Understanding the Real Causes of Tech Layoffs
The Anti-Coding Law That Is Killing Tech Jobs 🔗
0:00 REAL reason for tech layoffs is not what you think
Recent tech layoffs are often mistakenly attributed to AI advancements, but the real culprits are economic factors and a specific change in the US tax code. The economy has struggled post-pandemic, leading to high inflation and interest rates, causing companies to invest less in growth. Additionally, a little-known law called Section 174 has severely impacted how tech companies can deduct developer salaries, further contributing to job losses.
1:58 What is the law?
Section 174 alters the deduction of research and development (R&D) expenses, requiring companies to amortize developer salaries over five to fifteen years instead of deducting them fully in the year they are paid. This change creates significant tax liabilities for companies, even when they are not profitable, forcing them to consider layoffs to manage cash flow.
4:58 Why this is so terrible for tech jobs
The law disproportionately affects smaller companies, which may face cash flow crises due to unexpected tax bills. As these companies struggle, they are forced to lay off employees. Although the law has been in effect since 2022, its impacts became evident in 2023 when companies began having to make tough decisions about staffing.
6:42 Why tech jobs may be coming back very soon...
There is hope for the future as interest rates decline and the economy improves. Discussions around repealing Section 174 have begun, indicating potential positive changes. While the tech job market may not return to its previous levels immediately, signs of recovery could lead to renewed hiring in the coming years.
8:21 What I would do if I was starting over
For those learning to code, focusing on a specialization and building projects is crucial to preparing for future job opportunities. The speaker offers a programming boot camp designed to provide essential skills and knowledge for aspiring developers, emphasizing the importance of a strong foundation in programming.
What is Section 174?
Section 174 is a change in the US tax code that requires companies to amortize developer salaries over several years instead of allowing full deductions in the year paid, resulting in higher tax liabilities.
Why are smaller tech companies more affected by this law?
Smaller tech companies often have limited cash flow and resources, making them more vulnerable to unexpected tax bills caused by Section 174, which can lead to layoffs to manage expenses.
Is there optimism for the future of tech jobs?
Yes, there is optimism due to potential changes in the tax law and improving economic conditions, which could lead to more investment and job opportunities in the tech sector in the coming years.