US economy so strong, but why tech companies letting go of employees?

This elaborates on how technology layoffs at Google and Microsoft may impact the United States economy.

A Blow to Silicon Valley

Major US tech companies, Google and Microsoft, have confirmed slashing of jobs which has sent shockwaves through the bustling Silicon Valley. These job cuts come amidst challenges experienced by the companies in maintaining their financial health in the ongoing global COVID-19 crisis. This forms just the tip of the iceberg, with many similar firms also moving in this direction.

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Such layoffs across the technology sector show that even the most resilient of industries aren't immune to the disruptive forces of the pandemic. More job losses could deal a hefty blow to an already battered US economy, creating a cascade of negative effects.

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Google's Job Cuts Begin

Google, the leading internet search company has started shrinking its workforce. The Alphabet Inc. subsidiary is pulling back on the hiring and expansion plans which were set in motion before the pandemic. More than 200 contract workers have already been dismissed from the company’s cloud-computing unit.

This move is strategic in order to preserve Google's cash reserves against the backdrop of uncertainty fuelled by the pandemic. The contract workers were engaged in tasks such as sales, marketing, and training customers. Now, as a result, these functions will likely be impacted.

Microsoft’s Workforce Reductions

Microsoft, the software behemoth, is also not spared from the heat of the crisis. It has made public about conducting 'a small reduction' in its workforce across various global regions. This is not the first time Microsoft has brought down its workforce numbers; similar measures were enacted during the global recession of 2009.

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Unlike Google, Microsoft's business has faced a mixed bag of fortunes since the pandemic’s onset. While the demand for its cloud services boomed, revenues from sectors like LinkedIn and the software licensing business dwindled.

Broader Tech Industry Layoffs

Job losses are not limited just to Google and Microsoft. Other tech firms like Uber, Airbnb, and LinkedIn have all announced job cuts due to pandemic-related reasons. These companies’ businesses were hit especially hard as the virus outbreak significantly disrupted the travel and hospitality sectors worldwide.

There's also a domino effect as tech job losses affect other sectors like real estate and food services. As more tech workers lose their jobs, fewer office and residential spaces get rented out, damaging property values and rental incomes.

The US Economy at Large

The wake of these layoffs in the tech sector is sure to ripple throughout the larger US economy. As these tech companies contribute significantly towards the country's GDP, job cuts can mean reduced consumer spending. This in turn, may lead to slower economic growth.

Moreover, a significant portion of tech workers are high-income earners and thus, their job loss heavily impacts various industries. From real estate to hospitality, many sectors that depended on the purchasing power of these employees are likely to take a hit.