Job cuts across tech companies are likely to continue

In a liberal market, competition and efficiency are key factors to the success of businesses. We are witnessing the sea change of business transformation led by innovative new technology and relevant policy regulation of AI. Governments in advanced and developing markets have initiated policies to promote the adoption of AI realising the critical implications of automation and AI on jobs.

To stay economically competitive and buoyant, industries are pushing for an aggressive synchronisation with AI. It calls for a massive restructuring of their operating model through a strategic reorganisation to augment efficiency and quality. The cost-cutting measures become an essential part of this process that aims to achieve a lean organisation, and hence, freezing hiring and laying offs are long-term strategies– which explains the recent rush towards job cuts across companies. Further, integrating AI into businesses is a costly measure which demands a strategic utilisation of resources.

The United States (US)-based tech industries are leading the trend of job cuts and automation. A fresh look into the labour data reveals a distressing job prospect. In January 2024, companies in the U.S. announced 82,307 job cuts, an increase of 136% from the 34,817 cuts announced the previous month, according to the global outplacement firm Challenger, Gray & Christmas. It is 20% lower than the 102,943 cuts announced in January 2023. The Challenger report for January states that behind job cuts ‘restructuring’ the company operation causing 28,329 job cuts was the most cited reason by companies. In addition, companies are anticipating potential policy changes as 2024 is an election year which will impact industries. It is followed by the ‘closing’ of plants and stores – 14,555 job cuts, then AI – 4,628 job cuts since May 2023. The Challenger report affirms that “these layoffs are also driven by broader economic trends and a strategic shift towards increased automation and AI adoption in various sectors, though in most cases, companies point to cost-cutting as the main driver for layoffs”. In sector-wise, financial and technology led the layoff with 23,238 and 15,806 job cuts respectively for January 2024.

In terms of companies, fintech companies like PayPal have been looking to streamline their operations leaner, speedier, and more profitable to provide better customer experiences under challenging macroeconomic conditions, according to Fintechfutures News. Thus, its decision to slash staff by 9% during 2024 is to re-focus on cost structure and strengthen its resources. It also reported that early this year, payment solution provider Block decided to cut jobs by 10 per cent (about 1,000 people) of its total positions. Similar moves were made by Brex and Toast – both US-based companies. Paris-based payment firm Worldline decided to cut about 1,400 jobs due to the macroeconomic slowdown in its core businesses in Germany. Experts are expecting the trend of slashing staff is likely to continue in 2024.

The trend of business optimisation is prioritised in other sectors too. For instance, the food industry and e-commerce are in the process of reshaping and restructuring by adopting automation technology. The e-commerce czar Amazon made its largest job cuts of over 27,000 across several Amazon departments as of April 2023. Its latest layoffs are in its ‘Buy with Prime’ unit which came after job cuts in Prime Video and Amazon MGM. The job cuts are carried out parallel to hiring suspension. In a similar vein, in March last year, Facebook parent Meta announced 10,000 job cuts to be carried out in the year 2023, reports CNN. Earlier in November 2022, it went for a planned downsize of about 11,000 jobs.

Macroeconomic challenges have also affected the banking sector. Deutsche Bank, which employs over 90,000 personals globally, announced about 3,500 job cuts over the next two years under its operational efficiency programme worth €2.5 billion – which aims to improve its infrastructure and technology through de-commissioning of some applications and the installation of ‘simplified workflows and automation’, and a ‘front-to-back process redesign’, reports Fintechfutures News. In 2023, 20 of the world’s biggest banks including UBS, Wells Fargo, Credit Suisse, Citigroup, and Goldman Sachs downsized about 61,905 jobs mainly due to company disclosures given the lack of stability, investment and growth in the banking sector, reports Financial Times. Other factors include a slight increase in staff intake in 2021 due to market recovery from the pandemic which was countered by a later increase in mergers and acquisitions in the fourth quarter of 2023, according to Bankingdive.

Now, AI is driving towards a determined competition among tech companies at the price of scaling down the size of the staff. For smartphone companies, Nokia, facing tough competition from popular demand for touchscreen smartphones enabled with internet in Apple’s iPhone and Samsung’s smartphones, decided to slash jobs by 8,000- 14,000 by 2026. In November 2023, ByteDance, the Chinese-based parent company of TikTok, decided to cut 1,000 jobs in its gaming unit, reports Nikkei Asia. It was a move taken after the $4.2 billion investment in 19 gaming companies found to be struggling amid the global economic downturn. It will focus on the short-video app TikTok and strengthen advancing its language models, the technology used in the chatbot ChatGPT. Australia’s Canva, an online graphic design tool, is concentrating on AI-powered functions to give users an enhanced experience, for instance, an easy textual assistance format from presentations into executive summaries. Chinese e-commerce giant Alibaba had to restructure by splitting into six main business groups, and its cloud unit, which provides the largest public cloud service, was forced to cut about 235,216 jobs by March 2023 facing competition from its rivals like Huawei, reports Nikkei Asia. Another example is the competition between Apple and Meta. The latter’s core ad sales business was hit by Apple’s changes in privacy and TikTok’s challenge, reports CNN.

In addition to emerging generative AI technologies as the cause of layoffs, geopolitical tensions have worsened the macroeconomic conditions in advanced and emerging economies facing widening inflation and rising interest rates by central banks. Global industrial activity, investment and trade have been affected partly due to slower growth in China, Turkey and Brazil, according to ILO’s Trends 2024 Report. Layoffs can also mean a lack of new technological skills which creates a barrier to entry for job seekers, while developing broad-based tech skills needs substantial fiscal resources which have been dwindled due to the Covid-19 pandemic and the slowdown of the global economy. The focus should be on upskilling and reskilling in tech-enabled work on AI interfaces, Big Data and Cloud Computing. However, tech investments are concentrated in a few tech giants like Amazon, Google, Microsoft, and Huawei. Further, firms are unlikely to invest in new technologies without adequate skilled workers – especially for entry-level positions in the job markets. The Report predicts a weakening of the global labour market, and, thus, global unemployment is likely to stay and rise modestly by two million (0.1% rise from last year) in 2024 due to low labour force participation and slow employment growth.

There should be policy interventions preventing unrelenting profit-driven job cuts and bridging the skills gap in emerging technologies to protect millions of vulnerable workers in the face of these disrupting mega-trends. In terms of establishing transparency in tech practices, the European Union (EU)’s Digital Services Act (DSA) became applicable on February 17, 2024 to all online platforms including marketplaces, social networks, content-sharing interfaces and app stores to fight against illegal online content or disinformation and protect fundamental rights. It creates a fair and open online platform environment. It brought TikTok under scrutiny questioning its safeguard measures to protect minors from potential online risks. In December 2023, X (formerly Twitter) was put into questioning over the dissemination of illegal content in the European Union in the context of the Israel-Hamas conflict.

This article is authored by Mehdi Hussain, former assistant professor, political science, Kirori Mal College, New Delhi.