When the economy is uncertain, CEOs often reach for a familiar lever: job cuts.
And things are feeling far from certain these days.
January layoffs were the biggest for the start of a year since 2009, during the Great Recession, the outplacement firm Challenger, Gray & Christmas reported last week. The Labor Department on Friday also announced a surprise drop in employment in February.
Everywhere business leaders look, they see question marks: about the economy, tariff policy, congressional elections, the impact of AI, and global conflict.
A lack of clarity in business is nothing new, yet sometimes the fog grows thicker. When it does, holding onto cash starts to look like the smart call to some CEOs, said Sunil Setlur, founder of Cognisen.co, a leadership and organizational strategy advisory firm.
That can mean cutting people, he said, because payroll often represents the biggest line item on a company’s balance sheet.
What investors like
While cuts are unpleasant for all but the most hard-nosed CEOs — and, of course, the affected workers — they’re often a hit with investors.
From Meta to Spotify, Wall Street has rewarded companies that announce layoffs in recent years.
When markets applaud job cuts, and compensation is tied to a company’s stock performance, that incentive structure can make such decisions “easier than they might otherwise be,” Setlur said.
In some industries, like tech, where many companies bulked up during a pandemic-era boom, layoffs can also bring payroll back in line with demand, he said.
For years, some firms have been trying to thin layers of both middle management and rank-and-file workers to create smaller, more nimble teams.
Amazon, for example, said in January that it would cut 16,000 corporate workers as part of an effort to become the “world’s largest startup.” Since late 2022, it has cut more than 57,000 corporate roles.
A number of companies, exercising the leverage they hold in a softer job market, are tightening performance standards — another way to reduce head count without announcing it outright.
The AI factor
Much of the chatter around recent layoffs centers on fears that this is just the start of AI decimating white-collar jobs.
In late February, the tech company Block laid off more than 40% of its workforce, citing AI-generated efficiencies allowing smaller teams to get more done. The company’s cofounder and CEO, Jack Dorsey, predicted that more companies would eventually embrace a similar slim down because of AI.
By some measures, it’s already happening. At companies in five industries likely to feel “significant near-term impacts” from AI adoption, employment fell by 4%, on average, over the prior year, while net productivity rose, Morgan Stanley reported in February. The financial firm surveyed more than 900 executives in several countries, including the US.
“Despite the perception that adoption is still in early stages, new data show AI’s impact is both measurable and accelerating faster than expected,” the report said.
Friday’s employment report, which showed a loss of 92,000 jobs rather than a gain of 55,000 as economists forecast, also revealed weakness in tech. One economist wrote that the industry is losing jobs at one of the fastest rates of the last two decades.
Job cuts often don’t have as much to do with AI as with pragmatic decisions to reduce costs, said Alibek Dostiyarov, cofounder of Perceptis, which develops AI-powered software for professional services firms.
That’s particularly true for firms that grew rapidly during the pandemic, only to see demand soften subsequently.
“AI is just a convenient scapegoat,” Dostiyarov told Business Insider.
Instead, while he estimated that the technology could deliver long-term efficiency gains of 20% to 30%, Dostiyarov said it’s more likely to lead to task elimination rather than one-for-one job losses.
In general, Tim Walsh, CEO of KPMG US, doesn’t see AI behind many corporate cutbacks. Instead, he told Business Insider, many businesses are reviewing their overall workforce to reassess where they need people.
“Deploying AI does not automatically lead to workforce reduction,” Walsh said. KPMG, he said, will likely need to hire more people as it continues to develop and incorporate AI tools into its business.
Understandably, AI anxiety remains pervasive, however.
“A lot of people have been just waiting for the AI shoe to drop,” said Jeff Fettes, CEO of Laivly, which uses AI agents to support customer service work for Fortune 500 companies. Yet because it often takes companies a while to adopt new technology, not all of the reductions are likely to show up right away.
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