AI Boom: US Profits Surge, Almost a Million Jobs Lost

Despite a sharp increase in corporate profits in the US and new highs on the stock markets, US companies are currently massively cutting jobs. According to statistics, the US economy is shedding almost one million jobs this year – the highest number since the start of the Corona pandemic in 2020. Chen Zhao, global strategist at the investment research firm Alpine Macro, describes this striking contradiction between booming balance sheets and increasing waves of layoffs to US broadcaster CBS News as a "Jobless Boom".

Typically, layoffs accelerate when companies struggle with declining profitability and need to cut costs. The current situation follows a different logic. According to CBS, Zhao considers the development unprecedented. He sees a fundamental change underway. This is "entirely different from a historical script," the insider knows and gives examples in the tech sector: It is strange to observe that Amazon is laying off 14,000 people at once, even though the online giant is generating high profits.

According to Zhao, the rapid introduction of Artificial Intelligence (AI) is at the center of this phenomenon. The technology increases the productivity of companies across all industries and the entire economy, but simultaneously suppresses the demand for labor. Although this trend initially reached the tech industry, it is spreading as companies adopt AI as a means of increasing productivity and reducing costs. Zhao describes the resulting market shift as dramatic: "You have a labor demand whose growth has basically fallen to probably 0 percent, maybe even a slight decline." The economy is doing well.

US unemployment rate remains stable

In the US labor market – and to a lesser extent also in Germany – the motto "no hire, no fire" applied until recently. Employees could be relatively sure of not being fired, despite a cooling of new hires. But now, the US Federal Reserve (Fed) has even lowered its key interest rate in September and October, citing increasing risks to employment growth. Fed Chairman Jerome Powell also cited layoff announcements by major employers as a reason.

Official monthly reports from the Department of Labor on the job market are currently unavailable due to the ongoing "shutdown" of the US administration. Economists are therefore resorting to alternative data, such as that from payroll processor ADP. According to this, job growth in the United States appears subdued to non-existent.

Despite this environment, the national unemployment rate in the US remains relatively low, at 4.3 percent in August. Zhao explains this with a shrinking number of available workers. The baby boomers are retiring. The restrictive immigration policy of the Trump administration also leads to lower immigration. This creates an unusual balance in the market.

AI thesis is controversial

However, not all experts assume that AI is the main reason for the recent wave of layoffs. Art Papas, CEO of the software company Bullhorn, which works extensively with personnel and temporary employment agencies, attributes the job cuts more to a recalibration of personnel needs after the pandemic. Many companies had hired excessively at the time and are now correcting this surplus. According to Papas, companies are currently encouraged to cut staff. Because it has also become easier to find new talent.

Companies that cite AI as a reason for layoffs often use the technology merely as a "buzzword" and for symbolic politics, Papas points out. Announcing job cuts can be financially advantageous if, for example, the stock price rises as a result. However, the change in the labor market is real. It is often said that AI primarily replaces "entry-level jobs." But that's nonsense, as hiring freezes generally affect the entry-level positions the most. Microsoft recently identified fields of work in a study where AI is used most extensively. The highest "AI applicability values" are found among knowledge workers who perform computer or administrative tasks.

(nie)