In Tech, the Rich Get Richer as Big Companies Raise Pay While Struggling Startups Lay Off Workers

Microsoft and other Big Tech companies are raising wages to combat inflation and improve retention, a sign of the divide between established firms and the startups laying off employees as they struggle to raise capital.

Microsoft logo
Uplifting. Photo by Joan Cros/NurPhoto via Getty Images

In a seeming contradiction to the flood of news reports detailing layoffs at many tech companies, Microsoft (MSFT) has announced pay raises for its workers. 

In recent months tech companies, especially startups, have engaged in cost cutting. Tech startups have laid off thousands of employees, while more established companies, like Meta and Google, have frozen hiring for certain engineering positions. Many of those companies hired heavily during the pandemic and have recently seen big drops in their stock prices.

Microsoft, which saw only small increases in staffing, told employees that it was raising salaries to remain competitive in a tightening labor market. It’s not alone. Google’s parent company Alphabet and Amazon also announced higher wages for certain employees earlier this month.

The announcement by Microsoft shouldn’t be surprising, said Ge Bai, a professor of accounting at Johns Hopkins University. 

“Microsoft is trying to retain their employees!” Bai said in an email “And they are not alone!” 

Highly skilled workers have seen salary increases over and above inflation, while unskilled workers have faced stagnant wages and layoffs, Bai said, adding that inflation has hit the poor hardest and has exacerbated existing disparities.

A look at job listings in the tech industry shows that employment may be stronger than news reports suggest. 

From tech support to software development to web admin, the number of active online job postings for the last three months continued to rise, an analysis of ZipRecruiter internal data shows.

There are still plenty of jobs in tech

“We are not observing any negative trends in active online job postings data,” said Sinem Buber, lead economist at ZipRecruiter.

 “On the contrary, demand for labor is still strong in tech,” Buber said in an email. “Active online postings data show that employers are still hiring aggressively in the tightest job market of all time.”

Another important data point: Quit rates are the highest on record, said Michael Faulkender, a professor of finance at the University of Maryland and a former chief economist at the U.S. Department of Treasury. If you want to retain talent in an inflationary period, you need to raise salaries, he added. 

Bai expects that other tech companies will  be announcing pay raises to keep their highly skilled employees from leaving for better jobs. 

Some tech companies may be cutting back staff hired to facilitate work from home during the pandemic, Faulkender said. “Some tech firms that supported larger scale activity don’t need that many workers anymore,” he added. 

Moreover, even though overall there is strong demand for tech workers, that doesn’t apply to all companies, Faulkender said. “Startups are inherently more risky especially if they have models that are not proven,” he added. “There’s less capital out there funding new ventures now and that will hit startups more acutely. When the economy is tightening you look for them to fail more quickly than established entities.”

That insecurity may be what is driving many startups to scale back their workforces, said Michael Waldman, an economist and professor at Cornell University. “When you’re Amazon or Microsoft you’re not worried about bankruptcy,” Waldman said. 

In contrast, with the falling stock market and crashing crypto currency, some startups may see bankruptcy as a possibility and that worry may be driving them to cut back on costs, Waldman said.

Correction: A previous version of this article provided the incorrect university affiliation for Michael Faulkender. He is a professor at the University of Maryland.

In Tech, the Rich Get Richer as Big Companies Raise Pay While Struggling Startups Lay Off Workers