Companies are warming up to saying AI is the reason for job cuts
AI has been cited for 48,414 job cuts announced in the US so far this year
[SAN FRANCISCO] In late September, the German airline Deutsche Lufthansa told analysts and investors that it planned to eliminate 4,000 administrative positions by the end of the decade. Among the reasons it cited was “the increased use of artificial intelligence.”
Weeks later, Dutch lender ING Groep said nearly 1,000 positions were at risk from “digitalisation, AI, and evolving customer needs.” And earlier this month, Krafton, a South Korean video game company, said it intended to freeze hiring to focus on an “AI-first” approach to development.
For much of the AI boom, many companies shied away from attributing job cuts to artificial intelligence for fear of attracting negative headlines. But in recent months, large firms across industries and geographic regions have become more vocal with claims that AI is allowing them to eliminate staff and reduce hiring.
In earnings reports, investor presentations and company memos, executives have been touting efficiency gains from artificial intelligence and framing a shrinking or flat workforce as preparation for an increasingly AI-driven economy.
AI has been cited for 48,414 job cuts announced in the US so far this year, according to a recent estimate from outplacement firm Challenger, Gray & Christmas. Of those, 31,039 AI-related job cuts were announced in October alone.
The sudden uptick mirrors a sharp rise in planned layoffs generally, with AI referenced as a factor in roughly a fifth of the total in the US last month. The flurry of AI-specific announcements has caught the attention of policymakers, including Federal Reserve chair Jerome Powell. It is also ignited a debate over whether companies are seizing on advances in AI to keep costs low in an uncertain global economy, or simply citing AI as a factor to explain away cuts being made for more complex and possibly unflattering reasons in terms that appeal to investors. The answer may be a bit of both.
In the US, corporations that had been hoarding employees in a “low hire, low fire” labour market are now starting to make cuts as they confront the ongoing risks of tariffs, trade wars and worsening consumer sentiment.
Many big companies, especially in the tech industry, also “overexpanded during the post-pandemic boom and ended up with very large labour forces,” said George Denlinger, an operational president at staffing agency Robert Half.
For that reason, the emphasis on AI can sometimes be misleading. “They talk about using AI to do those jobs in the future, which can amount to a kind of ‘AI-washing,’” he said. “They blame AI even though it is not the only reason layoffs are happening.”
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The muddled motivations can be seen at large tech firms like Amazon. In June, the e-commerce giant’s chief executive officer, Andy Jassy, signalled that the company’s workforce would decline in the coming years as AI handles more tasks. Four months later, Amazon announced it would cut 14,000 jobs, a move that Jassy said is “not even really AI driven, not right now.” Instead, he chalked it up to having a more bloated bureaucracy.
AI is likely a factor at Amazon, though not simply because some work tasks get offloaded to chatbots. Amazon, Microsoft and Oracle have all taken steps to trim and constrain expenses in other parts of their businesses while ramping up spending for data centres, chips and talent to support more powerful artificial intelligence systems.
But the recent spate of announcements about AI-related cutbacks does offer some hints of sweeping job displacement that critics of the technology – and even its evangelists – have long warned about.
Over the past year, AI has progressed from chatbots that spit out clever responses to so-called agents designed to field more complex tasks on a user’s behalf, whether it be conducting research or writing code for hours at a time.
“AI is starting to eat repetitive, high-volume work,” said Mike Doonan of SPMB, which recruits senior tech and data leaders. One large client, he said, laid off its US-based customer service staff and moved many customer interactions to AI tools, cutting costs.
On an earnings call in late October, executives at CH Robinson Worldwide talked up “growing automation” for order entry, appointment scheduling and other manual tasks that have allowed the logistics firm to “decouple headcount growth from volume growth.” As a result, the company said its average headcount was down 10.8 per cent year-over-year in the most recent quarter. Investors cheered the outcome.
In a panel discussion earlier this year, International Business Machines Corp. CEO Arvind Krishna said AI could streamline the process of handling contracts with clients, cutting the need for hundreds of staffers to be involved.
Separately, Krishna said his firm has used AI agents to replace the work of hundreds of HR staff, though he said IBM has hired more in other areas. In August, IBM said it’s on pace to reach US$4.5 billion in savings from AI and automation by the end of this year.
Even when companies are not saying AI helps eliminate jobs, they are mentioning it as a reason to raise the bar on new hires. In an internal memo earlier this year, Shopify CEO Tobi Lutke told employees that “teams must demonstrate why they cannot get what they want done using AI” before asking for additional headcount.
“We’re slowing down the hiring in jobs that are, quite frankly, soul-crushing jobs,” ServiceNow CEO Bill McDermott told Bloomberg News in July. Instead, that work is being done by AI agents, he said. “They work hard 24/7. You don’t have to pay ‘em. They don’t need any lunch and they don’t have any health care benefits.”
Still, it’s early days for agents and generative AI. Top AI developers are working to build software that can help automate more work done by research analysts, junior bankers, consultants and software engineers.
At the same time, AI companies are trying to provide more clarity on the economic benefits of their tools amid lingering scepticism of the technology’s potential to do more than produce unhelpful “workslop.”
“There’s uncertainty about how useful the tools are and how to fit them into daily work,” said Tom Case, a recruiter at Atticus Growth Partners. “They are getting better, but the playbook is still developing.”
If tech firms can ease that uncertainty, it may open the door to wider corporate AI adoption – and more AI-induced cutbacks. Already, Goldman Sachs projects that AI will lead clients to cut headcount by 4 per cent in the next year, with that figure expected to rise to 11 per cent in the next three years.
The investment bank appears poised to join the trend. Last month, Goldman Sachs told employees to expect more job cuts this year as it works to “fully benefit from the promise of AI.” BLOOMBERG
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