Is AI Really to Blame for All These Layoffs?
Layoffs surged 205% from December to January, according to Challenger, Grey & Christmas, with technology and tech-adjacent sectors especially hard hit. If you’ve skimmed the headlines lately, you might assume that these cuts are due to companies deploying AI technology in order to cut labor costs. But there may be more to the story.
“CEO Andy Jassy, like many CEOs recently, has said AI will cost jobs in the coming years, but this cut appears to be due more to overhiring and reducing layers than to the new technology,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.
Further, Challenger’s data show that only 7% of layoffs last month were due to AI. Since 2023, AI has accounted for only 3% of all job cuts.
So, what’s going on here?
‘AI-Washing’: A Convenient Scapegoat in a Tough Market
Several industry experts have recently suggested that while companies may be cutting some jobs for AI-related reasons, the tech tools aren’t to blame for most reductions in force.
“Companies are saying that ‘we’re anticipating that we’re going to introduce A.I. that will take over these jobs.’ But it hasn’t happened yet. So that’s one reason to be skeptical,” said Peter Cappelli, a professor at the Wharton School, in an interview with The New York Times.
The Times article notes that some of these cuts could be seen as “anticipatory layoffs” — companies reduce headcount to free up capital for investments in data centers and other AI technology. Molly Kinder, a senior research fellow at the Brookings Institution, suggested to the NYT that laying off workers might be more palatable to investors than a very different message: “the business is ailing.”
Other Reasons for Layoffs
Whether or not billion-dollar multinational companies are actually in anything approaching real financial trouble, their leaders are eager to trim expenses. A few reasons why include:
Overhiring during the pandemic
Tariffs and other trade policies that make importing materials more expensive
Tax law changes that affected how research and development expenses were treated between 2022 and 2024 (introduced in the Tax Cuts and Jobs Act and repealed — with certain limitations for larger businesses — in the One Big Beautiful Bill Act)
Higher interest rates, despite recent cuts by the Fed
DOGE cuts to government jobs, which in turn affected other industries and may lead to as many as 1 million layoffs once related job cuts are taken into account
Finally, there’s the possibility of a “herding effect,” said Jeff Shulman, a professor at the University of Washington’s Foster School of Business, in an interview with NPR: “The layoffs seem to be helping their stock prices, so these companies see no reason to stop.”
In other words, your mother was right: peer pressure is dangerous. Maybe someone needs to tell big employers that just because one company jumps off a bridge doesn’t mean that they all have to do it.
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My take on AI has always been that it's far more of a human-replacement tool than a "productivity tool." We're seeing AI, which is still in its infancy (Imagine what AI's capabilities will be like 5 years from now), already proving that employers leveraging AI technology require, at least feel they do, fewer employees. For example, today's marketing team of 5 will soon be down to 2.