Is AI the reason for layoffs? Microsoft announced that 5% of the company’s workforce, i.e., around 10,000 jobs, will be slashed. Google slashed around 6% of their workforce, i.e., around 12,000 jobs. Meta slashed 11,000 jobs in November. In fact, tech giants like Amazon and Twitter are also in the same frame; they cut thousands of jobs, too. 

The reason behind these massive layoffs is global economic strife, excess hiring during the pandemic, or decisions made by companies for financial or strategic reasons. Or it happens due to the rapid developments of revolutionary technologies – Automation and Artificial intelligence (AI).

Go on reading to understand what could be the reason.

Impact of Automation and AI on employment

It is clear that AI and automation will have a significant effect on the future, but it is important to be prepared for a scenario in which the majority of jobs are lost.

According to PwC analysis, AI, Robotics, and Smart automation have the potential to bring economic benefits, contributing up to $15 trillion to global GDP by 2030. However, there are concerns that it could displace jobs. 

They have analyzed tasks in over 200,000 jobs across 29 countries to assess the potential for automation in the next 20 years. 

They divide it into three waves of automation: 

• Wave 1 –  Algorithmic (to early 2020s):, 
• Wave 2  – Augmentation (to late 2020s),
• Wave 3 – Autonomy (to mid-2030s).

According to them, in the first wave, there is an expectation of low displacement of jobs, perhaps only around 3% by the early 2020s, but it could increase as the technology matures. 

By the mid-2030s, up to 30% of jobs could be automatable, in the first and second waves women could be at greater risk of automation due to their higher representation in clerical and administrative functions. In the long term, there may be a higher risk of job loss for men. 

The impact of automation and AI on employment is complex, with both positive and negative effects.

Positive Impact:

Increased Efficiency and Productivity: Automation and AI can increase efficiency and productivity by performing tasks faster and more accurately than humans. This can lead to economic growth and job creation, as companies can produce more goods and services at a lower cost.

Improved Quality of Work: Technology can improve the quality of work by performing tasks more consistently and accurately than humans. This can lead to improved customer satisfaction and increased competitiveness.

New Job Creation: It can create new jobs, such as AI development and maintenance, data analysis, and automation engineering.

Negative Impact:

Job Losses: AI and automation can perform tasks previously done by humans, leading to AI layoffs or reduced hours for workers. This is particularly true for repetitive or low-skilled jobs, such as assembly line work or data entry.

Income Inequality: The benefits of automation and AI may not be evenly distributed, with some workers and industries benefitting more than others. This can lead to income inequality and social unrest.

Skills Gap: It can create a skills gap, as some workers may not have the skills to adapt to the changing job market. This can lead to unemployment and underemployment, particularly for low-skilled workers.

The impact on employment will likely vary by industry and by country. Governments, companies, and individuals should take action to anticipate these changes and ensure that workers have the skills to adapt to the changing job market, such as upskilling and reskilling.

Types of Jobs Automation and AI will Impact

Types of tasks that can be automated and the industries that are most likely to be affected include: 

• Repetitive and routine tasks, such as assembly line work or data entry, are often prime candidates for automation.
• Low-skilled jobs such as fast-food workers or cashiers may also be vulnerable to automation.
• Transportation and logistics: the widespread adoption of self-driving vehicles and drones can disrupt jobs in the transportation and logistics industries, including truck drivers and delivery drivers.
• Manufacturing: automation and AI can be used to improve efficiency and productivity in manufacturing, potentially replacing jobs such as machinists and factory workers.
• The development of advanced AI algorithms may impact data processing and analysis, such as financial analysts and market researchers.
• AI-driven virtual agents may replace customer services such as call center agents and chatbot operators.
• White-collar jobs: Some of the jobs that require decision-making abilities, such as accountants, lawyers, and real estate agents, may also be impacted by AI in the future.

Tech Companies Reason Behind Massive Layoffs

Furthermore, mainly companies that are laying off employees are doing well financially. This raises the question of whether or not these mass layoffs reveal less about the true state of the problems in the industry.

Economic Uncertainty

Layoffs are a last resort for companies facing a decreased demand for their products and services. Unfortunately, this often means that employees are the first to be let go as a cost-cutting measure. 

The primary reason for layoffs during economic downturns is to keep companies financially stable during a recession when weak demand makes it difficult to generate profits. Firms must cut costs to avoid becoming unprofitable.

Decrease in E-Commerce Activity

The pandemic brought about a shift towards remote work with the help of cloud solutions and online business as companies adapted to lockdowns. 

Many tech firms hired IT employees to support the shift, with some companies even offering fully remote or hybrid work options. However, as lockdowns lifted and consumer spending returned to pre-pandemic levels, e-commerce activity also dropped. 

Research from the IMF, Mastercard, and Harvard Business School shows that e-commerce is at or below pre-COVID-19 trend levels in advanced economies. This has led to mass layoffs in the tech industry as companies no longer need as many employees. Companies that had rapidly hired during the pandemic now have no use for them.

Pressure From Investors

As investors push for cost-cutting measures, the threat of layoffs is becoming more prevalent in the tech industry. 

After a strong year in 2021, venture capitalists are concerned that companies may not be as profitable in 2022. Companies such as Alphabet (Google’s parent company) and Meta face pressure from investors to reduce their headcounts. 

According to CNBC, an investor from TCI Fund Management, a shareholder in Alphabet, has called for the company to take “aggressive action” in reducing employee numbers. Marketwatch reports that Alphabet plans to lay off approximately 10,000 poor-performing employees. 

Similarly, Altimeter Capital CEO Brad Gerstner, a Meta shareholder, called for the company to reduce employees and cut expenses in an open letter to Mark Zuckerberg. His calls were answered as Meta announced on November 9th, 2022, the decision to lay off 11,000 employees.

Declining Revenue

Declining revenue is a common reason behind massive layoffs in companies. When a company’s revenue decreases, it cannot be easy to maintain its current expenses, including employee salaries. 

Companies may choose to lay off employees to reduce costs and stay financially stable. This can happen in different ways, such as reducing the number of employees or cutting employee hours or benefits. In some cases, companies may have to lay off a significant number of employees to make up for a substantial drop in revenue. 

This can be a difficult decision for companies, leading to a loss of skilled workers and negatively impacting their ability to operate and recover.

Signs of a Mature Industry

Signs of a mature industry can also be a reason behind massive layoffs. A mature industry has reached a saturation point in terms of growth and is characterized by slow or no growth, intense competition, and a high degree of market saturation. In this scenario, companies in the industry may struggle to maintain their market share and profitability, leading them to cut costs. One of the most common ways for companies to cut costs is by reducing their workforce, which can result in massive layoffs.

Additionally, a mature industry can also be characterized by decreasing demand for products or services, leading to lower sales and reduced profitability. This can lead companies to lay off employees to cut costs.

In summary, companies may face intense competition and lower sales and profits as the industry matures. They may have to reduce their workforce to stay competitive and financially stable. This can lead to massive layoffs in a mature industry.

Ingrained Mentality That Layoffs Increase Profitability

An ingrained mentality that layoffs increase profitability is a reason behind massive layoffs in many companies. This mentality refers to the belief that reducing the number of employees is an effective way to improve a company’s financial performance, regardless of the economic conditions. This belief is often based on the assumption that companies can improve their bottom line and become more profitable by cutting payroll expenses.

This mentality is often prevalent in companies, as it is considered a quick fix to financial struggles. However, this approach ignores other factors contributing to a company’s financial performance, such as market conditions, product or service demand, and overall business strategy. In some cases, this mentality is also driven by short-term financial targets. The company’s managers are pushed to quickly meet a specific financial goal, and layoffs are seen as an easy way to achieve it.

The reality is that layoffs can have negative consequences, such as loss of skilled workers, disruption to business operations, and damage to the company’s reputation. Despite this, the mentality that layoffs are a solution to improving profitability persists, leading to massive layoffs in many companies.

Stop fretting and start acting

One of the major reasons why layoffs happen is automation. As IT trends change and there’s a greater emphasis on artificial intelligence (AI), data science, and robotics, automation becomes more important. And when automation is a key factor, layoffs become more likely.

The World Economic Forum has predicted that automation will have a significant impact on the IT sector, resulting in the loss of 85 million jobs by 2025. However, 97 million new jobs are expected to be created as a result of automation. So it’s clear that senior IT experts who have lost their jobs did not keep their skills up to date with market trends, which is critical in today’s competitive environment. 

Therefore, to survive in this AI layoff drive, we need to upgrade our skills and abilities as necessary.