Over the past year, tech companies have laid off employees by the thousands. In 2022 alone, over 150,000 people were cut from tech companies, including Meta, Amazon, Netflix, and Google. To put that in context, during the COVID-19 shutdown from March to December 2020, 80,000 tech workers were laid off. Unfortunately, medtech seems to be following much of the same trend with nearly 100 companies laying off a total of 11,119 employees in 2022, according to Layoffs.fyi, a website that tracks layoffs from media reports and company releases.
In November 2022 alone, Pear Therapeutics, Invitae, Illumina, and Sema4 all announced sizable employee cuts, and, now in 2023, reports of company lay-off’s seem to be only ramping up.
In January, Philips announced it was eliminating about 6,000 jobs to simplify its operating model in the wake of its massive multi-year long recall which knocked off 70% of the company’s market value. Additionally, Verily came under the microscope that same month after cutting about 15% of its staff using a company-wide email.
This month, Venus Concept reported a 18% cut to its workforce, Baxter shed nearly 5% in a “cost-saving measure,” and Vicarious Surgical trimmed 14% in what it said was a “calculated risk.”
But the question remains, with the influx of revenue driven to tech companies during the trenches of the pandemic and still now, why are mass layoff’s happening?
In answer, the experts are split.
In late 2020 through 2021, many tech companies went on a hiring spree as people increasingly turning to technology in their daily lives, including telemedicine, Zoom, and other remote medical services. Additionally, through increased flexibility from the FDA and federal government, these companies were able to raise capital and invest in growth. However, both trends reversed in 2022 and, along with companies realizing they over-hired in recent years, layoffs are now being blamed on a period of slowing growth in the industry, higher interest rates to battle ongoing inflation leading to decreased consumer spending, and recession fears.
The Verge reported that according to Michael Cusumano, the deputy dean at the MIT Sloan School of Management, when an investor reads an earnings statement, the tens or hundreds of billions of dollars sitting in a company’s reserves aren’t what they’re thinking about. Instead, a measure an investor uses to determine a tech companies’ investment value is revenue per employee — and because of the over-hiring during the pandemic, revenue per employee has gone down.
Discussing the recent influx of cuts with NerdWallet, Roger Lee, creator of Layoffs.fyi, voiced that, in his opinion, the only solution to stop the layoff trend will be a slowdown of inflation. “Tech layoffs will stop when, and only when, it becomes clearer that the Fed[sic] is able to slow down inflation,” he said.
But not everyone agrees when trying to find a rhyme or reason to these tech specific layoffs. According to Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business, it’s all a result of “social contagion.” He reasons that when a few tech firms decide to lay off staff, others follow suit, creating an ongoing line of copycat behavior.
“The tech industry layoffs are basically an instance of social contagion, in which companies imitate what others are doing,” he said in an interview with Stanford News. “If you look for reasons for why companies do layoffs, the reason is that everybody else is doing it. Layoffs are the result of imitative behavior and are not particularly evidence-based… [but] everybody is doing layoffs and their board is asking why they aren’t doing layoffs also.”
He continued that while there are signs of the tech bubble bursting and companies preparing for a recession, it’s not why employees are getting the short end of the stick. “Could there be a tech recession? Yes. Was there a bubble in valuations? Absolutely. Did Meta overhire? Probably,” he said. “But is that why they are laying people off? Of course not. Meta has plenty of money. These companies are all making money. They are doing it because other companies are doing it.”
Pfeffer also noted that layoffs sometimes do the opposite of cutting costs for companies and, instead, hurt profitability. Some laid-off employees end up being rehired as contractors at higher prices, severance packages need to be paid to those let go, layoffs often don’t increase stock prices because implementing such measures signal that a company is having difficulty, and the employees that remain slip in productivity.
“Oftentimes, companies don’t have a cost problem,” Pfeffer told The Verge. “They have a revenue problem. And cutting employees will not increase your revenue. It will probably decrease it.”
However, one industries loss can be another’s gain.
While the tech industry, including medtech, is experiencing mass layoffs, the medical manufacturing space continues to have an employee shortage. But due to the layoffs in the tech industry, manufacturing is taking full advantage of all the newly unemployed and highly-trained applicants by filling many of the their long-open roles.
“One of the plusses is, at least in January, we started seeing the applicants in our factories go up and that’s because of layoffs that may be occurring in other industries,” said Andrew Gaillard, the global director of Trelleborg’s healthcare & medical segment for strategy, manufacturing, and drug combo devices, to MD+DI.
While these hires are helping, it’s unfortunately only a band aid to the larger issue of chronic labor shortages in manufacturing that stem back decades and are now hitting a breaking point.
Starting in the 1960’s, the federal government began to push a college first agenda, turning the trend away from vocational and technical training. Even now in 2023, the federal government spends far more on college prep than it does on vocational training.
Even when vocational training is pursued, the starting wage often isn’t great. Though manufacturers have raised their minimum wage to at least $15 per hour, according to IndustryWeek, those same entry-level workers could be getting $22 per hour at Amazon or $15 per hour at fast-food restaurants. Additionally, the problem was further complicated when in February 2022 manufacturing quits hit 337,000 — 2.7% of the manufacturing workforce.
Additional problems come in the shape of cracks forming in multinational corporation outsourcing models and supply chain constraints which have been exacerbated by the war in Ukraine, and China’s zero-COVID policy. This is resulting in reshoring efforts from China back to the United States. Reshoring Initiative reported that in 2021 around 224,000 manufacturing jobs were reshored. But who is going to fill all of these new reshored positions when vocational training rates are low, there’s less skilled labor, and salary expectation are higher.
Ongoing training on the job is a sore spot. To reshore production, corporations need workers with the same skills as those who are retiring, but, for the most part, those skills were gained over 25 to 30 years and companies need to make a serious investment in advanced hands-on training before there’s no one else left.
To turn the tide, Michael Collins from IndustryWeek recommends company’s directly address the problem of outsourcing and job security so that potential employees change their view of manufacturing as an unstable industry. Manufacturers also need to publicly commit to long-term job training and paid internship opportunities to have replacements for the highly skilled workers retiring from the industry. Also necessary is the willingness to match starting salaries with other entry-level positions in other industries to get more entry level employees in manufacturing.