What Do Layoffs Mean in a Still-Strong Labor Market?

Last month, several prominent tech companies announced significant layoffs, which resulted in big headlines and a scurry of confusion. Hadn't we just wrapped our brains around the massive talent shortage and record-setting job quits?

What is going on?

Well, it turns out, a lot. However, to keep this article brief, we'll summarize.

The economy heated up quickly and inflation soared:

• As we emerged from the pandemic, the economy took off like a rocket. People had money to spend (accumulation of savings from going nowhere + trillions in government stimulus—nine zeroes if you're wondering) and energy to burn. The economy heated up fast and companies were desperate to find enough workers to keep up with soaring demand.
• Large technology companies experienced significant growth during and after the pandemic and didn't want to risk slowing their momentum by not having enough workers, so they over hired.
• Unemployment hit record-lows, which meant the prospect of filling those postings was slim. As in 0.2 unemployed workers for every job posting slim. The labor market was such that if you wanted to work, you would, and you'd probably get paid pretty well for it. People made more money and bought more things, even as supply chains struggled to keep up with demand.
• Which sent inflation soaring. The price of everything—rent, used cars, groceries, gas, paper goods, haircuts, housing, and yes, eggs—went up. Way up.
• The Federal Reserve (The Fed), a body that sets economic policy in the US, had to find a way to reverse the course of inflation without crashing the economy. Their aggressive interest rate hikes are an attempt to achieve that goal by weakening a very tight labor market. That's because higher interest rates mean steeper borrowing costs for companies, which means less growth, less spending, and less hiring. As job opportunities shrink, The Fed expect competition for workers to ease and wage growth to slow, which means spending will slow, which means demand will slow, which means, hopefully, inflation will too.
• Only, the workers weren't there. Not enough of them, anyway. Which meant companies competed for scarce workers by offering more money, improved benefits, and flexibility.
• Companies, particularly the technology companies who over hired during the early days of economic recovery, are feeling the squeeze of higher interest rates and a slowing economy in different ways (e.g., fewer sales, less advertising, steeper borrowing, etc.) though their response is similar: trimming labor expenses by laying off workers they hired too many of, or just don't need.