The State of Layoffs 2022

Layoffs have recently become a hot topic - again. We thought we saw the worst of the pandemic's effect on unemployment in 2020. Layoffs are often a standard solution when the economy is heading into a downturn. According to our analysis of layoffs in the tech sector, the first half of 2022 suggests that total layoffs this year could exceed those of 2020. 

With all of this intriguing data, we sought to answer the questions: 

• What types of companies have been affected the most?

• Where are they located?

• What stage is being affected the most? Which industries? 

• What are companies who aren't engaging in layoffs doing? 

We compiled data from layoffs.fyi, LinkedIn, and Crunchbase to analyze the current situation. 

Throughout this report, we'll let you know what is happening in the labor market and what to expect going forward.

Layoffs On the Rise In 2022 

For knowledge workers worldwide, Q2 of 2022 was the most significant amount of knowledge workers laid off since Q2 of 2020, which was the beginning of lockdowns globally. 

Q2, 2022 is Second Only to Q2, 2020 In The Number of People Laid Off

The choice to turn to layoffs again in Q2 of 2022 results from slower economic growth and rising labor costs. 

The economic downturn is a consequence of many factors, including inflated valuations of companies in 2021, the war in Ukraine, and rising borrowing costs for consumers and businesses, especially after the near-zero interest rates experienced in the last few years. 

The employee market that was empowering knowledge workers throughout 2021 is becoming tighter. Major layoff events in the US in 2022 include Peloton, Coinbase, and Better.com. 

On January 8th, 2022, Peloton was among the first to engage in mass layoffs, seeing 20% of its workforce go, a total of 2800 employees. This event is a prime example of how knowledge workers in the fitness industry have been affected. Citing missteps, the company admits to scaling too quickly and over-investing in weak areas of the business. 

Paired with a recession are worries of a "crypto winter." Coinbase is a crypto trading company based in San Fransico that has engaged in layoffs to prepare for the new environment. Laying off 1,100 employees, Coinbase reduced its workforce by 18% on June 14th, 2022. 

Between April and June 2022, the company's headcount dropped from 6,680 to 5,580. During that same time, the market capitalization of Coinbase plunged by $26B. CEO Brian Armstrong said that Coinbase grew too quickly in 2021. Below you can see that between May and June of 2022, they reduced hiring after a period of significant growth. 

Tech Companies Hit Hard

Better.com was another fintech company in the spotlight. They are an online mortgage lender provider which doubled its headcount in 2021. In less than five months, the company laid off 33% of its workforce totaling 3000 employees. Citing a declining mortgage market, they've seen three rounds of layoffs. Its refinance team, Better Real Estate department, and US Production Force are said to be most heavily affected. 

Better.com is an example of how not to do layoffs. CEO Vishal Garg admitted, "We made $250 million last year, and you know what, we probably pissed away $200 million." 

Many criticized Garg for his arrogant leadership style and careless handling of the layoffs.

This trend of layoffs heavily affecting knowledge workers is consistent outside the US. We saw significant releases at Getir and Klarna in Europe, and Unacademy in India, for example. Getir, a Turkish instant delivery startup operating in major European cities, was the largest layoff recorded in the data we analyzed.

On May 25th, 2022, the company laid off 4,480 knowledge workers, 14% of its workforce. They cut spending on marketing, promotions, and expansion. Klarna is another European-based company heavily impacted by layoffs. 

The Swedish fintech company laid off 700 knowledge workers, making up 10% of its employees, on May 23rd, 2020. Klarna has been criticized for mishandling the announcement; software engineers were heavily affected. 

Asia also sees similar trends. Unacademy is an education company based in India. The learning platform laid off 17% of its knowledge workers, totaling 1,000 employees. 

On-roll staff, contractors, and educators make up most of those affected. 

The share of US layoffs compared to the global average is less drastic than at the pandemic's start. This trend suggests that the effects of the economic downturn are more substantial for companies outside of the US. 

B2C Businesses Struggled In 2022 

Our analysis of the recent layoffs breakdown by industry showed that the types of businesses affected in 2022 and 2020 differ. 

At the beginning of the pandemic, when nationwide lockdowns began, B2B employees in industries like Recruiting, HR, Support, and Sales and Marketing were most affected. 

In 2022 we saw that employees in B2C industries are most affected— those in Crypto, Security, Education, and Consumer. 

Although there was an initial scare at the beginning of the pandemic, B2B businesses quickly adapted to virtual sales, now preferring that method, a McKinsey report shows. This movement may account for the resilience we see in those industries in 2022 during the new wave of layoffs. 

B2C layoffs, however, are occurring once again in a weakened economy. Consumers are cutting spending and setting stricter priorities in the face of increasing inflation. These factors make selling in a B2C structure. 

Breakdown By Funding Stage 

Our analysis of the recent layoffs breakdown by industry showed that the types of businesses affected in 2022 and 2020 differ.

2021 was unprecedented in its own right, with companies of all stages enjoying an affluent economy and almost entirely untouched by layoffs; many deals closed at high valuations, encouraging overhiring. 

However, there was a war for talent. The US Bureau of Labor Statistics reported record highs for job openings in 2021 and record lows for layoffs and discharges. 

Again, so far, all companies are currently (July 2022) doing better than in 2020. But will 2022 layoffs end up outpacing? Our take is that it looks like Seed & Series A will, with some speculation, public companies already have been impacted more than in 2020, and Series B-J are on pace to meet the 2020 numbers. 

Hiring Freezes 

Layoffs aren't the only response to the downturn in the economy. Many tech giants are also freezing hiring. 

A hiring freeze is a measure employers use to contain costs. This temporary measure allows management to restructure and increase efficiency. Apple and Google have been slowing hiring recently. Meta, Netflix, and Shopify have all announced hiring freezes. 

Google announced it would freeze hiring for two weeks via an internal memo. 

Zuckerberg is looking to make Meta "leaner and meaner," hoping that slowing hiring and making performance reviews more rigorous will encourage employees to "self-select" out of the company and aid in weeding out employees deemed "underperformers." His comments include the infamous "You might decide this place isn't for you, and that's OK with me."

Key Takeaways 

In response to what could be a deep economic downturn, after ten years of economic boom, layoffs, and hiring freezes will continue to be top of mind. 

Layoffs are complicated, and these decisions heavily impact people's lives. Ultimately, they occur because a company has failed to address its position in the current market conditions - which is no simple task. 

A Harvard Business Review article cites multiple studies about companies that have gone through layoffs. They found that most companies suffer after releases and are twice as likely to file for bankruptcy. 

Layoffs typically create more problems than they solve. Of the employees impacted by layoffs, only 41% find equal or better-paying positions. Most find lower-paying ones or remain unemployed. These adverse effects are not limited to pay, extending to people's quality of life. 

When layoffs are the only answer, they must be done right. The Hard Thing About Hard Things by Ben Horowitz highlights the need for visibility, accountability, and communication when layoffs occur. 

These traits allow for the cultural continuity required to survive a round of layoffs as a company. Horowitz emphasized the need to clarify that layoffs result from the company's performance failing, not employee performance. 

As we continue through the second half of 2022, layoffs and hiring freezes will remain a topic of discussion and affect companies and people worldwide. Throughout it all, treating the people involved with respect and doubling down on maintaining a culture within will be critical.