Tech spending shifts to meet AI demand, forces a ‘reshuffling of skills’ for workers

Tech companies such Google, AmazonMeta (Facebook) and others laid off tens of thousands of workers last year as an adjustment to over-hiring during the COVID-19 pandemic.

But the firings have not abated in 2024.

In January, job cuts leaped 136% over December and hit a 10-month high, according to a new report by outplacement firm Challenger, Gray and Christmas. The surge in firings was led by the tech and financial services sectors. (In fact, Cisco may be eyeing significant layoffs.)

US-based employers announced 82,307 cuts in January, compared to 34,817 cuts the month before, according to the outplacement firm’s report. While that January number is down 20% from the 102,943 cuts announced in January 2023, they’re a sign the tech job market is shifting.

In 2024, tech employers making or planning significant cuts include SAP, EBay, Microsoft, and Google (Alphabet). So far this year, 135 tech companies laid off nearly 34,000 workers, according to, which began tracking tech layoffs in March 2020. That compares to all of 2023, when there were at least 154,000 layoffs at more than 1,000 tech companies, according to biggest layoffs since 2020

Biggest tech layoffs since Covid-19

There are several factors behind the increase in layoffs; historically, January tends to have more layoffs than other months as companies lean into restructuring plans, roll out reorganizations and set new fiscal directions.

Recent layoffs appear to be driven by broader economic trends, including a strategic shift toward increased automation and AI adoption in various sectors, “though in most cases, companies point to cost-cutting as the main driver for layoffs,” said Andrew Challenger, senior vice president of Challenger, Gray & Christmas.

“The way I often describe this is AI is sucking the air out of almost all non-AI investments in the whole tech world.” — Harvard Business School Professor David Yoffie.

While unemployment rates remain near historic lows, getting a bead on how tech workers are faring is complicated. Unemployment rates in the US IT market vary wildly  depending on whether the data comes from CompTIA, an IT trade association, or Janco Associates, an IT business consultancy.

CompTIA pegs the IT unemployment rate in the US at 2.3%, more than a full percentage point below the national unemployment average of 3.7%. Janco Associates, however, puts IT unemployment at 5.5%, more than a full point above the national average. And Janco’s data paint a far grimmer picture for 156,000 unemployed IT pros.

down normcat table through feb 2 2024 Indeed

Like Challenger, Janco Associates CEO Victor Janulaitis places some of the blame for layoffs at the feet of AI, mainly because the technology’s ability to automate tasks will eliminate workforce needs.

“Layoff will continue as more ‘routine’ IT jobs are eliminated,” Janulaitis said. The first to go are help and service desks as AI eliminates those positions. Next, entry-level programmers will be eliminated as AI applications generate code, he said.

Experts say they’re seeing a shift in popular occupations. The adoption of AI, and more specifically generative AI (genAI), is causing organizations to rethink what skills are most needed for the future. Massive investment in AI tech is prompting organizations to cut workers to free up additional funds for further investing.

Enterprises spent about $19.4 billion worldwide on genAI technologies in 2023; that  amount is expected to double this year, according to research by IDC.

“The way I often describe this is AI is sucking the air out of almost all non-AI investments in the whole tech world,” said Harvard Business School Professor David Yoffie. by industry

At large tech companies such as Microsoft, Amazon, Google, and Meta, AI has not been a traditional area of investment. And it requires a very large investment of financial resources. That leads to portfolio decisions by companies to rebalance spending in order to pay for the very large investments they’re making in building data centers, doing training, and buying GPUs to run AI.

That, according to Yoffie, leads organizations to look at marginal parts of their business that haven’t paid off. 

“So, Amazon starts cutting Alexa, and they start cutting health [tech]. Microsoft starts cutting games. Google has a lot of non-core businesses that they’ve been making long-term investments in that haven’t delivered significant results, and so they’re all looking for ways to save resources in order to make the investments required to be competitive in AI,” Yoffie said.

By 2030, as many as 375 million workers — or roughly 14% of the global workforce — might need to switch occupational categories as digitization, automation, advances in Al, and other technologies disrupt the world of work, according to management consulting firm McKinsey & Co.

The adoption of AI has the potential to reshape the workforce, though many employees could be looking at reskilling instead of separation. According to a 2023 survey of 1,684 C-suite executives by McKinsey Global Institute, about four in 10  respondents reporting AI adoption expect more than 20% of their companies’ workforces will be reskilled in the next three years; and 8% expect the size of their workforces to decrease by more than 20%.

mckinsey graphic 1 McKinsey & Co.

Cutting employees to hire more

While some companies may still be adjusting to pandemic era over-hiring, there is a significant reallocation of resources across the board into anything AI related.

“Our latest survey results show changes in the roles that organizations are filling to support their AI ambitions,” McKinsey said in its report. “Roles in prompt engineering have recently emerged, as the need for that skill set rises alongside gen AI adoption, with 7% of respondents whose organizations have adopted AI reporting those hires in the past year.”

Organizations are spending on genAI software as well as related infrastructure hardware and IT/business services. By 2027, spending is expected to reach $151.1 billion, representing a compound annual growth rate of 85.9% during the 2023-2027 period.

Looking specifically at genAI’s predicted impact, service operations is the only function in which most respondents to McKinsey & Co’s survey expect to see a decrease in workforce size at their organizations.

“This finding generally aligns with what our recent research suggests: while the emergence of genAI increased our estimate of the percentage of worker activities that could be automated (60% to 70%), this doesn’t necessarily translate into the automation of an entire role,” McKinsey said in it’s report.

Megan Way, an associate professor of economics at Babson College in Massachusetts, said businesses are now “reshuffling” resources to move more quickly into the genAI space.

“They’re all very concerned. They need to dump a lot of resources into that now in order to make their numbers, please Wall Street, and cut workers in some places where there might be some slack because of hiring they did in 2020 and 2021,” Way said.

Way, however, pointed out those same companies need to start hiring or retrain existing employees to support their genAI initiatives; she sees a coming hiring boom, “it’s just going to be in a different area.”

“Companies like Facebook will continue to lay off as they look to improve productivity. Facebook shed employees and improved earnings. Over time we see that size pollutes.” — Janco Associates CEO Victor Janulaitis.

Employee attrition has more to do with a reallocation of financial resources than simply the elimination of unneeded workers, according to experts.

Last month, Google cut hundreds of employees, many of them on teams that produce Google’s Nest, Pixel and Fitbit devices, as well as the company’s augmented reality team. Those layoffs came a year after the company cut nearly 12,000 jobs, about 6% of its workforce.

Many organizations still think that high headcounts result in more revenue and so they don’t look to improve productivity as another solution, Janulaitis explained.

“Companies like Facebook will continue to lay off as they look to improve productivity,” he said. “Facebook…shed employees and improved earnings. Over time we see that ‘size pollutes.’ Facebook now understands that and they are actively reducing headcounts and improving productivity.”

Even as layoffs have continued, tech companies added nearly 18,000 new workers in January, the second consecutive month of job growth, according to CompTIA. Its data shows employer job postings for future IT hiring increased to more than 392,000.

According to data from US Bureau of Labor Statistics (BLS), the picture is more nuanced. The BLS does not break out data for tech or IT jobs but does track “information” careers; employment there rose 15,000 in January, but over a longer timeline its down 76,000 from its recent peak in November 2022.

Tech talent is still in high demand

Ger Doyle, senior vice president of IT jobs resource firm Experis, said roles most US companies are expecting to hire for in Q1 are in IT (55%), followed by financial services and real estate (43%). This is the fifth consecutive quarter that IT roles have been at the top of recruiters’ lists.

“In general, they continue to keep IT talent — particularly cloud, software development, AI and cybersecurity. Those roles are still red hot from a demand perspective within big tech and even more so in industries that are now beginning to move to AI and are picking up any new talent coming from big tech,” Doyle said.

There’s also a “huge demand” for high-end developers, full-stack developers, and talent in the cloud and infrastructure space, according to Doyle. And companies also need more data analyst talent who can track, oversee, and make sense of the big data their technologies collect.

mckinsey graphic 2 McKinsey & Co.

“Net new hiring is slower for sure, but there is still is not enough of the in-demand talent out there. Upskilling is key to solving this,” Doyle said. “There’s simply not enough people out there with those skills so we are looking at continuing to upskill and reskill people to get ready for the next avalanche of talent requests around AI and automation.”

According to the Top Employers Institute, a provider of human resources employee assessment programs, skills tech workers should attain in order to keep themselves competitive include:

  • AI, as demand on how to implement and manage it is growing fast.
  • Cloud architecture for those organizations that run on a multi-cloud platforms.
  • Cybersecurity, because the use of AI has created more viruses and phishing emails to compromise organization’s data.
  • Python programming, because of its versatility to use for data analytics, web/software development, and AI.

Top tech jobs that are still high on the list for hiring and career growth include DevOps Engineer, IT Director, Cybersecurity Analyst, AI Developer, Data Analyst, and Cloud Engineer, according to Trevor Bogan, regional director of the Americas at the Top Employers Institute.

IT workers, in particular, need to stay on the skills “cutting edge,” Way said, and that means getting versed in AI.

“If they were someone who was in marketing, communications or customer service, etc, they should be getting literate in the AI space in terms of marketing, communications and customer support. All those areas,” Way said. “I don’t see that [companies are] not going to need more workers. I think they’re going to be doing quite a bit of hiring soon; it’s just going to be in a different area.”

Copyright © 2024 IDG Communications, Inc.

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