🗽 Good morning. Physically, I’m back on the East Coast. Mentally, I’m still mostly in SF. Two weeks there focused only on AI will do that.

Today, I’m thinking of everyone affected by the shooting incident at the White House Correspondents' Dinner last night.

This week’s newsletter is dedicated to unpacking the AI storylines around layoffs.

My motivation: To help business leaders think through the consequences of their layoff communications; and to help leaders and workers understand what’s really driving certain job cuts — because they’re not all created equal. Scroll down for the five-step guide to reading layoff announcements with a sharper lens.

Insights from: Melissa Swift, founder and CEO of Anthrome Insight; Kory Kantenga, head of Economics, Americas, LinkedIn; and Forrester Research

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The backdrop

Meta’s planned cuts of roughly 8,000 workers and Microsoft offering its first-ever employee buyout packages have reignited fears about AI taking away a significant portion of jobs.

I’m among those worried about the possibility. I read layoff announcements like these as a sign of worst-case scenarios to come — like the one Anthropic CEO Dario Amodei has laid out repeatedly.

“The technology is not replacing a single job but acting as a ‘general labor substitute for humans,’” he wrote in an essay published at the start of the year. See, can you blame us?

Companies are almost doing AI a disservice by talking about it like a kind of Darth Vader, “gonna blow up your home planet thing,” Anthrome Insight founder and CEO Melissa Swift tells me.

Another consequence? Those narratives can push people, including me, to see every AI-tinged layoff as a destructive story. And then there’s the tunnel vision effect — these storylines can blind us to bigger factors at play.

The reality

Melissa, formerly the U.S. transformation leader at consulting giant Mercer, has become one of my go-to experts on the gears behind the labor market. I called on her for an emergency taping of Macro Talk on Friday to help me understand what's actually going on. (Watch and subscribe on YouTube here.)

Like other experts I've talked to over the past two years, she's more sanguine about the future. But I wanted to know about the present.

So I asked: Companies like Meta, Microsoft, Amazon, and Alphabet are spending hundreds of billions of dollars a year on AI chips, facilities, talent, and infrastructure. That money has to come from somewhere, right? I mean look at these layoffs. Isn't AI, in effect, already replacing workers via these investments?

No — because I'm conflating two different things: the "we're gonna be doomed" predictions and AI build-out spending. Also, I'm missing the 800-pound gorilla. (It's the economy.)

The big picture

In a good economy, companies invest in both people and technologies, according to Melissa. Relative to the post-pandemic era, the economy has slowed, and it’s been the main culprit of the slowing labor market.

“We think that this slowdown is very much driven by economic conditions because we don't see a lot of daylight between entry-level and experienced workers in terms of hiring,” Kory Kantenga, head of economics, Americas at LinkedIn told me in a separate conversation earlier this month.

“At least one of the theories around AI is that it's going to hit entry-level workers because their work is more routine….but when we look at hiring, it’s down about 7% year-over-year overall — and 6% for entry level and 6% for more senior workers,” he said.

As for my assumption that companies merely shuffle investments: budgeting doesn't actually work that linearly, according to Melissa.

“Honestly, companies always find things to spend money on that’s not people.”

In the 80s, she notes, corporations went crazy building elaborate headquarters, spending on things like man-made lakes instead of people. (Fun fact: early in my career I worked out of an office that had a beautiful lake with swans.)

Lastly, the frightening predictions are getting in the way of understanding nuance. They’re just false narratives, Melissa says. A job “exposed to AI” doesn’t mean AI can do that job, for example.

“You may never work again [is] the scariest edge of the message,” she says. “I think that’s an inappropriate message — there’s a long history of technologies ultimately creating more jobs.”

The play

It’s not that AI (or AI spending) isn’t a factor at all in layoff decisions, it’s just not the factor.

Reality check #1: Who’s doing the firing?

Companies lay off people all the time. But we take a signal from Meta much louder than from a General Motors or IBM, Melissa points out.

“The average American doing knowledge work shouldn’t necessarily look at Meta cuts as a harbinger of [their] future.”

Reality check #2: Is it an economic trend, or is it a company issue?

Examine a company’s recent strategy. For example, Meta’s still reshuffling from its metaverse bet, Melissa notes.

“That’s not a tell about the overall economy. That’s a statement about their business choices,” she says.

Reality check #3: Who’s being let go?

Middle managers are “boogeymen” roles companies like to cut because no one really likes them, according to Melissa.

But AI isn’t taking middle manager jobs that develop lower levels of an organization. So when middle managers are the ones being cut, that's usually a tell that AI likely isn't the driver.

Reality check #4: What’s the company’s hiring history?

The answer to “What percentage of their workforce was hired in the last two years?” can help contextualize whether it’s AI-related or otherwise.

If a company laid off 10% of its workforce after doubling in size over the last two years, that tells you something bigger is going on than AI.

“Companies should also be held more accountable for cycles of binge hiring,” says Melissa. She compares the negative effects to a balloon being inflated and deflated repeatedly.

“The walls of the balloon get really weak and eventually you don’t even have an operable balloon. This is what the binge and purge cycle does to companies.”

Reality check #5: Is that AI washing?

“Many companies announcing A.I.-related layoffs do not have mature, vetted A.I. applications ready to fill those roles, highlighting a trend of ‘A.I.-washing’ — attributing financially motivated cuts to future A.I. implementation,” Forrester Research wrote in January, per NYT.

With true, beneficial AI-related layoffs, companies should be able to name a particular role that got cut, and show exactly how AI does that job — with no disruption to customers and at genuinely reduced cost, Melissa points out. 

“If you're spending thousands in tokens a day and what you would pay a human worker a hundred bucks for — the economics are totally upside down,” she says.

“You didn't actually save any money and a human lost their job. Good work.”

We also get into Deloitte cutting certain HR benefits, such as PTO and parental leave, and other pitfalls of talking too much about productivity. Please subscribe, it helps!

Paid subscribers can access the transcript here:

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Macro Talk’s mission is to help business leaders and early- to mid-career professionals understand the big picture and make decisions about the future. Through this newsletter, the podcast, and live events, Macro Talk uncovers the forces shaping the economy and world of work — and how to play them.

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