In the last few years, the tech industry has been marred by mass layoffs and economic uncertainty. The rapid developments in artificial intelligence (AI), though not acknowledged by most companies, seem to be a key driver of the recent spate of layoffs. More and more companies have been ramping up investments in AI while shrinking their workforce across various departments. Even though AI evangelists have long been proselytising how AI and automation could help unlock more economic value and growth, a new study now claims that it may not be great for businesses.
The research paper titled ‘The AI Layoff Trap’ by Brett Hemenway Falk, University of Pennsylvania and Gerry Tsoukalas, Boston University, seems to be challenging the widely held notion about AI and that replacing human workers with machines is good for business. The paper argues that while automation may lead to cost reduction for individual companies, it could also unintentionally cause damage to the broader economy, eventually hurting all the companies riding this wave.
The core idea of the paper is simple but also overlooked – workers are not merely employees; they are also consumers. In simple words, when companies replace workers with AI, the workers lose income. If they are unable to find new jobs immediately or generate alternative means of income, their spending will drop. As consumer spending drives demand for goods and services, widespread layoffs could likely reduce overall demand in the economy.
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