AI meets old-fashioned cost savings and tariffs

As corporate America is reeling from historic white-collar layoffs, some are wondering, “Is AI finally coming to their jobs?”

The proliferation of generative and agentic artificial intelligence is a contributing factor, while recent layoff announcements by companies such as: Amazon, UPS and target It’s more than just a new technological advancement.

Both companies have announced job cuts in recent weeks, saying more than 60,000 positions will be cut in total this year, but both companies say they are trying to reduce bloat, streamline operations and adapt to new business models.

But with the Bureau of Labor Statistics’ monthly employment report still unreleased due to the government shutdown, the latest round of layoffs raises questions about the strength of the labor market and whether it’s the beginning of an AI-driven white-collar recession.

AI is likely playing a role in the layoffs, as companies increasing investment in AI need to cut other costs, but there is little to suggest the cuts are directly related to replacing human jobs with AI, labor experts and economists said.

“We spend a lot of time looking closely at companies that are actually implementing AI, and there’s little evidence of job cuts anywhere near the levels we’re talking about. In most cases, there are no job cuts at all,” said Peter Cappelli, a Wharton School management professor and director of the center’s Human Resources Center. “Using and deploying AI to save jobs has proven to be a very complex and time-consuming task… There is still a perception that it is simple, easy and cheap to do, but that is not the case.”

Still, the layoffs, which come after a wave of layoffs across the tech industry, cast a cloud over a shaky economy plagued by persistent inflation, rising delinquencies, weak consumer confidence and average effective tariffs at the highest level in nearly 100 years, according to estimates from the Yale Institute for Budget Studies.

The mounting bad news has done little to shock the stock market, which is near record highs, largely because it is partially supported by large-cap stocks in AI.

Cappelli attributed the recent surge in layoff announcements to concerns about the economic situation. He also pointed to the possibility of a “bandwagon” effect, where companies see their competitors cut back and start cutting back themselves.

“If it looks like everyone is cutting, you say, ‘They must know something we don’t know,'” Cappelli said. He added that investors often reward cuts: “Investors like to hear that you’re cutting back because it looks like you’re doing something good. It seems like you’re going to be more efficient.”

Certainly, some savings may be possible with AI and automation, and emerging technologies are poised to help all businesses reduce costs and increase efficiency in the coming years. However, the reasons behind each layoff and the role AI plays are nuanced and vary from company to company.

starbucks The decision to cut about 2,000 corporate jobs in two waves this year is related to the company’s weak sales and a major turnaround effort led by new CEO Brian Nicol. layoff meta The AI ​​division, which affected about 600 jobs, was introduced after the company said it wanted to operate more agilely and reduce layers. Intel’s The decision to lay off about 15% of its workforce comes after it overinvested in chip manufacturing without sufficient demand.

Together, they represent what John Challenger, CEO of employment agency Challenger, Gray & Christmas, described as a turning point in the economy and job market.

“We were in a no-hire, no-fire situation. The economy was moving forward. The labor market was under pressure, but certainly the unemployment rate was relatively strong,” he said. “These layoffs suggest that the dam may be bursting as the economy slows.”

He said the earliest signals could come from retail, shipping and distribution.

During the coronavirus pandemic, Amazon more than doubled its corporate and field workforce to 1.3 million from 2019 to 2020, as it went on a hiring spree, in part to meet the surge in demand for its e-commerce and cloud computing services.

By 2021, the company had grown to 1.6 million employees worldwide, the same year Andy Jassy replaced Jeff Bezos as CEO.

Since taking office, Jassy has sought to undo some of that work.

Last week’s layoff announcements will affect 14,000 corporate jobs, the largest in the company’s history, and are expected to impact nearly every department within the company. This is Amazon’s second layoff in three years, and represents more than 41,000 corporate layoffs since 2022, with further layoffs possible in 2026.

While AI is part of the picture, there is much more at work behind the reductions.

In the days following the announcement, Jassy said the changes were not about AI or finance, but about trimming the company’s fat so it could operate as the world’s largest startup.

Amazon said it will not be replacing employees with AI, at least not yet, but that it will need to reduce its workforce in order to invest in technology. As these costs have declined, Amazon has allocated significant investments in cloud infrastructure to support AI workloads, while simultaneously pushing more and more AI services and tools internally.

This is contributing to an increase in capital investment, which is expected to reach $125 billion this year, up from the previous estimate of $118 billion.

Jassy previously said that the company’s workforce will likely shrink in the future due to the introduction of generative AI, but that it still plans to continue hiring in “key strategic areas.” Mr. Jassy said in June that over time, the company will have “less people doing some of the jobs we do today” and “more people doing other types of jobs.”

The layoffs are also part of Jassy’s larger goal to make the company more agile, reduce bureaucracy, and remove layers to help it operate faster and smarter.

“It’s a culture,” Jassy said Thursday during Amazon’s quarterly earnings call. “When you grow as rapidly as we have over the last few years, you increase the size of your business, the number of employees, the number of locations, the types of businesses, and you end up with a lot more people and a lot more demographic than before.”

UPS announced a major change in strategy in January.

The logistics company said it would scale back its relationship with Amazon, its biggest customer, in favor of higher-margin businesses that can be run with fewer people.

In fiscal 2024, Amazon shipments accounted for nearly 12% of UPS’s revenue. The logistics giant said it plans to cut its volumes by more than half by June due to relatively low profit margins.

“This wasn’t their demand. This was us. This was UPS holding our destiny in our hands,” CEO Carol Tomé told analysts in January.

Meanwhile, UPS said it is pivoting to more profitable businesses such as health care, returns and business-to-business services, which will require fewer resources.

“Reducing sales volumes not only reduces the miles traveled associated with this sales volume, but also allows us to reduce the fixed costs of matching production capacity to new expected sales volume levels,” Finance Director Brian Dykes said in January. “We plan to close up to 10% of our buildings, reduce our vehicle and aircraft fleet, and reduce our workforce.”

Last week, the company announced that it had expanded on previously planned job cuts, eliminating a total of 48,000 administrative and administrative roles so far this year.

According to ShipMatrix data, UPS’s parcel volume fell 5.4% year over year in the first half of 2025, and the company is changing its corporate structure to adapt to the volume decline.

The company said the majority of this year’s job cuts, representing 34,000 operational jobs, were related to its decision to close 93 buildings rather than replace people with robots.

The company cut another 14,000 corporate roles that were partially related to AI, but technology was not the main driver, the spokesperson said.

Where AI and automation is expected to have the biggest impact on UPS is in future hiring plans.

The company plans to introduce automation to more of its facilities, so it won’t need to hire as many people. UPS announced last week that 66% of its fourth-quarter sales volume was shipped through automated facilities, up from 63% in the same period last year. This number is expected to increase further in the coming years.

Still, that doesn’t necessarily mean those jobs will disappear, and some could move from UPS to other companies, said Jason Miller, a supply chain management professor at Michigan State University’s School of Business.

Mr Miller said there was a “redistribution” effect taking place, with some companies losing business and cutting jobs while others gained. The number of jobs may be the same, but the location, qualifications and duties may be different, he said.

BLS data on the number of people employed in “delivery worker” jobs, which cover roles at UPS, Amazon, and others, reflects that trend. The data shows that as of August, the number of job openings for delivery services was down about 2% from its all-time high, and has been on the rise for the past three years.

Target’s announcement last month that it would cut 1,800 jobs, or about 8% of its corporate workforce, provides insight into both consumer spending and the retailer’s own unique challenges.

This is Target’s first major layoff in a decade and comes after four years of nearly stagnant sales. Michael Fidelke, the company’s incoming CEO, said the job cuts are aimed at reducing complexity at a company whose workforce is growing faster than sales.

Unlike some of its competitors, Target makes most of its revenue from nice-to-have but not essential products like holiday mugs, trendy sweaters and home decor.

This means that if consumer spending starts to slow, Target will be more sensitive to it than its competitors. walmartderives most of its revenue from groceries.

Target’s poor performance in recent years has been partly due to weak consumer spending, but the introduction of tariffs that are pushing up prices could make that impact worse.

“Buyers’ willingness to pay is flat, inflation is high, and incomes aren’t increasing very much, which is straining companies’ ability to raise prices to maintain margins,” said Daniel Keum, an associate professor of business administration at Columbia Business School who studies labor market dynamics. “If you can’t raise prices, you have to cut costs.

“How do we manage operational costs?” Kum added. “So, number one, let’s fire white-collar people.”

Beyond macroeconomic conditions, Target’s business has also struggled with a number of self-inflicted challenges. Customers and stakeholders told CNBC earlier this year that shopping at the store has become less fun, with lower product quality, fewer staff members and frequent out-of-stock items. The retailer is also struggling with inventory management, which is impacting profitability.

The combination of all these issues means Target is growing its workforce faster than sales, has a complex corporate structure that hinders decision-making, and creates unnecessary bureaucracy.

Target’s global workforce grew 6% from 2023 to 2024, from 415,000 to 440,000, but revenue declined 0.8% over the same period, according to company filings.

“The truth is, the complexities we have built over time are holding us back,” Fidelke told Target employees in a memo when he announced the layoffs. “There are too many layers and duplication of effort, slowing down decision-making and making it difficult to turn ideas into reality.”

Although he didn’t mention AI in his memo, he said the layoffs will help the company run faster and allow for more “technology acceleration.”

—CNBC’s Melissa Repko and Steve Liesman contributed to this report.