Reported 1,100% surge in AI-driven job cuts in 2025 could be deceptive—companies accused of inflating AI capabilities to obscure weak business results
Being fired because of AI-driven cost cuts is a concern shared by many employees, with more than 40% reporting they’re experiencing some level of AI-related stress in 2026, according to Mercer research. But it may be that AI isn’t as significant a driver of layoffs and redundancies as the companies implementing them suggest, and even when it is, the pace might be excessive and far too rapid, according to multiple sources of research collated by Sherwood.
Big layoffs, big claims
In total, Challenger data suggests over 1.2 million employees were dismissed in 2025, representing the largest wave of layoffs since 2020. Many of these were driven by government redundancies, especially concerning the short-lived DOGE initiative led by Elon Musk.
Of that larger total, companies explicitly pointed to AI as the cause in approximately 55,000 instances, with Challenger noting roughly 72,000 job cuts tied to AI since 2023. There was more than a 1,100% year-over-year surge in 2025, indicating a massive shift in that direction and possibly a real trend of AI displacing workers.
But don’t jump to conclusions, since new reports indicate some of these employers might be leveraging AI as a pretext to mask poorly performing operations. This "AI-washing" could serve as a handy justification for reducing costs in a manner that appears more favorable to investors than it truly is.
False alarm?
This trend was first called out by research from LSE in the first-half of 2025, which revealed that numerous companies in the agriculture sector were asserting they used AI, yet truly did not. Even those that did often enhanced humans with AI instead of replacing them with it, yet that didn’t prevent them from exaggerating their AI usage to appear more innovative than it truly was.
CNBC made similar claims in November last year, pointing to tariff and trade uncertainties along with a generally unstable economy as more probable causes for layoffs than the AI-driven justifications offered by many of the companies involved.
In January this year, Forrester put out a report suggested that, despite the grandiose claims by AI developers, it projects only 6% of US jobs will be automated by 2030, indicating that widespread AI job replacement is extremely Unlikely. Indeed, it also anticipates that most job cuts linked to AI, both thus far and in the near term, are likely to be undone as companies recognize the difficulties of deploying AI effectively.
Regarding those laid off under the guise of AI advancements, it indicates that financial considerations within companies more often drive such decisions than genuine technical innovation. While it indicated that customer service, software developers, and junior technical roles faced the greatest pressure from AI, it was uncommon for companies announcing AI-related layoffs to have any established AI systems Way to fulfill those roles successfully.
It found that to fully unlock AI’s potential, companies must invest in their human workforce and ongoing training to maximize the benefits of these new technologies, instead of using them to replace employees. Completely.
Oxford Economics observed comparable outcomes in its report from January, indicating that while AI was often cited as a cause for certain job cuts, most layoffs were more frequently driven by conventional economic and business conditions. It implies that if AI were already displacing labor on a massive scale, we would observe a rise in productivity to reflect it, yet there’s minimal evidence of such a trend thus far.
Other research from The Budget Lab indicates that economic and employment patterns existing before AI entered the workplace have far greater influence. Its data so far suggests, "there is no substantial acceleration in the rate of change in the composition of the labor market since the introduction of ChatGPT."
It also underscores that employment patterns for the 20 to 24 and 25 to 34 age groups show minimal variation. If AI were displacing entry-level roles as some claim, we would expect to see recent graduates facing greater difficulty finding jobs. But its data indicates that just isn’t true and that patterns remain largely unchanged from a decade ago—though it does hint that its smaller sample size might be obscuring broader trends.
"The picture of AI’s impact on the labor market that emerges from our data is one that largely reflects stability, not major disruption at an economy-wide level," it concludes.
Firing for the future
Even when companies have genuinely laid off workers or eliminated certain roles due to perceived AI-driven efficiency gains and performance boosts, the data often indicates they acted too soon. In a survey conducted in December 2025 by the Harvard Business Review, where more than 1,000 executives across global firms were surveyed, the findings indicated that most business changes driven by AI stemmed from anticipated future possibilities rather More than current evidence of progress.
More than 600 of the surveyed executives said they had cut staff at their companies in expectation of AI’s future capabilities, not due to any current or recent actions it has taken. Another 29% of respondents said they had cut back on hiring due to expectations of what AI will eventually be able to do. Only two percent of respondents reported implementing major layoffs due to actual AI deployment.
This aligns closely with prior research we’ve encountered. MIT reported in August last year found that over 95% of generative AI implementations in businesses failed to produce any measurable impact on profit or loss.
It’s not trivial, but it’s not much either
Even though the data implies that AI-related layoffs are exaggerated or overhyped, and perhaps not grounded in concrete figures, they still occur. I’ve lost assignments because the outlets I wrote for now rely on AI to generate their blog posts. Major publications have laid off numerous reporters as AI-generated summaries have hurt their traffic.
Major industries are being forced to adapt and shift due to AI, and workers are falling behind. But not to the massive extent that AI companies promised us, and perhaps we don’t need to be quite as anxious as we might otherwise feel.
AI is changing things, but not as much as it may seem.
