The sneaky truth about the wave of AI layoffs

Tech bosses say AI will make us work less. So far, that’s mostly meant fewer of us will be working for them full-time.

Meta cut hundreds of workers last week. Oracle is reportedly considering thousands of layoffs to shore up money for its data center costs. Atlassian cut 10% of its workers this month as it restructured to focus on AI. Block laid off 4,000 employees in February, about 40% of the company. A report from career transition firm Challenger, Gray, and Christmas found that AI has been cited as the rationale behind some 92,000 job cuts at US-based companies since 2023, nearly a two-thirds of which came in 2025.

But the AI-driven layoffs aren’t the robo-job apocalypse they may seem.

It’s not that generative AI is sophisticated enough to absorb all of these desk jobs. It’s that tech companies are shifting investment in an attempt to win the gen AI race — which creates a tidy shorthand to justify a steady slimming of their payrolls. Many of these companies are then bringing people back or hiring new ones to similar roles, potentially finding cheaper ways to get the job done. A survey conducted by consulting firm Robert Half in late 2025 found that 29% of 2,000 hiring managers said they have reopened positions previously eliminated after implementing AI. Fifty-five percent said they planned to increase the number of contract or temporary workers within the first half of 2026, while 60% said the same for full-time workers. A recent report from advisory firm Gartner predicted that half of companies cutting customer service staff and ascribing the shift to AI will look to rehire people for similar roles by next year.

“Most layoffs right now aren’t actually happening due to AI,” says Kathy Ross, a senior director analyst at Gartner. “AI might have played a role, but they’re not a result necessarily of AI successes. Instead, the layoffs seem to be part of a broader strategy to reinvest funds in AI, hoping for success down the line.”

That big investment now can come at the expense of workers’ security. And it could drastically reshape the workforce and erode the little loyalty left between employees and their employers.

The number of workers clocking in for companies without actually working there as full-time employees has been on the rise for decades. A US Bureau of Labor Statistics report from 2001 estimated contingent workers accounted for 4.3% of the workforce in 1999. Today, some estimates with broader definitions of contingent workers put the proportion at 40% of US workers — MBO partners, a talent platform, estimates that 73 million people work as independents.

Contractors have been the fuel behind the tech industry’s growth almost since its inception. In the 1990s, Microsoft hired contractors and put them into “permatemp” roles, for years, creating a two-tiered system among employees. In 2000, the company settled a class action lawsuit for $97 million, after contract workers argued that they had been employed for too long to not receive the benefits offered to salaried workers. As of 2019, Google had more temporary workers than full-time employees, according to a New York Times report (Google did not respond to a request for comment about the current breakdown of its workforce). When companies like Uber, Amazon, and Meta expanded wildly in the 2010s, they turned to contract workers in the US and abroad to take on the often low-paying, arduous work of driving vehicles, delivering purchases, or moderating content. Recent research from freelance platform Upwork found that 77% of business leaders say the AI era is increasing their need to hire contract workers with specialized skills.

Most layoffs right now aren’t actually happening due to AI.Kathy Ross, a senior director analyst at Gartner

Those who held full-time, in-house jobs at tech companies were part of Silicon Valley’s golden era. They were offered generous parental leave, high salaries, stock options, and perks like free lunch and dinner. Now, as companies make deep cuts and offload some work to contractors, they’re changing the dynamic between employer and worker. Rob Lalka, a professor at Tulane University’s Freeman School of Business, says the move shifts Silicon Valley’s culture “towards a more ‘masculine energy,’ to use Zuckerberg’s phrase, that is more assertive and my way or the highway and dominant in a way that is now feeding into company culture.” The change is part of a long tech industry “attempt to minimize the number of people they have to have long-term relationships with through traditional employment,” says David Weil, an economics professor at Brandeis University. “It’s just part of this larger dance,” he says, amplified by AI, where “very profitable organizations want to share as little as they can with the people who create a lot of the value.”

That’s how one worker felt after he was laid off from his job at Microsoft several years ago. The worker, whose name has been omitted because he is now again employed at the company, says AI wasn’t explicitly mentioned as a reason for the elimination for his job, but the company’s intent to go all-in on AI was clear. The end of his full-time tenure meant a loss in unvested stock. Soon after, he tells me, a third-party contractor company reached out about working for the same team, as they sought to restaff with contract workers. This worker says he passed on the opportunity. After a yearlong job search, he got a full-time offer — back at Microsoft, but in a lower-ranked role that paid about a third less. He says he felt he “had little choice” but to take the job, which he still has today. “My morale has taken an enormous hit.” In 2025, Microsoft cut 15,000 jobs. The company declined to comment.

Companies have cut workers while keeping dozens of job posts open on their sites, or have moved swiftly to rehire workers. At Block, at least one worker still on staff said she was offered a retention package that increased pay by tens of thousands of dollars, and a handful of laid-off workers were brought back onto the job. Klarna CEO Sebastian Siemiatkowski has aggressively cut head count, halving the staff through layoffs, attrition, and an ongoing hiring freeze. The company uses an AI assistant for routine customer support; it’s also turning to contract workers to handle what the AI can’t. Siemiatkowski announced last year that Klarna is building “an Uber type of setup,” recruiting customers to work in a gig role to answer more difficult questions. “They can actually jump on and work for Klarna’s customer service,” he said on the podcast “20VC.” “These are our most passionate customers,” he said. “And now they earn extra money by actually working on our customer service.” Klarna did not respond to a question about the size of its customer service contract workforce.

The reality is that the companies are hiring more contractors and fewer full-time employees because it makes them more money.Maureen Wiley Clough, host of “It Gets Late Early”

The rosy picture of answering angry customer complaints for spare cash or taking on contract work to “be your own boss” doesn’t resonate with everyone. Contract workers often miss out on the benefits of a full-time gig, like health insurance, 401(k)s, unemployment insurance, stock options, and stability. They also have less recourse if they experience sexual harassment or discrimination. Some contract workers prefer having autonomy over their schedules — but a larger shift toward contract work could further divide who gets retirement contributions and healthcare. “They’re trying to pull the wool over our eyes by saying how great and how wonderful flexible employment is, how we can all be our own boss and how we can go from company to company and gain experience,” says Maureen Wiley Clough, who hosts the podcast “It Gets Late Early” about aging in the workforce. “The reality is that the companies are hiring more contractors and fewer full-time employees because it makes them more money.”

The era of massive AI investment is creating a system where some employees are glorified for their AI expertise and others wonder if they’ll be pushed out. This past summer, Meta was on a recruiting spree for the top AI talent, offering pay packages that reportedly amounted to hundreds of millions of dollars. My colleague Pranav Dixit and I reported that a winner-take-all era was emerging. Recent layoffs and a restructuring of Meta’s Reality Labs team to put workers into AI-native pods show the company is continuing its focus on AI-first and more nimble, small teams. A Meta spokesperson tells me that teams at Meta are regularly restructured to “ensure they’re in the best position to achieve their goals,” and that the company is searching for “other opportunities for employees whose positions may be impacted” in the latest layoffs.

Those who have jobs are keeping a tight hold on them, as across industries, people are struggling to secure jobs at all, let alone ones that help them advance their net worth and careers. As my colleague Aki Ito reported, pay cuts are in — 40% of white-collar workers who changed jobs at the end of 2025 took pay cuts of 10% or more, the highest proportion in a decade, according to research from Revelio Labs. The number of workers hopping jobs for raises of more than 10% simultaneously plummeted.

Rapid layoffs can backfire, says Kathy Ross. They can lead to damage to a company’s reputation, lost institutional knowledge, and disruptions in productivity as teams reconfigure. Those losses could be amplified by a lagging realization of AI-induced productivity: MIT published research last year finding that 95% of AI pilot programs had not led to increased productivity or savings, and research from the University of California, Berkeley, shows that AI is intensifying work rather than reducing the need for human labor. If tech companies continue to deteriorate the employee-employer relationship — either by the dizzying pace of layoffs or a pivot to contractors — they threaten to hamper the already weakening social contract between workers and companies.

Amanda Hoover is a senior correspondent at Business Insider covering the tech industry. She writes about the biggest tech companies and trends.