Challenger, Grey & Christmas data indicates that 2023 saw job cuts double from 2022, tallying the largest spate of firings since the COVID-induced employment crash of 2020. The new year has not started off much better, as last month saw the most job cuts of any January since 2009 — the depths of the Great Financial Crisis. U.S. employers have announced plans to hire just 5,376 workers during the month, the lowest January total on record.
Interestingly, the latest report from Challenger credited some of the job cuts to "a strategic shift towards increased automation and AI adoption in various sectors," suggesting that the replacement of human labor with machine learning techniques may have finally arrived. Though companies have explicitly attributed just 4,628 job cuts to AI since it was added to the company's survey in May, it is hard to know exactly how much machine learning has truly contributed to rising pink slips.
A recent Oliver Wyman survey of over 15,000 employees suggests the two sectors utilizing AI most frequently are technology and financial services, respectively. White-collar workers said their productivity had improved as a result of AI. Ironically, financial quantitative analysts were identified in a study led by OpenAI and the University of Pennsylvania as one of the occupations highly exposed to advanced AI technology. Though technology led all industries in job cut announcements last year with 168,032, up 73% YoY, financial firms announced 57,052 cuts, surging by a larger 133% YoY.
Despite all of the aforementioned job cuts, however, official gauges of U.S. employment have not budged for some time. Initial jobless claims remain well below their average level between 2015 – 2020, and the unemployment rate is just 3.7%. This suggests that the jump firings (AI-induced or otherwise) have not left the vast majority of these employees without solid ground to land on. For tech workers, the primary subjects of job cuts, the unemployment rate remains significantly lower than the headline figure at just 2.3%, according to a January report from CompTIA. This suggests that demand for tech skills — perhaps in the realm of AI — remains robust, even as some companies have gone under or initiated cost-saving processes.
NBC News reports that postings on LinkedIn that mention either AI or generative AI more than doubled worldwide between July 2021 and July 2023 — and on Upwork, AI job posts increased more than 1,000% in the second quarter of 2023 compared to the same period last year. Though some job seekers may not be able to apply AI directly to their work, LinkedIn itself, owned by key OpenAI investor Microsoft, is rolling out AI tools to help them find their next opportunity.
Even if AI does contribute to an increasing share of job cuts in the future, it will likely lead to some level of new job creation as well, but it is difficult to tell how this creation-destruction cycle will balance out. World Economic Forum (WEF) data suggests AI could create 69 million new jobs across 45 national economies by 2027, but these may come at the cost of -83 million jobs eliminated, a net decrease of -14 million jobs. That decline would be equivalent to 2% of current employment in the studied regions. However, it should also be noted that the WEF has been overoptimistic about the adoption of automation technologies before. Just over a third of all business-related tasks are now performed by machines, with the remaining 66% performed by humans. This represents a negligible 1% increase in the level of automation that was estimated by WEF polling in 2020.
History shows that entrenched employment destruction is not a typical response to technological innovation, especially over the long term. A 2022 National Bureau of Economic Research (NBER) paper calculated that 60% of employment in 2018 was in types of jobs that didn't exist before 1940. Additionally, research has shown that the implementation of new technologies has boosted wages and productivity when combined with human labor.
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