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

Technology companies are investing heavily in artificial intelligence, and some workers are already paying the price.

SAP is the latest big tech player to cut jobs as it pours money into AI, with the German software giant announcing this week that it is investing more than $2 billion to integrate artificial intelligence into its business as part of what it called "transformation program." At the same time, the company said Tuesday it plans to restructure 8,000 roles. Some of the workers will be laid off, while others will be re-trained to work with AI.

The company said it expects to employ roughly the same number of workers at year's end as it does now.

SAP is not an outlier. In the little more than a year since generative AI tools like ChatGPT, based on so-called large language model technology, have been available to the public, a number of large tech companies have announced plans to plunge into AI — job cuts often follow.

"I would counsel folks to watch what the firms do, and if they are saying the presence of large language models is allowing them to lay people off, that has to be taken into account," said Mark Muro, a senior fellow at the Brookings Institution who studies the interplay between technology and people. "There is no doubt forthcoming work is going to show that coding and many engineering type occupations have very high exposure levels [to AI]. So we should take them at face value on this."             

Last week, Alphabet-owned Google said it laid off hundreds of workers from its ad sales team as it further invests in AI. Although Google did not directly attribute the layoffs to AI, in a memo to employees obtained by Business Insider Google's chief business officer, Philipp Schindler, referred to the "profound moment we're in with AI" in announcing the cuts.

Microsoft is also doubling down on AI, investing billions in ChatGPT maker OpenAI, as it slashes jobs. And language learning platform Duolingo acknowledged a 10% reduction in its contractor workforce at the end of 2023, but denied that all of the cuts were related to increased AI usage.

"In some cases, this was because the contractor's project concluded, and in some cases this was because the contractor's work was no longer needed due to changes in how we generate and share content between our 100+ language courses," a spokesperson told CBS MoneyWatch.

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

Is AI already replacing people?

To be sure, some of the companies are redirecting their investments into AI while cutting spending in other areas of their business, leading to layoffs. Columbia University business professor Oded Netzer cautioned against linking rising corporate investment in AI to worker layoffs.

"We know 2023 was the year of generative AI and companies invested in it heavily," he told CBS MoneyWatch. "That means there are some jobs they've decided to invest less in, and they may be laying off workers. But it also means the jobs they're hiring for are related to AI. That's not to say AI replaces jobs."

In Netzer's view, companies are simply doing what they typically do — hiring more workers that specialize in fast-growing parts of the business, while laying off those whose skills may be less useful or contribute less to revenue growth. For example, he said, as Microsoft invests in AI it might decide to scale back its production of computer hardware, like keyboards.

Still, recent tech layoffs may be a troubling sign for employees who were told that AI would eliminate some of the rote work associated with their jobs, freeing them up to engage in more creative or productive work. Because technology is diffused across all types of companies in different sectors, big tech corporations can serve as a bellwether for the rest of the economy.

"All sort of firms use digital technologies, so I think this is a sobering signal. It does appear these impacts are occurring quite rapidly," Muro of Brookings said.

Eliminating workers as they invest in AI is "low hanging fruit" for companies, he added. Yet a lot remains to be seen about how the AI revolution plays out in the workplace.

"A lot of training and re-skilling may be a common outcome. There may be some layoffs with the enhancement of other jobs," he said.

Cory Stahle, an economist at the Indeed Hiring Lab, told CBS MoneyWatch that AI tools are not yet sophisticated enough to replace workers entirely. They may be able to perform certain job functions, but still require human input and supervision. The layoffs are also likely tied to companies consolidating their workforces after going on hiring sprees during the pandemic, he added.

"They are rebalancing after the huge hiring burst we saw couple years back during the pandemic when people were at home, consuming more tech products than they normally would have," Stahle said. "Now they are back out flying and staying at hotels, and the shift in consumer demand is necessitating an adjustment at these tech companies."

If AI were really the culprit, layoffs would be far more widespread across diverse industries, according to Stahle. "And we haven't seen that happen yet," he said.

Also contributing to tech company layoffs are high interest rates. "Tech companies are always very sensitive to high interest rates and layoff people during high interest rate environment," said Columbia University Business school professor Tania Babina.  "When money is cheap, tech firms pile on hiring; when money is expensive, they tighten the belt. So far, there is no systematic empirical evidence that firms use AI to replace labor," she said.

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