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Financial News

What are the reasons for the layoff of 10,000 employees at Microsoft?

Microsoft will lay off around five percent of its staff in the latest round of job cuts facing the tech industry.

Microsoft signage is seen at the company's headquarters in Redmond, Washington, U.S., January 18, 2023. REUTERS/Matt Mills McKnight

As interest rates tick up, Microsoft is one of the latest tech companies to announce plans to lay off workers.

The company announced earlier this week that they will sack 10,000 workers, or around five percent of their global workforce. This comes after 1,000 workers were let go in October 2022.

The details of which departments will be impacted have not been made public, but Bloomberg has reported that jobs in human resources and engineering could be at risk.

During the pandemic, demand for cloud services, video conferencing, and other products offered by Microsoft grew. The company responded by increasing the size of its workforce by around thirty-six percent between 2020 and 2022. The number of jobs that will be eliminated is fewer than those that were added over the last two years. However, it remains to be seen which employees will be laid off and whether or not those that have been hired more recently are more vulnerable.

Tech workers find themselves vulnerable to the movement of the market

Tech workers are one of the most unorganized groups of workers within the labor force. The Bureau of Labor Statistics classifies software and web developers, programmers, computer user support specialists, and other tech-oriented jobs under the broad category of “Computer and Mathematical Occupations.” In 2022, only 3.3 percent of these professionals were union members, meaning they have very little power if executives decide their role should be eliminated.

In the email to staff sent by CEO Satya Nadella explaining the decision made in the C-suite, he said that “some areas” would see roles eliminated but that they plan to “continue to hire in key strategic areas.”

Nadella’s e-mail does describe some of the compensation workers will receive during these “difficult” times. Employees based in the US who are benefit-eligible will receive sixty-day notice of termination, a severance package described as “above market,” healthcare coverage for half a year, and “continued vesting of stock awards” for six months, as well as career services to help workers find their next job. For those employed outside the United States, the package will “align with the employment laws in each country.”

Unlike many countries in the European Union, mass layoffs are not illegal or as highly regulated in the United States, making moves like that being taken by Microsoft and other tech giants more common. Without unions or legal protections for workers to block layoffs, companies are allowed to dispose of workers by offering them payouts.

Together the costs of the layoffs, the “cost of lease consolidation,” and “changes to our hardware portfolio” are expected to cost Microsoft around $1.2 billion. In the long run, the company expects this cost-cutting action to improve its financial outlook, particularly as it prepares for a recession. Additionally, however, fears over an economic slowdown are not the only reason motivating the elimination of 10,000 jobs. Nadella also stated that the layoffs are necessary as the “next major wave of computing is being born with advances in AI.”

More layoffs in tech follow Microsofts announcement

Google’s parent company, Alphabet, announced today that it would lay off more than 12,000 workers, or around six percent of its workforce. Earlier this month, Amazon also confirmed that it would fire 18,000 workers, primarily on the corporate side of the business.