Explainer: Why are there so many tech layoffs in 2024 amid the rise of AI?

SINGAPORE — The massive layoffs in the technology industry that took place over the last two years seem to be continuing in 2024, with companies such as Google, Amazon, Duolingo and Twitch announcing cuts to their workforce just within the first two weeks of January. 

Data from online tracker Layoffs.fyi found that as of Monday (Jan 15), 48 tech companies had laid off more than 7,500 employees around the world this year.

But experts say the reasons behind this current wave of retrenchments are different from those that drove the layoffs of 2022 and 2023.

In the past two years, many tech firms found that they had to downsize quite significantly because they had made massive investments during the pandemic which did not pan out as the world reemerged from Covid lockdowns.

Many of these companies had gone on a hiring spree during the pandemic as so much commerce moved online, but this was later followed by an economic downturn and supply chain disruptions caused by the war in Ukraine, and so many found that they had to trim their manpower budgets to cope with lower revenues.

This year, however, the global economic outlook is not as grim. Many tech companies have in fact reported healthy profits in recent months. So why is the tech industry still retrenching staff in droves?

Experts say the reasons for the current wave of layoffs have more to do with an “obsession” over efficiency and the emergence of artificial intelligence (AI).

TODAY takes a closer look at some of these factors, what these layoffs mean for the tech industry at large and the impact on Singapore.

OBSESSION WITH EFFICIENCY 

Meta founder and chief executive officer Mark Zuckerberg had described 2023 as Meta’s “Year of Efficiency”, adding that the firm would be undergoing some restructuring to “improve organisational efficiency, dramatically increase developer productivity and tooling, optimise distributed work, garbage collect unnecessary processes, and more". 

Meta went on to cut 10,000 jobs last year and other tech companies followed suit. In total, the sector made redundant up to 262,000 employees last year.

It might appear that this “obsession” with efficiency might have continued into the new year, said Professor Jeffrey Pfeffer at the Stanford Graduate School of Business, who added that the current series of cuts by many tech firms could be seen as “social contagion” or copycat behaviour.

The behaviour spreads through a network as companies almost mindlessly copy what others are doing. Prof Pfeffer said that when a few firms fire employees, others will probably follow suit.

However, Ms Rachel Sederberg, a senior economist from labour analytics firm Lightcast, is not convinced.

“Businesses make choices about what they want to focus on all the time, and sometimes these come as job cuts,” she was quoted as saying in Wired magazine.

RISE OF AI

In line with companies leaning towards efficiency, businesses are refocusing their resources towards emerging technologies such as AI.

In an article by American news network CNN, Duolingo said that it had let go of some contractors at the end of last year to make room for AI-related changes in how content is generated and shared. 

As its chief executive officer Luis von Ahn noted in a shareholder letter in November: “Generative AI is accelerating our work by helping us create new content dramatically faster.”

In the recent retrenchments, Google also gave similar reasons when it made significant cuts in the company’s augmented hardware development team. 

“As we’ve said, we’re responsibly investing in our company’s biggest priorities and the significant opportunities ahead,” Google said. 

“To best position us for these opportunities, throughout the second half of 2023, a number of our teams made changes to become more efficient and work better and to align their resources to their biggest product priorities.”

It might seem like AI will continually displace workers, but Professor Lawrence Loh from the National University of Singapore (NUS) Business School said that AI will not wholly replace human workers; they just need to be more skilled. He was part of a committee contributing to Singapore’s National Technology Plan.

Mr Art Zeile, chief executive officer of DHI Group, which operates the tech career website Dice, said that specialising in AI and machine learning will therefore be a significant advantage for workers in the tech industry.

He noted that jobs in the AI field are paying more, while the number of AI-related positions grew five to 10 times compared with last year.

Singapore is the fastest-growing market for AI talent in the Asia-Pacific, LinkedIn data showed, growing by 565 per cent between 2016 and 2022, outpacing other countries such as Australia, India and Japan. 

The growth in talent-hiring for the AI field in Singapore also rose faster than overall hiring here by 14 per cent in 2022, noted LinkedIn data.

“You also need human talent to manage generative AI,” Prof Loh said. “For example, ChatGPT is not as simple as asking a question. There is a certain skill set needed for the prompts.”

'NEW NORMAL'

The news of constant reshuffling within companies is unlikely to stop, and it could even signal a “new normal” where layoffs are commonplace, the experts said. 

“I think now, we are probably getting used to it,” Prof Loh said. “This is gravitating towards what we call a new normal.

"Going forward, this might be the new way - for working people to get used to changing jobs, either voluntarily or involuntarily.”

Agreeing, Associate Professor Nitin Pangarkar at NUS Business School said: “Large-scale layoffs indicate a structural shift. But, other than those trends, layoffs will continue to happen — they are very much a part of the sector.”