Tech companies are slashing thousands of jobs as they pivot toward AI

Tech companies are slashing thousands of jobs as they pivot toward AI

What effects will artificial intelligence have on the workplace?

What effects will artificial intelligence have on the workplace?

Many technology companies are making large investments in artificial intelligence, and certain employees are already experiencing negative consequences.

SAP, a major technology company, has recently announced job cuts as it focuses on investing in AI. The German software giant shared its plans to spend over $2 billion on incorporating artificial intelligence into its operations through a “transformation program.” Additionally, the company revealed its intention to restructure 8,000 positions on Tuesday. This will involve both layoffs and re-training of employees to work with AI technology.

The corporation anticipates maintaining a similar level of employment at the end of the year as it currently has.

The technology of large language models, which has become accessible to the general public, has prompted numerous major tech companies to announce their intention to invest in artificial intelligence. This often leads to job cuts.

“I suggest individuals observe the actions of companies and consider the potential impact of large language models enabling them to terminate employees,” expressed Mark Muro, a senior researcher at the Brookings Institution specializing in the intersection of technology and human labor. “Upcoming research will likely demonstrate that coding and other engineering roles have significant exposure to AI. Therefore, we should trust their statements on this matter.”

Google, which is owned by Alphabet, recently announced layoffs within its ad sales division in order to focus more on advancing AI technology. While the company did not explicitly link the layoffs to AI, Philipp Schindler, Google’s chief business officer, mentioned the significant role AI plays in the current era in a memo to employees obtained by Business Insider.

Spending billions of dollars on the development of ChatGPT by OpenAI.

The use of AI has resulted in job cuts, including at the language learning platform Duolingo where a 10% decrease in contract workers was reported by the end of 2023. However, Duolingo stated that not all of the reductions were due to increased reliance on AI.

The reason for this varied, as the contractor’s project ended in certain instances, while in others, their services were no longer necessary due to changes in the way we create and distribute content for our multitude of language courses, a representative informed CBS MoneyWatch.

Duolingo added that it does sometimes use AI to generate sentences and translations and that AI can help contractors work faster. 

Has AI begun to replace humans?

Some companies are shifting their investment focus to AI and reducing spending in other aspects of their operations, resulting in staff reductions. Oded Netzer, a business professor at Columbia University, advised against connecting the increase in AI investments by corporations to employee layoffs.

“In 2023, there was a significant focus on generative AI and corporations made substantial investments in this area,” he informed CBS MoneyWatch. “This has led to a decrease in investment for certain jobs, potentially resulting in layoffs. However, it also means that there is an increase in demand for AI-related jobs. This does not necessarily mean that AI is replacing jobs.”

According to Netzer, businesses are following their usual practice of hiring additional employees with expertise in rapidly expanding areas of the company, while letting go of those whose abilities may be less valuable or have a smaller impact on revenue growth. For instance, he suggested that Microsoft, as it focuses on AI, may choose to decrease its production of computer hardware such as keyboards.

However, the recent layoffs in the tech industry may be concerning for workers who were promised that AI would reduce tedious tasks in their roles and allow them to focus on more innovative and efficient work. As technology is utilized across various industries, major tech companies can indicate the direction of the overall economy.

According to Muro of Brookings, a variety of companies are utilizing digital technologies, which he believes is a cautionary sign. He also noted that these effects seem to be happening at a swift pace.

“Getting rid of employees as they adopt AI is an easy and obvious solution for companies,” he stated. However, there is still much uncertainty surrounding the impact of the AI revolution on the job market.

There may be a significant increase in training and re-skilling as a result. However, there is a possibility of some job cuts in order to improve other positions, according to the speaker.

New research has found that by 2030, AI has the potential to replace 30% of work hours.

According to Cory Stahle, an economist from the Indeed Hiring Lab, AI technology is not advanced enough to completely replace workers. While they can handle some tasks, they still need human guidance and oversight. The recent job cuts may also be due to companies streamlining their workforce after hiring extensively during the pandemic.

“They are readjusting following a significant increase in hiring that occurred a few years ago during the pandemic when individuals were spending more time at home and purchasing more technology products than usual,” stated Stahle. “As people return to traveling and staying in hotels, there has been a change in consumer demand, which requires tech companies to make adjustments.”

According to Stahle, if AI was truly to blame, we would see a larger number of job cuts across various industries. However, this has not yet occurred.

Another factor leading to the layoffs of employees in tech companies is the presence of high interest rates. According to Tania Babina, a professor at Columbia University Business School, tech companies are particularly affected by high interest rates and often resort to laying off workers during these periods. She also mentions that when money is easily accessible, tech companies tend to hire more, but when it becomes scarce, they become more cautious. However, there is currently no solid proof that companies are utilizing AI as a replacement for human labor.

Megan Cerullo