• Invezz gets to the heart of the recent slew of layoffs and what they mean.
• This new wave of retrenchments could see as many as 170 million layoffs this year alone.
• Like many real and imagined evils these days, we can thank AI and big corporations... but is it that simple?

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It’s layoffs season in the United States and, although the new year is less than a month old, over 22,000 workers at more than 75 tech companies have been laid off in 2024 alone, according to Layoffs.fyi

An economic disconnect

This could understandably cause some confusion – especially where the U.S.A. is concerned.

Of all the economies worldwide, America seems to have weathered 2023 the best. Inflation seems to have been beaten, GDP is rising and actually latest Nonfarm Payrolls data shows that more Americans are being employed now on the whole, not less.

Indeed, if you look at the Nasdaq 100 index, which is a reliable bellwether for bigger American companies and in particular the tech industry, it saw its best year in 2023 in more than 20 years, since the dot come bubble burst in 1999. And it’s still going strong in 2024.

Even in Europe, which is having a somewhat harder time currently, the European Central Bank announced yesterday that employment numbers were robust, and inflation is slowing.

A growing trend 

Sadly, this is a continuing trend for many – and it extends far beyond the United States. In the 2023 year, some of the more high-profile layoff stories included:

• Google: 12,000 employees, approximately six percent of their entire global workforce
• Microsoft: 10,000 employees, approximately five percent of their entire global workforce
• Phillips: 6000 staff, approximately 13 percent of their workforce
• Amazon: 8000 workers
• Also Amazon: Another 9000 workers, three months later
• Germany’s Flink: 8000 workers, a whopping 40 percent of its total workforce

The latest casualties in 2024? SAP and Salesforce, both of whom announced ‘restructurings’ recently. Today, Salesforce announced that it would be retrenching close to one percent of its global workforce this year, approximately 700 people.

Meanwhile SAP said earlier this month that it will be ‘restructuring’ a sizable 8000 jobs in 2024, some of which will require layoffs, most of which will be ‘voluntary’, while others will be redistributed internally within the company.

But why is this happening? 

To oversimplify it, you can blame it on the machines: companies with the clout to do so are making way for artificial intelligence (AI).

According to PwC’s January CEO report, a quarter of all business leaders said they would reduce their (human) workforce by five percent or more this year. This means that, with approximately 3.4 billion workers on the planet, the AI revolution could cost humanity 170 million jobs – or more – in 2024.

This partially seems to be companies pivoting in order to remain relevant, but also for good old-fashioned profits. In a separate PwC report specifically on AI this month, the company said that:

 

What comes through strongly from all the analysis we’ve carried out for this report is just how big a game changer AI is likely to be, and how much value potential is up for grabs. AI could contribute up to $15.7 trillion1 to the global economy in 2030, more than the current output of China and India combined…  Of this, $6.6 trillion is likely to come from increased productivity.”

The region that stands to gain the most from AI in the coming six years ($7 trillion to be exact) is China, with North America coming in second with $3.7 trillion and western Europe in third place. This also explains why the most layoffs by far are taking place within the world’s most developed countries.

Digging deeper

The International Monetary Fund (IMF) gave a partial explanation earlier this month:

In advanced economies, about 60 percent of jobs may be impacted by AI. Roughly half the exposed jobs may benefit from AI integration, enhancing productivity. For the other half, AI applications may execute key tasks currently performed by humans, which could lower labour demand, leading to lower wages and reduced hiring. In the most extreme cases, some of these jobs may disappear.”

This goes some way to explaining the current layoffs-fest in relation to AI, but doesn’t quite explain it all.

After all, many experts around the world concur that, currently, most artificial intelligence is still in its infancy and nowhere near replacing a human in anything but the most menial of labour. Also, as a new and developing technology with all of the hype of Wall Street behind it, AI is still far too expensive for the average company to use in any meaningful way instead of a more traditional workforce.

Re-prioritizing

The key may be these mighty companies’ words around why the layoffs are taking place. SAP worded it this way:

 

In 2024, SAP will further increase its focus on key strategic growth areas, in particular Business AI. It also intends to transform its operational setup to capture organizational synergies, AI-driven efficiencies and to prepare the company for highly scalable future revenue growth. To this end and to ensure that SAP’s skill-set and resources continue to meet future business needs, SAP plans to execute a company-wide restructuring program in 2024.”

This, the company says, will only yield fruit long-term, but within the next couple of years will yield “an increase of approximately €0.5 billion due to anticipated incremental efficiency gains from the transformation program.”

In addition, after it was announced that Google would be laying off roughly 1000 staff last week, we reached out to them for comment. This is what they said to Invezz:

 

We’re responsibly investing in our company’s biggest priorities and the significant opportunities ahead. To best position us for these opportunities, throughout the second half of 2023, a number of our teams made changes to become more efficient and work better, and to align their resources to their biggest product priorities. Some teams are continuing to make these kinds of organizational changes, which include some role eliminations globally… We’re continuing to support any impacted employees as they look for new roles here at Google and beyond.”

This is worlds away from Google’s famous 12,000 layoffs in early 2023, which were blamed on a contracting economy and financial headwinds.

Both of these seem to suggest that bigger companies are redistributing workers and restructuring ahead of anticipated gains that could be made from AI in the future, rather than replacing human staff with machine ones at this time.

The bottom line

However, somewhat ironically, Harvard Business School professor and layoffs expert Sandra Sucher says that layoffs for any reason can actually cause a drop in innovation, revenues and reputation for companies.

To conclude, ponder these words of hers, quotes by the Stern Strategy Group on their LinkedIn page last week:

 

We’re in a particularly bad space right now in terms of how layoffs are being conducted. Humans aren’t a resource in the same way that oil and gas are, so if you treat them as a resource that you can discard when it is no longer valuable, you’re undermining the basic notion of what it means to be a person.”

And then, in that instance, who is going to buy into your freshly restructured company? Machines?

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