Study: layoffs justified by AI investments reduce company productivity
A study using five years of data from publicly traded US companies shows that layoffs justified by AI investments damage employee morale and reduce the expected benefits of AI for productivity; the market reaction to such announcements is close to zero on average.
The research team analyzed millions of employee satisfaction reviews, thousands of financial performance reports, and hundreds of announcements about AI investments and layoffs at publicly traded US companies over the past five years. They found that as the frequency of AI investment announcements increases, so does the frequency of layoff announcements justified by AI deployment. According to the authors, this reflects a corporate strategy in which reducing headcount is an integral part of the AI strategy – some companies even laid off employees before making the AI investment itself to free up capital.
The stock market reaction to layoff announcements was close to zero on average; in more than half of the cases examined, it was negative or close to zero (an exception was Block, whose shares rose after the announcement of AI-related layoffs). An analysis of millions of reviews on Glassdoor showed that comments about AI are significantly more negative than the overall tone of the reviews, with job security concerns being the most criticized topic, alongside insufficient training and unclear leadership on AI. Employee sentiment toward AI also drops sharply after a company announces layoffs justified by AI – consistent with this, a Reuters/Ipsos survey reports that half of Americans worry that AI will cost someone in their household their job.
According to a study by Atlanta Federal Reserve, approximately 90 % of executives believe that AI has not yet increased productivity at their company. An analysis of approximately 10 000 earnings call transcripts showed that management maintains a consistently optimistic tone about AI, but according to the authors, this optimism has no significant relationship with actual productivity. Employee sentiment, by contrast, proved to be a stronger predictor of company productivity when using AI than managerial optimism. You can find details in the source article.
Why it matters
The results suggest that reducing headcount as evidence of returns on AI investments is, according to the authors, a counterproductive strategy – damaged morale and fear of job loss undermine the expected benefits of AI, while the market reaction to such measures is mostly neutral to negative. For managers and investors, this means that evaluating AI investments solely on the basis of savings in payroll costs overlooks the hidden cost of lower productivity among the remaining employees.
Two audiences, two different impacts
What this means
For individuals
The research confirms that employee concerns about job security related to AI are not isolated – according to the reviews analyzed, this is the most frequently criticized topic, and sentiment toward AI drops sharply after layoffs are announced.
For a business
According to the study, companies that justify layoffs by citing AI investments do not achieve the expected increase in productivity or a clearly positive market reaction – for more than half of the announcements examined, the stock market reaction was negative or close to zero, because damaged employee morale undermines the benefits of AI.
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Event sources
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