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Tech may not shed so many jobs this time

Whatever job cuts occur in the technology sector in the coming months, they're unlikely to be as deep or as lasting as the cuts that occurred in the dot-com bust.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
4 min read

With Wall Street teetering and venture capital investment in high tech at its lowest point in more than a decade, few in the technology industry doubt there are scary days ahead.

The bad news is starting to pile up: eBay recently decided to lay off 1,000 workers, a long list of smaller Internet outfits have begun cutting jobs, and most industry watchers expect Yahoo to announce another round of layoffs when it discusses third-quarter earnings after the close of trading Tuesday.

Now here's the good news: whatever job cuts occur in the technology sector in the coming months, they're unlikely to be as deep or as lasting as the cuts that occurred during the dot-com bust, according to statistics from the U.S. Department of Labor and industry employment experts.

Call it learning from past mistakes: tech companies haven't experienced the hiring binge that occurred in the late 1990s, when a combination of Internet investment, repair work on older computer systems to deal with Y2K transition issues, and massive investment in telecommunications infrastructure teamed to create double-digit tech employment growth through much of the second half of that decade.

By comparison, the Web 2.0 boom during the past few years--led by companies such as Facebook--has been more like a "boomlet." While there are an estimated 5,000 Web 2.0 companies, many of them are tiny garage shops. There are no hard figures on how many people are employed in these little companies, but it's doubtful the total is equal to even a tenth of the 386,000-employee workforce at tech giant IBM.

Despite enthusiasm for social-networking sites and other new technologies, neither Silicon Valley nor other big tech hubs have seen a massive increase in hiring in the past few years. Even well-known Web 2.0 companies like Digg and Slide are relatively sleek little outfits that didn't need a lot of money or a lot of people to get off the ground.

Web 2.0 economy

"We never saw the big run-up in tech hiring in 2004 through 2008, so I don't anticipate a significant change," said Tom Silver, chief marketing officer for Dice Holdings, which operates a tech-specific online job placement site.

Certainly, there are exceptions to the rule. Google has gone from start-up to one of the most powerful companies in tech since the dot-com bust, and its workforce has grown with its influence. Google now has more than 20,000 employees, though most analysts expect Google to withstand all but the worst of economic conditions.

Most big tech companies have hewed to a slow-growth mantra, even as sales have climbed. Apple, for example, increased its workforce 100 percent between October 2003 and October 2007. That may sound like a lot, but in that time frame Apple opened about 100 retail stores, saw revenue increase 286 percent, and profit increase an astonishing 600 percent. (Apple is scheduled to announce its fourth-quarter earnings after the close of trading Tuesday.)

By comparison, in the late 1990s, tech executives were spending like drunken sailors. "We had the perfect storm. The combination of interest in the Internet, telecom, and Y2K all lead to a significant overheating in the technology labor market leading up to 2000," Silver said.

After the bust, it was one of the few times tech unemployment was higher than the national average. Tech unemployment for computer and mathematical occupations soared to 6.5 percent in March 2003, compared with the national average of 5.9 percent in that period, noted Silver.

Typically, tech-related unemployment runs about half the national average. Unemployment among those with computer and mathematical occupations ran at 2.6 percent last month, while the national unemployment average stood at 6.1 percent, according to the Labor Department's Bureau of Labor Statistics. There's no reason to expect that ratio to change in this downturn.

Could things get rough for tech workers? Absolutely, though few economists agree on how bad the economy will get in the coming months. There could be a recession that lasts a few quarters--or there could be the worst economic crisis since the Great Depression.

There are numerous troubling signs in the tech sector. An index that measures orders for companies that make equipment for semiconductor manufacturers such as Intel saw a significant drop last week. That could mean chip orders are down, which translates into an industrywide slowdown in sales of everything from servers and PCs to mobile phones.

At the other end of the tech spectrum, German software maker SAP, which sells multimillion-dollar packages to run everything from financial management to manufacturing at big companies, has already run into trouble thanks largely to the meltdown on Wall Street. Big companies like SAP are usually the last to feel the impact of a bad economy because buyers look to their automation software as a way to cut costs. This time, they're among the first.

Tech's bad news obviously reflects bad news in the overall economy, where consumer confidence is waning and Wall Street appears to have taken a wrecking ball to itself. But take away the dot-com bubble, and history indicates tech workers will fare better than their counterparts in other industries.

CNET News' Caroline McCarthy, Tom Krazit, and Jim Kerstetter contributed to this report.