Commentary: Why AI-fuelled layoffs will backfire on employers

JOB CUTS WILL MAKE AI ADAPTATION HARDER

The current wave of job cuts is likely to make that harder. That’s because layoffs don’t just harm the people who leave – they also traumatise those who survive, hurting their morale and commitment and increasing stress. 

No wonder management research has also found that companies that conduct layoffs during a period of prosperity have worse financial performance than competitors who don’t reduce headcount. 

What’s more, these negative effects are strongest in the most innovative and rapidly-growing industries. 

A study of more than 2,000 Spanish companies, for example, found that when downsizing is combined with significant changes in equipment, techniques or processes (such as the type of transformation required to take advantage of AI), innovation declines because employees feel threatened and become less willing to take risks.

A similar study of British firms found that although small and medium-sized layoffs don’t significantly hinder innovation, large downsizing does. (Such unexpected effects may be one reason rehiring rates are going up.) 

This isn’t to say that layoffs are all bad for the companies that do them; when organisations have too much slack, cuts may actually push them to become more innovative. But even there the path is fraught. 

If organisations are resource constrained (and given the scale of investment the AI arms race demands, even the wealthiest company could be), the effects of layoffs quickly turn negative once again.

The paradox of innovations that are as transformative as AI is supposed to be is that they are never just plug-and-play. Inventing the technology is only the first step; learning how to use it is just as hard, and just as important.

It requires employees who are ready to learn, take risks and embrace change – not ones left traumatised and fearful after their colleagues have been brushed aside. Laying off people now in anticipation of AI’s effects might seem very tempting to today’s CEOs, but most of those who do will end up regretting it.