Tech Industry’s Job Loss Expected to Get Even Worse
After years of unabated growth, employment at high-technology companies has peaked and now is shrinking by tens of thousands of workers in what some experts fear could cause long-term damage to the entire U.S. economy.
The spate of job cuts that began last year at now-disintegrating dot-com firms has widened considerably to include some of the tech sector’s most prominent firms, including chip giant Intel Corp. and networker Cisco Systems Inc.
The scope of the layoffs appeared for the first time in numbers released by the Labor Department on Friday. Since cresting in December, the tech industry has shed more than 38,000 jobs in the first three months of this year, according to the government.
That’s just a sliver of the 10.7 million people employed at U.S. tech companies, but thousands more layoffs are expected. Of the more than 400,000 job cuts announced by U.S. corporations this year, more than one-third were from tech companies, according to Challenger, Gray & Christmas, a Chicago firm that tracks such data.
Many of those jobs won’t be eliminated for months, and the tech industry continues to create positions to offset some of those being lost. Though the hiring pace has fallen sharply from a year ago, some small and mid-size companies are absorbing workers dislodged by larger firms.
In regions such as Silicon Valley, companies that once had trouble luring qualified employees now are taking advantage of the new worker availability.
Still, the danger is that tech companies have not yet fully come to terms with the sudden slowdown in demand for their products, some experts say.
“The expectation in technology was that the boom times would continue, so the average tech worker is taken off-guard by this shift in the market,†said China Gorman, chief operating officer of Lee Hecht Harrison, a large job-counseling firm based in Woodcliff Lake, N.J. “They’re feeling emotionally unprepared to deal with this because it’s happened so quickly.â€
The tech industry has been slammed in recent months as U.S. businesses have drastically reined in their purchases of tech equipment amid the economic slowdown.
Some experts fear the tech-spending downturn could last several years. If it does, companies are likely to keep disgorging workers as they scramble to maintain profit margins.
Future “layoffs are going to be pretty severe,†said Ross DeVol, an economist at the Milken Institute in Santa Monica, an economic research firm. “This will be the most severe tech-employment retrenchment that we’ve seen.â€
The most immediate effect has been felt by recently laid-off workers, who are finding today’s tech job market to be far less friendly than any they’ve experienced.
Accustomed to multiple job offers and lavish perks, some tech workers have never even drafted resumes because would-be employers offered jobs over the phone.
Many are finding new jobs, but their searches are longer and harder, and the jobs themselves often can be less attractive and lower paying than the ones they had.
Gabriele Lawrence knows all about the changed climate.
Last fall, the Culver City woman was a new-economy darling whose career had been driven by headhunters offering a succession of jobs, each with more responsibility, greater prestige and higher pay.
She didn’t worry when she lost her job at a Century City-based software application firm, but it has taken far longer than she ever imagined to find a new job.
“I thought, if it takes me four to six weeks, that’s fine. I didn’t think I was going to walk into something the following week,†she said. “But it’s been longer than [that]. It’s completely different. And it gets worse every week†as new layoffs occur and the pool of jobless workers expands.
Lawrence has had two offers, but one was for a low salary and the other required too much travel.
Not everyone is worried.
Jason A. Gallo lost his part-time job at Brivo Systems Inc. in Arlington, Va., in January. “I was a little shocked when I got laid off, but now being laid off by a tech company is sort of a badge of honor.â€
He’s expecting to graduate from Georgetown University in May but hasn’t been looking for a job. “They were really generous with the severance package,†he said, adding that he’s not concerned about finding a new job. “My skills weren’t necessarily in the technology sector. I was doing graphic design and marketing things. I’d probably feel worse if I were a programmer or somebody whose skills were limited to that sector of the economy.â€
Employment in the so-called information technology field, which includes such core tech industries as chip makers and networkers, represents 4.8% of the total U.S. employment, up from 4.1% in 1994, according to the Milken Institute. That job base has expanded by one-third to about 6.3 million workers at year-end, up from 4.6 million in 1994.
Because the average annual salary in this field is about $60,000, layoffs can carry a heavier economic toll than those in lower-paying industries, DeVol said. An additional 9.5 million tech employees work in nontech industries such as banking, according to the Information Technology Assn. of America.
Stephen Roach, chief economist at the brokerage firm Morgan Stanley Dean Witter in New York, believes that the worst economic damage will come from layoffs of tech workers in those nontech industries.
During the Internet frenzy, many companies built up their tech staffs and spent heavily developing Web sites--â€dual businesses selling one product,†according to Roach--that now must be scaled back.
Roach, who thinks that the economy is just now entering a recession, predicts that the steady layoffs of those workers will “linger†even after the official contraction ends.
“It’ll be a key factor, but by no means the only factor, in keeping the U.S. in a period of unusually sluggish economic growth for several years,†Roach said.
The problems at tech companies have been caused by the once-unimaginable pullback in technology spending by U.S. corporations.
Until a year ago, companies were feverishly boosting their tech spending to become more productive and to stay in sync with competitors. That spending grew by an estimated 25% last year to $600 billion or more. But DeVol estimates it may fall by as much as 15% this year.
The weakening economy is the biggest factor behind the reduced tech spending, but the completion of Y2K upgrades--onetime events for most companies--also plays a key role.
The high-tech industry probably won’t recover for at least 18 months, said Rob Enderle, research fellow at the Giga Information Group.
“We don’t know how bad it’s going to get,†Enderle said.
The slowdown in the tech industry is critical because it has contributed more than one-third of the U.S. economic growth in the last three years, said DeVol.
“This will be the first economic downturn where the tech sector will have been a major contributor to the overall decline,†he said.
Companies say they have no choice but to lay off workers as sales ebb.
“It was a hard thing to do, but it was what we needed to do to stay competitive,†said Jeff Wild, a spokesman for JDS Uniphase, a San Jose-based maker of fiber-optics equipment that announced in February it would lay off 10% of its work force of 29,000.
At JDS Uniphase, as at other firms, many of the once-lucrative stock options that drew coveted employees are now worthless after plunges in their stock prices.
To hang on to workers--still a big concern for tech companies--JDS Uniphase now is handing out new batches of options at much lower prices, Wild said.
The new options “will be deeper and more generous†than they otherwise would have been to compensate for the old options, Wild said.
Regions with large concentrations of tech companies have thus far seen little fallout from the layoff announcements. In Santa Clara County, for example, the unemployment rate was a low 1.7% in February. That’s down from 2.4% a year earlier.
But experts say the bad news simply hasn’t shown up yet in government statistics, partly because companies have yet to carry out all their planned cutbacks.
There’s little doubt that such regions as Silicon Valley and Austin, Texas, have a lot at stake. Tech makes up 40% of total employment in Silicon Valley and 24% in the nine-county Bay Area, said Doug Henton, president of Collaborative Economics in Palo Alto.
Henton thinks the tech downturn will be moderate because the tech sector is filled with many industries, some of which are still hiring.
“There are layoffs, but there is still growth going on,†Henton said.
Still, some companies are laying off workers in anticipation of a slowdown, said John Miller, business development chief at Drake Beam Morin, a career consulting firm that companies hire to help their laid-off workers find new jobs.
Because Miller’s firm is hired in advance of an actual layoff announcement, he can normally get a sense of the near-term pace of layoffs.
“Things are going to get worse before they get better,†he said.
*
Times staff writer Dave Wilson contributed to this story.
