Is AI Driving Tech Layoffs or Masking Deeper Cuts?

Oracle’s latest round of layoffs is intensifying a broader question across the tech sector: Is artificial intelligence actually replacing workers, or simply being used to justify long-anticipated cost cuts?

Oracle cuts jobs as AI spending reshapes cost structure

In Oracle’s case, the company has added hundreds of billions to its books through AI investments. 

As well as being a key partner in the Stargate data center buildout, it has also taken on significant debt to fuel its own expansion, aiming to grow its share of the cloud computing market.

Alongside the need for more cash, Oracle is reportedly shifting its AI strategy to a database-centric approach, which may reduce the need for certain roles.

The layoffs, which were first reported in early March, should help Oracle balance the books somewhat, although it will still be tens of billions of dollars in the hole due to its AI investment. It will take time to recoup this spending, potentially riding on the coattails of OpenAI.

Tech firms cite AI efficiency as layoffs spread across sector

This perception of AI as a silver bullet for hiring and headcount has been on display throughout this recent wave of layoffs, with many tech executives using it to explain widespread cuts. 

Amazon, Meta, Block Inc, Atlassian, and others have all said AI was a factor, either through efficiencies or organizational pivots enabled by the technology.

Executives accused of ‘AI washing’ to justify workforce cuts

But some aren’t buying it, arguing that tech executives are conveniently using AI as an excuse to cut workers hired during COVID. 

In 2020 and 2021, much of the tech industry went on a hiring spree. Meta added close to 40,000 people from 2020 to 2022, increasing its headcount by more than 80 percent. Block and Atlassian both increased their headcounts by more than 70 percent during that period.

“Essentially, every large company is overstaffed,” said Marc Andreessen on the 20VC podcast. “It’s at least overstaffed by 25 percent. I think most large companies are overstaffed by 50 percent. I think a lot of them are overstaffed by 75 percent. Now they all have the silver bullet excuse: Ah, it’s AI.”

Research finds limited AI-driven job loss, warns for entry-level roles

Andreessen isn’t the only one calling out the industry. Sam Altman has also claimed that companies are “AI washing,” using AI as an excuse to cut workers or change direction.

A study conducted by Oxford Economics appears to support this view, finding limited evidence that AI is replacing workers at scale. 

At the same time, it noted that rising graduate unemployment in the US may be linked to AI taking on tasks previously performed by entry-level employees, a concern for those entering the workforce.

Entry-level roles emerge as the biggest risk from AI adoption

This may be the bigger issue over the next 12 months: entry-level office jobs being eroded in the name of efficiency. 

Anthropic has warned that up to 50 percent of entry-level roles could be affected within that timeframe. Microsoft’s head of AI has suggested a similar 12 to 18 month timeline, though he expects the impact to extend across most office work.

This has caused concern amongst some security professionals, who worry that the reduction in early-career talent will create pipeline problems over the next several decades as experts retire and those younger struggle to gain on-the-job experience.