Yves here. Haha! The manner in which employers are leveraging AI to cut their workforce is creating so much anxiety that employees are hesitant to embrace this technology. This instinctive job-protective behavior can be seen as a form of sabotage, albeit without conscious intent. Quite the clever maneuver!
By Mark Ma, Professor of Business Administration, University of Pittsburgh. Originally published at The Conversation
Business leaders and investors are facing a perplexing dilemma: While companies are investing unprecedented amounts into artificial intelligence, the anticipated increases in productivity remain elusive.
Even CEOs are beginning to acknowledge this disparity. A study by the Atlanta Federal Reserve revealed that approximately 90% of executives feel AI has yet to enhance productivity within their organizations. Additional evidence suggests that the wider productivity upswing since 2021 is more likely attributed to remote work and other factors outside of AI, including downsizing in the tech sector.
My research on how technology influences business operations reveals a significant reason behind the lack of expected gains: AI-related layoffs, coupled with the ensuing job insecurity, are undermining the essential conditions required for AI to enhance worker efficiency. In fact, these job reductions adversely impact employees’ attitudes toward AI—an important indicator of productivity when AI is employed.
It’s crucial for managers and investors to recognize that using layoffs as a strategy to fund AI investments is ultimately counterproductive, negating potential productivity improvements.
When Layoffs Become Strategy
In the United States, businesses have invested billions in AI with the hope of boosting productivity. However, research indicates that managers must approach the current AI buzz with caution.
Along with my colleagues, we analyzed millions of job satisfaction reviews and extensive reports on corporate financial health, alongside numerous AI investments and layoffs across U.S. public companies over the past five years. Our findings revealed a clear trend: As AI investment announcements increase, so too do the announcements of job cuts attributed to AI initiatives.
This correlation does not appear to be coincidental; rather, it reflects a corporate strategy that sees workforce reductions as an integral aspect of their AI pursuits.
Typically, managers in publicly traded firms make decisions based on whether a new investment can enhance short-term profitability and share prices. With significant financial commitments to AI, these managers encounter pressure to show solid financial returns. The prevailing assumption is that if AI increases employee productivity, fewer workers will be needed to maintain output.
Consequently, a swift method for managers to achieve their anticipated returns is to reduce headcount and decrease labor costs. Some firms we examined even began laying off employees ahead of substantial AI investments to free up resources.
Even though managers anticipate that both AI investments and job cuts will enhance company value, our studies showed that stock market responses to these layoff announcements typically hover near zero. This aligns with our previous research indicating that announcements of AI investments do not reliably boost a company’s share price.
While some firms, such as financial tech platform Block, experienced stock price increases upon announcing staff reductions due to AI, the overall market response was generally negative or flat for more than half of these instances.
This muted reaction indicates that these decisions carry significant hidden costs that undermine the benefits of AI adoption.
Why Employee Sentiment Matters
We identified one major hidden cost: fear among employees regarding job security. On one hand, workers find themselves central to the AI transformation and need to integrate AI into their daily tasks to become more efficient. On the other hand, AI poses a threat to their employment and stability.
To gauge employee perspectives on AI adoption, we analyzed millions of employee reviews on the workplace platform Glassdoor.com. Our findings showed that comments related to AI were significantly more negative than the overall sentiment of the reviews.
This negativity underscores widespread apprehensions about corporate AI initiatives and a growing anti-AI sentiment among employees. Additionally, there is a robust correlation between employee attitudes toward AI and company productivity, based on financial records. This signifies that negative employee sentiment can detrimentally impact productivity, negating potential efficiency benefits of AI.
To further investigate the sources of this hostility, we examined employee feedback closely. Workers expressed fears about job loss due to AI, highlighted a lack of training opportunities, mentioned limited chances for skill development, and criticized ineffective corporate AI leadership. Notably, concerns regarding job security were the most prominent.
To confirm the negative relationship between job cuts and perceptions of AI, we tested how employee sentiment shifts when companies announce layoffs linked to AI, finding a significant decline in employee attitudes. Essentially, many employees are resistant to AI, having observed colleagues lose their jobs to it or fearing that they might be next. This is consistent with a recent Reuters/Ipsos poll revealing that half of Americans worry AI could lead to job loss within their households.
In contrast, management sentiment regarding AI appears to be consistently optimistic. Our analysis of around 10,000 earnings-call transcripts showed that management discussions about AI were largely positive, yet this optimism had no significant connection to productivity outcomes.
In summary, employee sentiment is more crucial for unlocking the advantages of AI than any level of managerial optimism.
A Guide for Managers
Our research conveys a pivotal message to managers and investors: utilizing AI as a reason for job cuts is a strategic error that undermines the potential benefits of AI. For many firms, the pursuit of AI has morphed into a survival game, fostering fear rather than engagement.
As employees are encouraged to utilize AI tools while simultaneously facing job cuts linked to these innovations, the anticipated advantages of AI often backfire. Consequently, companies end up with a disheartened workforce and lackluster returns on AI investments.
Businesses must recognize that managing employee perceptions is vital to realizing the benefits of AI. This entails fostering an environment where workers view AI as a partner, rather than a threat. Managers can achieve this by genuinely committing to share the gains from AI with employees—increasing training and opportunities instead of resorting to layoffs.
Organizations that adopt this approach and acknowledge the profound impact of job insecurity will likely be the ones that reap the rewards of their AI investments.
