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AI Isn’t to Blame for Layoffs at Microsoft and Other Tech Companies

Microsoft became the latest major tech company to announce massive layoffs on Wednesday. Roughly 5% of the company’s workforce—or 10,000 jobs—will be slashed, CEO Satya Nadella announced in note to employees published online.

In explaining the decision, Nadella pointed to global economic strife, changes in post-pandemic habits, and perhaps most notably, the impact of rapid developments in artificial intelligence. Microsoft is a major investor in OpenAI, a company whose chatbot ChatGPT has both excited and frightened the world in the last couple months because of its ability to respond to written prompts with clarity and complexity. “The next major wave of computing is being born with advances in AI, as we’re turning the world’s most advanced models into a new computing platform,” Nadella wrote.

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That line in Nadella’s statement stoked long-standing fears about the possibility of AI replacing many human jobs. “Microsoft throws 10,000 workers to the streets to embrace artificial labor,” wrote one commenter on Twitter.

Microsoft to layoff 11,000 employees right after it announced a $10 billion investment in ChatGPT. AI will eat up all jobs. Is this actually becoming a reality?

— Viren Sood (@viren11811) January 18, 2023

Microsoft laying off 10,000 people while investing 10 billion dollars in Open AI is a major road sign for where we’re headed.

Legislators need to start preparing for our economy to be based on UBI now. Not later.

— Tyler Walpole 💙🌻 Magic Con Philly! (@TylerWalpole) January 18, 2023


However, the layoffs at Microsoft and other tech companies have much more to do with current economic conditions than recent AI breakthroughs, experts argue. The rise of artificial intelligence may yet have a huge impact on the workforce, but to put blame on the technology for this wave of tech layoffs would be largely misplaced.

Going back 200 years, there have been waves of fears about automation, in which people look at new technologies and get scared that they are going to fully replace human labor,” Aaron Benanav, the author of Automation and the Future of Work and a professor at Syracuse University, says. “And so far, all the predictions have been proven wrong.”

The tech layoffs have come fast and furiously over the last few months. Meta cut 11,000 jobs in November; Amazon announced 18,000 layoffs in January; and Salesforce announced 8,000 more.

These contractions can first be linked to tech’s pandemic-era expansion. As people spent much more time on their home computers, demand for online services skyrocketed. As a result, tech companies grew rapidly and raked in record profits. Microsoft was one of the beneficiaries, with profit soaring in 2021. Between June of 2021 and 2022, they hired a record 40,000 employees.

But last year, economic headwinds shifted. First, habits shifted as people re-entered public spaces, lessening the importance of at-home tech services. “There was this idea that the pandemic would mark this kind of permanent change in behavior: that everyone would be working from home and wouldn’t go to stores or movie theaters. And that just turned out not to be correct,” Benanav says.

Russia’s invasion of Ukraine endangered supply chains and drove prices up, while the rise of cheap money circulating around the world thanks to fiscal policies and stimulus checks contributed to rampant inflation. To tame inflation, the Federal Reserve began to raise interest rates in the hopes that consumers would curtail their spending, thus lowering demand and the price of everyday goods.

The impact on the tech world has been particularly intense: More than 150,000 tech workers were laid off in 2022, according to the tracker Microsoft was among those companies. While Microsoft relies less on advertising dollars than competitors like Google and Meta—an area which has fallen off precipitously in the last year—its cloud services and hardware divisions still took hits. While many people had bought laptops early in the pandemic in order to to work from home, PC sales slowed dramatically in 2022. Microsoft’s stock price is down 22% from a year ago.

“When interest rates were very low, companies basically had endless money—and investors were telling them to focus on growth, not profitability,” Benanav says. “But because interest rates are rising, there’s a shift from big investors to say, ‘No, now you really have to focus on profitability.’ And the big way to do that is through cuts.”

In December, the Federal Reserve raised interest rates once again and signaled its intention to keep raising them in 2023, indicating that the economic outlook for companies like Microsoft is unlikely to improve. The company is scheduled to announce its quarterly earnings next Tuesday.

Nadella, in his open letter, wrote that Microsoft would eliminate roles in some areas while continuing to hire in other areas. It seems likely that AI will be part of the latter category. Like many other tech companies, Microsoft has invested heavily in AI, based upon the belief that its abilities will increase efficiency in every area. Earlier this month, Semafor reported that Microsoft hopes to invest another $10 billion into OpenAI, the firm behind the massively popular app ChatGPT.

ChatGPT does not yet have a business model to earn revenue for OpenAI or Microsoft. But such a deal would put Microsoft on the forefront of AI technology and all of its improvements. This could potentially aid Microsoft’s search engine Bing—which at the moment trails far behind Google in usage—as well as Microsoft’s cloud business, which trails Amazon Web Services.

During an interview at the 2023 World Economic Forum this week, Nadella said that Microsoft planned to build AI into all of its products. He also argued that workers would become more efficient and productive in conjunction with AI: “I see these technologies acting as a co-pilot, helping people do more with less,” he said.

While it is certainly possible that some jobs will be erased by AI, some prognosticators believe that more will be added. Last year, the World Economic Forum predicted that AI would replace 85 million jobs by 2025 but create 97 million new ones.

Kevin Kelly, the founding executive editor of Wired, recently wrote an article arguing that there is a long history of technology augmenting human work rather than replacing it. He pointed to a panic in the 1800s, when many feared that the advent of the camera would put portrait painters out of business. But historian Hans Rooseboom could only find one lone portrait painter from that time who felt photography led to his unemployment.

Others argue that there are jobs to be found in AI, especially in data science and machine learning. Some of these new jobs, however, can be low quality and even dangerous. A TIME investigation found that OpenAI used outsourced Kenyan workers who were paid less than $2 an hour to review toxic content, including sexual abuse, hate speech and violence. All of the four employees interviewed by TIME described being mentally scarred by the work.

Read More: OpenAI Used Kenyan Workers on Less Than $2 Per Hour to Make ChatGPT Less Toxic

“Despite the foundational role played by these data enrichment professionals, a growing body of research reveals the precarious working conditions these workers face,” the Partnership on AI, a coalition of AI organizations to which OpenAI belongs, wrote in on their website. “This may be the result of efforts to hide AI’s dependence on this large labor force when celebrating the efficiency gains of technology.”

“The hidden demand for work with current AI technologies is huge,” Benanav says. “There are all these claims about how much software and programs are able to do automatically. But behind the scenes, there’s often a lot of people who have to fill in the roles of actually doing the work: of checking what the AI is generating and dealing with all of the problems its producing. And a lot of that work is being outsourced to underpaid workers in countries around the world.”