AI's Potential, Real Or Not, Is Providing An Excuse For Corporate Layoffs

Appending the word "wash" to any phrase implies a coverup. Although investors and big tech companies continue to hype AI while pouring more money into it, the reality is that its benefits remain elusive, at least on the potential scale which could deliver the returns VCs and tech bros were counting on. 

But one unforeseen implication of the tech adoption cycle is that corporate executives are using "AI washing" as an excuse to cut employees, a tactic always popular with Wall Street, especially during times like now when stock growth momentum has slowed. The result is a premature or even counterproductive trend which may result in harming the businesses employing this tactic to jack equity prices. This is because history teaches us the most effective technology adaptation may come from workforce experimentation and innovation, so if those people are laid off, productivity growth could be impeded. But never underestimate the power of an executive bonus tied to 'efficiency' metrics, which usually rely on employees being the costs cut. JL

Lila Schroff reports in The Atlantic:

Companies are blaming AI for job cuts, not because AI is ready to replace workers, but because it’s become fashionable. AI-induced job loss risks becoming a self-fulfilling prophecy (driven by) “AI-washing:” using the technology as an excuse to lay off workers. The cuts offer a way to shed workers while signaling they take AI seriously, not that AI is doing the work but, by cutting people, the company is AI-native. After Block announced layoffs, its stock price increased. Investors, who have unthinkable sums riding on AI, are antsy for signs it is boosting productivity. Once one company conducts AI-driven layoffs—even if premature—others feel pressure to do the same. (But) humans working with AI are more likely to produce good work than bots alone. Sloppy, hasty automation, which replaces workers with inferior (tech), is bad for businesses as premature AI layoffs backfire. Some of the “most promising AI applications will come from employees, not the C-suite." 

Late last month, at an event in Washington, D.C., Andrew Yang delivered a bleak message. “I have bad news, America,” he told the crowd. “The Fuckening is here.”

The Fuckening is the name that Yang, a former presidential candidate, has given to AI’s disembowelment of the workforce. As he sees it, millions of knowledge workers will soon lose their job, personal-bankruptcy rates will spike, and entire downtowns will turn vacant as offices hollow out. Yang has talked with computer-science majors, he said onstage, who can’t find a job and are instead “driving Ubers to make ends meet.” His doomsaying is extreme but familiar: Fears of job losses are mounting as AI continues to rapidly advance. A new generation of AI agents are more capable than traditional chatbots of assisting with sophisticated computer work. Bots are no longer limited to searching the web and answering questions—they can create financial models, generate slide decks, and much more. 

Perhaps the most concerning sign yet of an impending jobs crisis came one day after Yang’s announcement. The payments firm Block, which operates Square and Cash App, announced that it was laying off roughly 4,000 workers—nearly half of the company’s workforce—due to AI. “The intelligence tools we’re creating and using, paired with smaller and flatter teams, are enabling a new way of working,” Block CEO Jack Dorsey, who also co-founded Twitter, wrote. Going forward, he added, the company will be laser-focused on integrating AI across layers of its operations.

Although other companies have also blamed AI for job cuts, Block’s layoffs were unusually drastic. “The dreaded AI jobs wipeout got real,” The Wall Street Journal declared. Other companies could soon follow Block’s lead—not necessarily because the technology is ready to replace workers, but because it’s become fashionable to make such cuts. In that sense, AI-induced job loss risks becoming a self-fulfilling prophecy.

Dorsey’s explanation for the layoffs at Block might not be the whole story. The company could be engaged in “AI-washing,” or using the technology as a convenient excuse to lay off workers when other factors may be to blame. Like many other tech companies, Block became bloated during the pandemic—its workforce more than tripled from 2019 to 2022. Perhaps the cuts offered Dorsey a way to shed workers while also signaling to the world that he is taking AI seriously. “It is hard to imagine a firm-wide sudden 50%+ efficiency gain that justifies massive organizational cuts,” Ethan Mollick, a Wharton professor who is usually quite sanguine about AI’s capabilities, wrote online. “I think it is worth taking the justification with a grain of salt.”

 

I asked two former Block employees, both of whom were affected by the layoffs, for their perspective. “For engineers, AI did change the way work was being done,” one told me, pointing to the popularity of tools such as Anthropic’s Claude Code and Block’s own open-source AI agent, Goose. “I do believe that Jack was genuine in that layoffs were in large part due to AI.” But as the other former staffer pointed out, these tools are popular across the industry: “I’m not sure if Block uses AI more than most other tech companies do these days (which is to say, quite a lot).” In other words, yes, AI is being used plenty at Block—but it’s also being used at all kinds of large companies, none of which has engaged in such drastic cuts. (The employees both spoke with me on the condition of anonymity, citing fear of professional repercussions.) Block declined to comment when I reached out. 

In an interview with Wired on Friday, Dorsey suggested that the layoffs were a proactive move. “Something really shifted in December,” he said, pointing to advances in coding bots from Anthropic and OpenAI. “It presented an option to dramatically change how any company is structured, and certainly ours.” The implication is not that the technology is already doing the work of half the company but rather that, by cutting people now, the company will be forced to reimagine itself as an AI-native firm. The technology has made traditional management structures obsolete, Dorsey said, and the cuts will allow the company to put AI into everything it does.

After Block announced the layoffs, its stock price increased—in other words, the market seemed to be rewarding Dorsey for his vision. Investors, who have unthinkable sums riding on the AI boom, are antsy for signs that the technology is boosting productivity. This could set off a dangerous cycle: Once one company conducts AI-driven layoffs—even if premature—others might feel pressure to do the same. If your competitors can do more with less, you should be able to do so too. “The impact is very unfortunate,” Raffaella Sadun, a professor at Harvard Business School who studies AI and work, told me, explaining that such layoffs compound the narrative that AI is an effective substitute for humans. 

Although the market might immediately reward companies for making AI cuts, in the long run, experts told me, premature AI layoffs could backfire. Some of the “most promising and revolutionary AI applications” will come from employees, not the C-suite, Sadun said. At one company she works with, she told me, an engineer codified his knowledge about company operations into an AI agent. Junior employees can now go to the bot with trivial questions, saving the engineer time. 

If you fire half your staff, the institutional knowledge required to create such tools is lost. Plus, when companies cut their workforce because of AI, they cast the technology as a competitor, dampening employees’ incentives to make good use of it. Block’s ability to reinvent itself will “depend on the morale of the remaining engineers,” one of the ex-employees said, which “probably isn’t too great.” (Indeed, some remaining employees report feeling overwhelmed by their increased workload.)

Dorsey might be a visionary ushering in a new type of company, or he might be, as Sadun put it, sowing the seeds of his own destruction. For now, the quality of AI’s output is often middling—humans working with AI are more likely to produce good work than bots working alone. Sloppy, hasty automation, which replaces workers with inferior machines, is everyone’s loss. It is bad for society and for businesses themselves, and such efforts are unlikely to do much to increase productivity, Simon Johnson, a Nobel Prize–winning economist at MIT who has studied the history of technological transformations, told me. But for decades, corporate America has viewed “labor as a cost to be minimized as opposed to a resource to be developed,” he said.

 

People working on AI have been prophesying the end of white-collar work since the field’s inception. Now the technology is here, and the fearmongering is louder than ever. Last month, Mustafa Suleyman, Microsoft’s AI chief, warned that “most, if not all” white-collar work will be fully automated within the next 12 to 18 months; Anthropic CEO Dario Amodei has predicted that half of all entry-level white-collar workers may soon be jobless. But mass job loss, at least for now, is not an inevitability so much as a narrative. Executives are constantly being told that AI cuts are coming, and as pressure grows for them to signal that they are making good use of the technology, layoffs offer one of the easiest ways for them to do so.