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26 May, 2024
 

Companies laying off employees to hire new ones at lower salaries

Recruiters say companies are doing this to win back the power they had before the pandemic

Source: Insider

In late 2020, Keri B., a recruiter, was working with a professional-services company that was desperate to hire.

It was so eager, in fact, that the candidate she placed managed to negotiate a starting salary that she said was $20,000 more than their new boss was making. "That was the first time that I was like, 'Wow, this is crazy,'" Keri, whose last name and place of employment are known to Insider, said. "I'm seeing people who are new grads just out of school getting really, really high salaries."

But in the middle of last year, Keri noticed a stark shift. Companies became more "unforgiving" on salaries and less willing to offer leeway on perks like remote work.

"Now the companies that are hiring are taking weeks and months to fill roles and they want to make sure they hire the cheapest person,"

Keri and other recruiters say that candidate offers are now much lower and look more like those from 2019 — before the pandemic kicked off the Great Resignation, before Big Tech went on a hiring spree, and before anyone had heard of "quiet quitting."

Call it the Great Reboot.

"Yes, there is an economic downturn, but I do think there's a lot to be said about companies making strategic decisions to put power back in their hands and put their foot down," Keri said.

Not only are companies lowering salaries for new hires, but the recent layoffs and fear that there might be more to come are also tamping down the power of remaining employees. "Doing all these layoffs and seeing all these layoffs in the news every single day certainly puts a lot of worry in the people that are working," she said.

"Six months ago, if you were a developer, you could ask for anything," Nikita Gupta, a Big Tech recruiter in Seattle and the founder of a job-search company called Careerflow.ai, told Insider. "Companies were closing their eyes and doing whatever they could to get the person hired."

No longer. "Now the companies that are hiring are taking weeks and months to fill roles and they want to make sure they hire the cheapest person," she said. "It's 'take it or leave it.'"

Heather Colvin, who recruits for technical jobs at small- and medium-sized companies around the US, said that the recent tech layoffs might, in part, be a recognition by many larger tech companies that they not only over-hired but that their payrolls were too costly relative to the market.

"Some of these companies were hoarding talent," she told Insider. "And I think some have recognized that they were paying the above-market value for people."

Colvin predicted that there would be "a reset in terms of compensation" not only in pay but also in the incentives that companies offer — "the benefits, sign-on bonuses and equity, and remote work," she told Insider.

Speculation on the 'real reason' tech companies are shedding workers

Some on TikTok and Reddit have posited that the "real reason" tech companies are cutting jobs is to tamp down fat salaries bloated by the Great Resignation.

It might sound like something of a conspiracy theory, but it might not be as outlandish as it seems. Tech companies scrambled to meet demand and went on a hiring binge during the pandemic. Reports show that Amazon and Meta, the parent of Facebook, Instagram, and WhatsApp, both doubled their headcount during that time; Microsoft and Google boosted their employee base by more than half.

The competition for talent, in turn, drove up salaries. At a time when wages were climbing at the fastest pace in decades across the board, tech companies were especially generous to new hires — and even existing employees. Last February, for example, Insider reported that Amazon increased its base-pay cap from $160,000 to $350,000.

The massive layoffs, which reportedly included highly paid managers at Google, could be a way for companies to reset their pay ceilings when they rehire. A year and a half ago, compensation was a "completely different ball game," a former recruiter at Google told Insider.

One telling data point: According to an internal memo obtained by Insider's Eugene Kim, Amazon is only hiring students or new graduates for its entry-level software-developer jobs. Neither the memo nor Amazon's spokesperson clarified why the company believes campus hires are better than experienced candidates, but it's possible Amazon is targeting a younger and cheaper group of workers, as "experienced engineers tend to command a higher salary," Kim reported.

"High-skill" occupations have seen year-over-year wage growth remain at 6% for November and December 2022, according to the Federal Reserve Bank of Atlanta's wage tracker; "low-skill" professions, meanwhile, saw 6.8% wage growth, which swelled in both November and December. Similarly, jobs with wages in the third and fourth quartiles — meaning the top 50% of wages — have seen their pay growth dramatically outpaced by the bottom half.

Proving that tech companies are trying to reset their salary bands would be practically impossible. It's not exactly something companies would readily admit to and the data would be hard to come by. Insider asked Google, Amazon, Meta, and Microsoft for comment. Microsoft did not have anything to share; Meta and Google did not respond.

A spokesperson from Amazon said: "This speculation is entirely false. Role eliminations did not significantly change our overall compensation costs, and, unlike other companies, we are not reducing any employee's pay. We remain committed to our compensation philosophy as a means to attract, retain, and motivate employees."

Aaron Sojourner, a senior researcher at the W.E. Upjohn Institute for Employment Research, said that "certainly, layoffs reduce workers' bargaining power."

With more layoffs, there might be the creation of what's called monopsony power, a term that refers to the power that employers hold over dictating wages and labor-market conditions. Monopsony increases, Sojourner told Insider, when there are fewer substitute jobs for workers to move into — which is what happens when there are layoffs or companies hiring less.

"The days of expanding and offering richer and richer compensation to try to attract more and more talent to the sector — that's on pause right now," Sojourner said.

The compelling economic logic for layoffs is always the desire to cut costs, said Wayne Cascio, an industrial-organizational psychologist at the University of Colorado who has for decades studied downsizing in corporate America. After all, workers are often the biggest expense for companies, accounting for as much as 70% of total business costs, according to Paycor, an HR software company.

"Building on that rationale, if companies overpaid for workers, that means their labor costs went up, so they're a more tempting target," he told Insider.

Will tech companies then try to hire back their workers at lower salaries? Cascio isn't so sure: "That assumes there are people out to rehire — and that those people will overlook how you treated workers in a downturn."

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