AI meets cost reduction and traditional definitions

American companies are being rocked by historic rounds of layoffs, leading some to ask: Has artificial intelligence finally arrived for their jobs?

While the spread of generative and agentive AI plays a role, recent announcements of job cuts from companies like Amazon, UPS and goal It is much more than just the advancement of new technology.

The companies, each of which announced layoffs in recent weeks totaling more than 60,000 jobs eliminated this year, said they were trying to limit corporate inflation, streamline operations and adapt to new business models.

But in the absence of the Bureau of Labor Statistics’ monthly jobs report, which has gone dark amid the government shutdown, the layoff announcements have raised questions about the strength of the labor market and whether this is the beginning of an AI-driven recession.

AI is likely to play a role in layoffs because companies that invest more in technology need to cut costs elsewhere, but there is no indication that the recent cuts are directly related to AI replacing a person’s job, labor experts and economists said.

“We spend a lot of time looking carefully at companies that are actually trying to implement AI, and there is very little evidence that it cuts jobs anywhere near the level we’re talking about,” said Peter Cappelli, a professor of management at the Wharton School and director of its Center for Human Resources. “And in most cases, it doesn’t cut headcount at all.” “It turns out that using and delivering AI to save jobs is a very complex and time-consuming exercise… There is still a perception that doing this is simple, easy and cheap, which in fact it is not.”

However, the cuts, which come after a series of layoffs across the tech industry, have cast a dark shadow over a reeling economy ravaged by persistent inflation, rising payment delinquencies, low consumer sentiment and an average effective tariff rate that is at its highest level in nearly a century, according to estimates from the Budget Lab at Yale University.

The growing pile of bad news did little to shock the stock market, which reached near-record highs, but that was largely because it was partly fueled by massive AI caps.

Cappelli attributed the recent increase in layoff announcements to concerns about the state of the economy. He also pointed to a potential “bandwagon” effect in which companies see their competitors cutting back on production, so they too begin making cuts.

“If it looks like everyone is cutting, then you say, ‘They must know something we don’t know,’” Cappelli said. He added that investors often reward cutting: “They want to hear that you’re cutting because it sounds like you’re doing something good.” “It seems you have become more efficient.”

To be sure, artificial intelligence and automation will likely enable some reductions, and emerging technology is poised to help all businesses reduce costs and boost efficiency in the coming years. But the reasons behind each layoff and the role AI plays vary greatly, and vary from company to company.

Starbucks The decision to cut about 2,000 jobs at the company in two rounds this year is tied to slowing sales at the company and larger transformation efforts led by its new CEO, Brian Nicol. layoffs in dead The AI ​​unit, which affected about 600 jobs, came as the company said it wanted to work smarter and reduce layers. Intel Its decision to lay off about 15% of its workforce came after it overinvested in chip manufacturing without sufficient demand.

Together, they represent what John Challenger, CEO of recruitment firm Challenger Gray & Christmas, describes as a turning point in the economy and job market.

He said: “We were in a zone of neither hiring nor firing. The economy was moving forward. Labor markets were feeling the pressure, but unemployment certainly remained relatively strong.” “These job cuts indicate that the dam may break as the economy slows.”

The first signals could come from retail, shipping and distribution, he said.

During the COVID-19 pandemic, Amazon embarked on a hiring spree in part to meet a surge in demand for e-commerce and cloud computing services, more than doubling its corporate and front-line workforce to 1.3 million employees between 2019 and 2020.

By 2021, the company had swelled to 1.6 million employees globally, the same year Andy Jassy succeeded Jeff Bezos as CEO.

Since taking over, Jassy has been trying to undo some of that work.

Last week’s layoff announcement, which affected 14,000 jobs at the company, is expected to be the largest in the company’s history and to affect nearly every unit of the company. This marks Amazon’s second round of cuts in three years and amounts to more than 41,000 corporate job cuts since 2022, with more likely on the way by 2026.

Although AI is part of the picture, there is more work behind the cuts.

Jassy said in the days after the announcement that the changes were not AI-driven or financially driven, but were instead aimed at reducing corporate bulk so the company could operate as the world’s largest startup.

Amazon said it’s not replacing employees with AI, at least not yet, but it needs to cut headcount so it can invest in the technology. As these costs decline, Amazon has made significant investments in cloud infrastructure to support AI workloads while simultaneously pushing a range of AI services and tools across the company.

This has contributed to higher capital expenditures, which are now expected to reach $125 billion this year, compared to the previous forecast of $118 billion.

Jassy previously said the company’s workforce will shrink in the future as a result of its embrace of generative AI, but it still plans to continue hiring in “key strategic areas.” Over time, the company will need “fewer people doing some of the jobs that are done today” but “more people doing other types of jobs,” Jassy said in June.

The cuts are also part of a larger goal for Jassy to make the company smarter, reduce bureaucracy and remove layers so it can work faster and smarter.

“It’s the culture,” Jassy said during Amazon’s quarterly earnings call on Thursday. “If you grow as quickly as we have for several years, you know, the size of companies, the number of people, the number of locations, the types of businesses you’re in, you end up with a lot more people than you had before, and you end up with a lot more layers.”

In January, UPS announced a major change in its strategy.

The logistics company said it will reduce its relationship with its largest customer, Amazon, in favor of higher-margin businesses that require fewer people to operate.

In fiscal 2024, Amazon shipments represented approximately 12% of UPS’ revenue. The logistics giant said it plans to cut that volume by more than half by June due to relatively low margins.

“This was not their request. This was ours. This was UPS’s control of our destiny,” UPS CEO Carol Toomey told analysts in January.

In turn, UPS said it is moving toward more profitable businesses, such as health care, revenues and business-to-business services, and as a result, will require fewer resources.

“As we reduce volume, we will not only reduce the mileage hours associated with that volume, we will be able to deduct fixed costs to match our capacity with our anticipated new volume levels,” CFO Brian Dykes said in January. “We expect to close up to 10% of our buildings, reduce our vehicle and aircraft fleets, and reduce employment.”

The company said last week it had deepened previously planned job cuts for a total of 48,000 jobs cut so far this year across operational and office staff.

In the first half of 2025, package volumes fell 5.4% at UPS compared to the same period last year, according to data from ShipMatrix, and the company is changing its corporate structure to adapt to lower volume.

The company said the bulk of this year’s layoffs, representing 34,000 operating jobs, were related to its decision to close 93 buildings — not replacing people with robots.

A company spokesperson said the additional 14,000 roles being cut were partly related to artificial intelligence, but technology was not the primary driver.

Artificial intelligence and automation are expected to come to UPS more in future hiring plans.

Since the company plans to bring automation to more of its facilities, it will not need to hire as many people. Last week, UPS said 66% of its fourth-quarter business volume would come through automated facilities, up from 63% a year earlier. This number is expected to rise in the coming years.

However, that doesn’t necessarily mean those jobs are disappearing; some may migrate from UPS to other companies, said Jason Miller, a professor of supply chain management at Michigan State University’s College of Business.

Miller said there’s a “reallocation” effect that occurs when one company loses business and gets off the payroll — while another company gains. The number of jobs may be the same, but the location, qualities and duties can differ, he said.

Bureau of Labor Statistics data on the number of people working in “courier” jobs, which covers roles at places like UPS and Amazon, reflects this trend. As of August, courier centers were down just 2% from their all-time highs, and have been on the rise for the past three years, the data shows.

Target’s announcement last month that it intended to cut 1,800 jobs, representing about 8% of the company’s workforce, is a window into both consumer spending and the specific challenges the retailer faces.

It’s Target’s first major round of layoffs in a decade, and comes after four years of nearly stagnant revenue. Michael Fedelke, the retailer’s incoming chief executive, said the cuts are aimed at reducing complexity at a company that has seen its workforce grow faster than sales.

Unlike some of its competitors, the bulk of Target’s revenue comes from the types of products that are nice-to-have, but not essential, like holiday mugs, trendy sweaters, and home decor.

This means that when consumer spending starts to slow, Target feels it more acutely than its competitor Walmartwhich earns the majority of its revenue from grocery stores.

A slowdown in consumer spending has been partly to blame for Target’s declining performance in recent years, but the introduction of tariffs, which push prices higher, could make that effect worse.

“Buyers’ willingness to pay remains flat, inflation is high, and incomes are not rising as much, so companies’ ability to raise prices to maintain their margins is under pressure,” said Daniel Keum, an assistant professor of management at Columbia Business School, who studies labor market dynamics. “If you can’t increase the price, you have to reduce the cost.

“How can I manage cost operationally?” Keum added. “I mean No. 1, like, let’s cut the white-collar employees.”

Beyond macroeconomic conditions, Target’s business has also suffered from a number of self-imposed challenges. The quality of its merchandise has declined, and fewer employees and frequent stock-outs have made its stores less fun to shop for, customers and insiders told CNBC earlier this year. The retailer is also struggling to manage its inventory, which has affected its profitability.

All of these problems combined left Target with a workforce that grew faster than sales and a complex corporate structure that hindered decision-making and created unnecessary red tape.

Between fiscal 2023 and fiscal 2024, Target’s global workforce grew 6% from 415,000 employees to 440,000 employees, but in the same time period, sales fell 0.8%, according to company filings.

“The reality is that the complexity we have created over time is holding us back,” Fedelke told Target employees in a memo when announcing the job cuts. “Too many layers and overlapping work slowed down decision making, making it difficult to bring ideas to life.”

He did not cite artificial intelligence in his memo but said the cuts would help the company execute faster so it can better “accelerate the technology.”

– CNBC Melissa Repko and Steve Leisman She contributed to this report.