As companies invest heavily in artificial intelligence, a growing expectation from Wall Street is that these investments yield tangible results. However, evidence of the effectiveness of AI often remains elusive, leading some executives to focus on workforce reductions as a means of demonstrating financial prudence. A prominent example is Block co-founder and CEO Jack Dorsey, who recently announced plans to lay off approximately 40% of the company’s workforce, reducing it from over 10,000 employees to fewer than 6,000. Dorsey attributed the cuts to the company’s healthy financial status and rising profits, a claim that seemed to resonate with investors, pushing Block’s stock price up by more than 16% on the following day.
Block’s strategy isn’t unique; several companies, including Salesforce, HP, and IBM, have similarly cited AI as a rationale for workforce reductions. In the absence of standardized metrics to measure AI productivity, job cuts have emerged as a straightforward indicator for investors. Michael Blank, a finance professor at Stanford, noted that conducting a significant round of layoffs is one of the easiest ways for a CEO to indicate that a company is ready to capitalize on the AI boom.
According to Blank, the current weakness in the labor market may also facilitate rehiring for roles that organizations initially thought could be efficiently replaced by AI. The challenge, however, lies in the difficulty many companies face in articulating the benefits they derive from AI investments. Gary Cohn, former director of the National Economic Council, pointed out that the most clear-cut performance indicator they can show is simply, “We’ve cut heads.” Cohn added that labeling job cuts as a direct result of AI integration might not reflect the complete picture.
This skepticism is echoed by some experts who question whether such drastic layoffs truly stem from AI advancements. Jason Schloetzer, a business administration professor at Georgetown, expressed doubt that Block’s job cuts are primarily linked to AI, pointing out that most executives he speaks with are not witnessing significant benefits outside specific domains like software development.
During Block’s earnings call, Dorsey asserted that the company is at the forefront of leveraging AI for operational efficiency, a trend he believes will soon be adopted across the industry. Yet, others argue that job reductions should not be the sole measure of AI’s impact. Alexandra Mousavizadeh, cofounder and co-CEO of Evident, emphasized that companies may need a leaner workforce, particularly if they are overstaffed. However, she cautioned that companies often use AI as a convenient justification for cuts that may be driven by other factors.
Moreover, some organizations actively expand their workforce in conjunction with AI deployment. Jeff Fettes, CEO of Laivly, noted that companies using AI to enhance customer service often find themselves in a position to hire more staff, rather than fewer, as AI tools enable existing employees to operate at a larger scale. He remarked, “Why wouldn’t you invest in more salespeople now? Because AI is helping them to deliver at scale in a way that they weren’t before.”
The implications of workforce reductions tied to AI are significant. Wayne Cascio, a management professor emeritus at the University of Colorado Denver, highlighted the risks of cutting too deeply or too swiftly. Companies often eliminate critical skills and institutional knowledge, leading to rehiring of laid-off employees later on. Cascio noted that typical corporate downsizing reduces about 10% of the workforce, while cuts exceeding 25% are considered “extreme.” Dorsey’s decision to lay off nearly half of Block’s employees falls into that “double-extreme” category.
As AI continues to evolve and reshape industries, the conversation surrounding workforce implications is likely to remain complex. While some companies may find efficiency and growth through AI, others may need to tread carefully as they navigate the balance between cost-cutting and maintaining essential talent. The broader significance of these developments may ultimately shape how organizations approach technology integration and workforce management in the future.
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