Layoffs and AI

Published on 17 May 2026

I know no-one who has been fired due to underperformance. Outside of some start-up hires, I know no-one who has been laid-off due to legitimate budgetary concerns. I do, however, know a great number of people who’ve been laid during the recurrent mass lay-offs which convulse every bureaucratic organisation on an increasingly regular basis.

These mass layoffs are poorly targeted; people are let go regardless of job performance or how much harm it causes the employer. I’ve seen people laid-off who are critical to major projects which immediately becomes a crisis. Insofar as there’s any targeting at all, it’s usually based off demographics (especially age). I suspect a major reason there isn’t more targeting (say to protect the jobs of important workers) is that the decisions are made by senior managers, often with aid from management consultants, who’ve only a vague notion of what anyone in the organisation does.

Various specious reasons will be cited for the layoff, usually involving a change in the operating conditions of the organisation. These seldom stand-up to much scrutiny. For instance some of the biggest layoff sectors in my country are tech, banks and universities. The latter two are not especially buffeted by changing circumstances. A simple thesis that explains the pattern is that any sector which draws large economics rents will develop a large bureaucracy; and layoffs are fundamentally a bureaucratic pathology as I’ll outline below.

While many consider the human costs of these reorganisations, I’m more interested in how inefficient they are. No-one ever points out how wasteful they are.

For starters, hiring is very expensive. For skilled positions it takes months and can involve more than a dozen stages (ideally the cheap stages are first and only a few candidates are assessed in the latter stages). Recruiters can also take a slice (say 20-30% of first year salary) if they sourced the final candidate. Then there is a remarkable amount of administrative overhead in the modern organisation (payroll, IT, healthcare and pension entitlements, etc.). There’ll be onboarding which takes time from existing productive employees, while the new starter will take months to ramp up their own contributions as they get familiar with the role. Some fraction of new-starters will be complete disasters, so the process will need to be repeated.

Firing is also costly, although less-so unless there’s legally-mandated large redundancy payments. There is again a lot of administrative overhead. Even in a jurisdiction like the US you might looking at 60 days of notice during which the workers will not be doing much work.

In addition to the direct costs above, there’s also second-order effects. For instance it’s widely noted that large tech companies have adopted ‘best practice’ which is incredibly laborious, but makes it easier to cope when workers leave (e.g. through meticulous documentation, testing, etc.) Start-ups with low-attrition can be several times more productive because they don’t need to optimise for ‘how do I keep the project going when a fraction of the crucial workers were fired for no reason’.

While there’s no widely-acknowledged figure for what the cost of all this is (some HR departments no doubt have costed it, but not made it public), it’s plausible to estimate that a hire + fire has a deadweight loss of around 50%-100% of the yearly salary. This is one reason why you’ll find that no well-run company hires workers whose contribution to revenue will be close to break-even, because the overheads will make such a hire a net-negative (median firm-level tenure for young skilled professionals is only around 3 years)

So we have to ask ourselves, why do organisations engage in endless cycles of over-hiring and then mass-layoffs?

One thing to note is that this behaviour was normalised in somewhat different historical circumstances. When ‘Neutron Jack’ (so-named because he eliminated all the workers while leaving the buildings intact) was firing everyone in the 80s there was a coherent narrative behind it. The companies had over-hired because they had been less-competently managed by Jack’s predecessors. He was fixing the problem of organisational bloat that others had created.

The first wave of mass redundancies can thus be plausibly be justified on the basis that it was a new paradigm of management, creating share-holder value by running leaner organisations. I make no assertion as to whether this was empirically true or not, merely that this makes sense as a story. The problem is that modern layoffs today reoccur repeatedly without changes to the C-suite or any long-lasting epiphany in how to run the company. The guys doing the mass-firing also did the over-hiring and they learn nothing from this process. I suspect, however, that the association between layoffs and ‘hard-nosed competent management’ persists even though it no longer stands to reason.

This association provides some cover for what’s happening, but doesn’t explain what’s causing it. The true motivation is actually pretty obvious to anyone who’s worked in these organisations. The only way to get quickly promoted through the managerial ranks in a modern organisation is to constantly move up during reorganisations. No-one can rise quickly enough if they wait for their boss to die or move on every time. Every ambitious manager who is seen as high-performing knows this, and lobbies internally for as many restructures as possible. As ambitious fast-rising managers are disproportionately influential within every organisation, they sooner-or-later get their way.

Now their main object isn’t layoffs per se, simply a restructure which justifies shuffling managers around. But they also need to rationalise this somehow to justify the chaos and confusion sown (restructures are typically resented by line-workers). Often the stated motivation will be something like this: ‘this new structure will be more efficient as it reduces duplication of work’ or ‘this restructure is necessary to leverage new technology which will make us more efficient’. These efficiency gains are demonstrated by the loss of headcount in the proposed restructure.

The second thing to understand is that during a reorganisation, managers who have more headcount will be advantaged when their reporting line merges with another.

These two facts: managers want reorgs which are most easily justified by cuts, and managers want to accumulate headcount between reorgs to increase their power, explains the bulimic nature of firm-level employment. Managers binge-hire when building out their bureaucratic fiefdom, then use this bloat to justify a purge during which time they can get use the number of their reports as leverage when absorbing other areas. That this is extremely wasteful is of little relevance, the losers are shareholders and laid-off employees but neither of them have a say in the decision.

This then brings me to my point and what prompted me to write this post. It is perfectly rational for AI companies to spruik that their technology destroys jobs. That’s part of the value-proposition for any manager considering invest in AI. The pitch is: ‘if you invest in AI your name will be attached to AI, and you can use AI to push through multiple restructures which will catapult AI-aligned managers to the top’.

The alternative pitch: ‘AI will make all your employees do their jobs better’ is considerably less attractive. That might help shareholders with a stake in these companies; but shareholders don’t invest in AI, managers do. And what managers want is to get promoted more quickly, which they can do only if AI is an extremely disruptive technology which necessitates major restructures and downsizing.

Finally, I’d add that AI follows a long-line of managerial fads which have served a similar purpose in the past. These fads are not borne solely out of stupidity, they can be used by coalitions of young managers to displace older managers unfamiliar with the new ideas and language. And one can extend this broad model to other areas like academia. The memetic fitness of these fads though depends somewhat on the field.
In academia it might be advantageous for young minority academics to displace older colleagues on the basis that they’re too white, male and straight; so ideas which raise the salience of these factors will tend to proliferate. For management what tends to matter is if the ideas can be used to restructure the organisation by promising efficiency gains, and if an association with the set of new ideas will advantage a manager in the resulting free-for-all (i.e. the new approach much be sufficiently esoteric that the older managers cannot keep up; a pseudo-technical managerial technique like six-sigma etc. is likely to be especially successful).