AI-Washing and the Layoff Crisis

Corporate America is experiencing a wave of white-collar layoffs, prompting speculation about whether artificial intelligence is finally displacing workers.

While the rise of generative and agentic AI is a contributing factor, recent layoff announcements from companies like Amazon, UPS, and Target are driven by a more complex set of circumstances.

These companies, collectively shedding over 60,000 roles this year, cite the need to reduce corporate bloat, streamline operations, and adapt to evolving business models.

With the Bureau of Labor Statistics’ (BLS) monthly jobs report temporarily suspended due to the government shutdown, these layoff announcements have raised concerns about the overall strength of the labor market, with some fearing the beginning of an AI-driven, white-collar recession.

Notably, some companies openly attribute job cuts to AI implementation. Klarna CEO Sebastian Siemiatkowski stated that AI enabled the company to reduce its headcount by approximately 40%. Duolingo announced its intention to cease using contractors for tasks that AI can perform. Salesforce eliminated 4,000 customer support roles, citing AI’s ability to handle 50% of the workload.

However, experts interviewed by CNBC suggest that some companies may be using “AI-washing” to attribute layoffs to technology, masking underlying business problems and traditional cost-cutting measures.

Peter Cappelli, a professor of management at the Wharton School, notes, “We spend a lot of time looking carefully at companies that are actually trying to implement AI, and there’s very little evidence that it cuts jobs anywhere near like the level that we’re talking about. In most cases, it doesn’t cut head count at all…Using AI and introducing it to save jobs turns out to be an enormously complicated and time-consuming exercise…There’s still a perception that it’s simple and easy and cheap to do, and it’s really not.”

These cuts, following previous layoffs in the technology sector, have cast a shadow on an economy grappling with persistent inflation, rising delinquencies, declining consumer sentiment, and high effective tariff rates, according to estimates from The Budget Lab at Yale University. While the stock market remains near record highs, it’s largely fueled by AI-driven megacaps.

Cappelli suggests the increasing layoff announcements are linked to concerns about the economic outlook and a “bandwagon” effect among companies. “If it looks like everybody is cutting, then you say, ‘They must know something we don’t know,'” Cappelli said. He added that investors often reward such cuts, viewing them as measures to improve efficiency.

While AI and automation may contribute to some job cuts and offer long-term cost reduction and efficiency improvements, the specific reasons for layoffs and AI’s role vary across companies.

Starbucks’ decision to cut around 2,000 corporate jobs in two rounds this year relates to slowing sales and a broader turnaround strategy under its new CEO, Brian Niccol. Meta’s AI unit layoffs, affecting approximately 600 jobs, reflect the company’s goal to operate more efficiently and reduce hierarchical layers. Intel’s decision to lay off about 15% of its workforce follows overinvestment in chip manufacturing without sufficient demand.

John Challenger, CEO of Challenger, Gray & Christmas, sees these events as a turning point in the economy and job market. “These job cuts do suggest that the dam may be breaking as the economy slows,” he said, suggesting that the retail, shipping, and distribution sectors may be the first to feel the impact.

During the COVID-19 pandemic, Amazon significantly increased hiring to meet surging demand for e-commerce and cloud computing, doubling its workforce to 1.3 million employees between 2019 and 2020.

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

Since taking over, Jassy has been working to reverse some of that expansion.

The recent layoff announcement affecting 14,000 corporate jobs is expected to be the largest in Amazon’s history, impacting nearly every unit within the company. This marks Amazon’s second round of layoffs in three years, totaling more than 41,000 corporate job cuts since 2022, with the possibility of further reductions in 2026.

While AI plays a role, broader factors underpin these reductions.

According to Jassy, the changes are not primarily driven by AI or financial considerations but rather by the need to cut corporate bloat to operate as the “world’s largest startup.”

Amazon stated that it isn’t replacing workers with AI, at least not immediately, but that employee reductions would free up capital to invest in automation tech. As cloud costs come down, Amazon designated sizable investments in cloud infrastructure to enable AI while, separately, continuing to provide new AI solutions and resources throughout the company.

It’s contributed to a rise in capital expenditures, which are now expected to reach $125 billion this year, up from a prior forecast of $118 billion.

Jassy previously stated that the company’s workforce will shrink over time due to the adoption of generative AI, while emphasizing the plan to hire in strategically valued sectors. “Fewer people doing some of the jobs that are being done today” but “more people doing other types of jobs,” is how Jassy characterized their long term vision in June.

The cuts align with Jassy’s overall goal of making the company more agile, reducing bureaucracy and removing layers to facilitate faster and smarter operations.

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

In January, UPS announced a significant shift in its strategy.

The logistics firm stated its intent to reduce its involvement with Amazon in favor of higher-margin businesses that require fewer employees.

In fiscal 2024, Amazon shipments represented nearly 12% of UPS’s revenue. The logistics giant aimed to decrease that volume by more than half by June due to lower margins.

“This was not their ask. This was us. This was UPS taking control of our destiny,” CEO Carol Tomé told analysts in January.

Consequently, UPS refocused its efforts on more profitable sectors, such as health care, returns, and business-to-business services, resulting in reduced personnel requirements.

“As we bring volume down, we will not only reduce the hours of miles associated with this volume, we will be able to take out fixed costs to match our capacity to our new expected volume levels,” finance chief Brian Dykes said in January. “We expect to close up to 10% of our building, cut back our vehicle and aircraft fleets and reduce labor.”

Recently, the company announced deeper-than-planned job cuts, eliminating a total of 48,000 roles so far this year, including operational employees and office workers.

According to ShipMatrix data, parcel volumes were down 5.4% in the first half of 2025 compared to the previous year, and the company is adapting its corporate structure to accommodate lower volume.

The majority of these layoffs, representing 34,000 operational jobs, were linked to the closure of 93 buildings rather than the replacement of people with robotics, according to the company.

AI played one role in the 14,000 additional corporate roles it cut, but the company indicated that technology was not the primary driver for these, a spokesperson said.

AI and automation are expected to have the greatest impact on UPS’s future hiring plans.

As the company continues to automate more of its facilities, it will require fewer new hires. UPS reports that 66% of its volume during the fourth quarter will pass through automated facilities, up from 63% in the previous year. Projections show this number increasing further in the years ahead.

Jason Miller, a professor of supply chain management at Michigan State University’s business school, argues that these job shifts don’t necessary mean overall losses. Some could be migrating from UPS to other companies.

Miller states that there’s a “reallocation” effect occurring, with one firm losing ground and payrolls while another improves. The number of positions might be static, but qualities, duties, and location may differ.

BLS data on the number of people working in “courier” positions, covering locations such as UPS or Amazon, mirrors this trend. As of August, courier positions only declined about 2% versus their all-time positions, rising over the previous three years, data shows.

Target’s recent announcement of 1,800 job cuts, representing approximately 8% of its corporate workforce, provides insights into both consumer spending and the retailer’s specific challenges.

This represents Target’s first major round of layoffs in a decade, following approximately four years of stagnant revenue. The retailer’s incoming CEO, Michael Fiddelke, attributed the cuts to the need to reduce complexity in a company where workforce growth has outpaced sales growth.

Unlike some competitors, a significant portion of Target’s revenue comes from non-essential products, such as holiday mugs, trendy sweaters, and home decor.

This means that Target is more susceptible to slowdowns in consumer spending than a rival such as Walmart, which primarily generates revenue from groceries.

Sluggish consumer spending has partially contributed to Target’s recent decline, but the introduction of tariffs, which increase prices, will make that problem worse.

Daniel Keum, an associate professor of management at Columbia Business School, who studies labor market dynamics, stated, “Buyers’ willingness to pay is staying flat, inflation is high, income isn’t going very up so firms’ ability to sort of increase price to maintain their margin is being squeezed…If you can’t increase price, you have to reduce cost.”

“How operationally do I manage cost?” Keum added. “I mean No. 1, like, let’s lay off white-collar people.”

In addition to macroeconomic factors, Target’s business has faced self-imposed obstacles. The quality of goods, fewer employees, and stock outages lessened shopping experiences, customers and insiders reported toward CNBC recently. In addition, the retailer has been struggling with inventory management, impacting productivity.

The combination of these issues has resulted in a faster workforce growth than increased sales and a very complex corporate operation structure.

Between fiscal 2023 and fiscal 2024, Target’s global workforce increased by 6%, rising from 415,000 employees to 440,000. Sales decreased 0.8% over the same time period, according to company documents.

“The truth is, the complexity we’ve created over time has been holding us back,” Fiddelke told Target employees in a memo when announcing the job cuts. “Too many layers and overlapping work have slowed decisions, making it harder to bring ideas to life.”

While he refrained from mentioning AI in his memo, he stated that the cuts would enable the business make quick decisions when it comes to technology.