lose their jobs as the companies keep reducing operating costs, but hopes are alive in the creative and digital marketing industry.