This Week in Jobs: California Steps in as Companies Cut Jobs for AI

Pete Newsome: Welcome back to the weekend jobs. I'm Pete Newsom, and you'll notice I'm solo today. Peter's out on vacation starting Memorial Day weekend early, but the job market news hasn't stopped. It never will.

And this week we we had some big stories. It seems we have every week lately, centered around AI and centered around major job cuts. I wish that wasn't the case, but I don't create the news, and I don't think this is going to change anytime soon. So if you're tired of it already, I certainly am, at least about the job cuts.

This is just seems to be the situation that we're in for the foreseeable future. And these headlines almost get ignored now. Some of the big cuts that happen would have been huge news if they happened in isolation. But these major employers' household names seem to keep piling on.

Maybe they're just trying to get buried in headlines where this is taking place constantly. But it's a trend, it's a really bad trend that we're seeing not slowing down. And I don't know where this is going to end up. AI certainly isn't going away.

That is only picking up speed. And we could argue, as many do, about whether these cuts are specifically tied to AI, if that's true, if it's AI washing, if these companies are really just right-sizing after overhiring post-COVID. The truth is, I think it's all of the above. At least that's my perspective.

And we won't really know what each company is doing unless we're behind the closed doors where those decisions are being made. They're citing these layoffs as being technology-driven, AI-driven, investing in AI, gaining efficiencies from the AI investments. But the reality is we don't know. So I really do think it's all of the above.

And I'm on the side of AI having a serious impact on jobs overall. And so what happened yesterday is there were two executive orders that were in play. One was signed, one was canceled. At the state level, and I've been talking about this for a while, that the government is going to become increasingly involved in AI's impact on the job market.

They're now seeing it, as always. The government's a little slow to react with things, but I don't know if they can stop what's happening. And in some cases, at the federal level, I don't know, they're inclined to stop what's happening. So this is going to become a bigger story as time goes by, as we see more cuts, regardless of what they're attributed to AI, whether they're actually caused by AI, again, my take is that it's all of the above.

But it is happening. And AI is becoming more prevalent in every aspect of life and business. And so the government is going to, of course, try to intervene. Their constituents are certainly going to put pressure on elected officials to try to protect them.

But there's definitely a push and pull going on with this right now. So yesterday, California Governor Newsome signed an executive order aimed at protecting workers against AI's impact. He sounds to be specifically worried about white-collar roles. So customer service, software developer positions, marketing and sales roles.

And he's called for subsidies for companies that keep workers instead of replacing them. Now, I've talked in the past about how there's a huge tax benefit to not hiring employees. If you hire a robot, you get a full write-off for that. If you have an employee, or you specifically get 100% depreciation in year one.

That is a law that's been put in place. And that doesn't get talked about a lot, but it is an incentive for companies to make technology investments. That's the intention. But what's happening now that wasn't the case 20 years ago when investments were made.

And by the way, those that 100% depreciation in year one did not exist 20 years ago. But now it forces companies to decide do I want to invest in a robot or do I want to invest in a human? Because the effective tax burden for hiring a person versus a robot is up to six times more. That also doesn't get talked about a lot.

So the need to help companies be motivated to hire or to retain workers versus replacing them, that makes a lot of sense to me. I'm now look, I'm an anti-tax person overall. So as a staffing company owner, the payroll taxes that we pay, the fees that we pay to uh just to carry people on our payroll, I can tell you they're they're significant. They're massive.

And when you look at 30% effective tax rate for an employee versus zero, well, that's gonna put a lot of companies in a place where they're gonna do what's best for them, which may not be best for society as a whole. So that's taking place. And I think that this executive order is a step in trying to stop that. What they're looking to do is try to assess how big this problem really is.

The executive order calls for a risk analysis report to be developed. Uh they're looking to um create a deployment and analysis framework that they can maintain and update going forward, and they're also looking to train employees in the state who have been displaced because of AI. So there's definitely an effort. California is ahead of the curve with this, with other companies who've said, we're concerned about this, we think it's a growing problem, and we're going to try to do something about it.

Now, can they stop this AI train? That's the other side of the equation here. Trump was supposed to be signing an executive order yesterday, which coincidentally was, or I'll rather say ironically, was canceled a few hours after the California executive order was signed. What the executive order that Trump was intending to sign yesterday, that he canceled, would have established a framework for the government to vet national security risks of the vo of the most advanced AI systems before they were publicly released.

It was recently compared by Kevin Hazett, who's one of Trump's major advisors on this, as similar to approving an FDA drug. And that probably makes a lot of people cringe to hear. But what they essentially wanted to do was look at the new AI tools before they were allowed to be used by the public and decide how risky they were, how safe they were. And he's taken that off the table.

Now I don't know this, but I suspect that a lot of the people who helped him get elected were in his ear not happy about this, even though supposedly the major AI companies were behind it. Someone convinced him to remove it, and he says it's because we don't want to weaken America's competitiveness against China. And that's why this is such a tough thing, because we know that they're going to keep pushing the envelope with AI, as will other countries, as will people who aren't going to follow the rules.

So this is a mess. And I don't blame, credit anyone for how they're trying to solve this, how they're trying to manage this, because no one really knows where all of this is leading. We still have almost an equal number of people saying that there's going to be as much job creation as there is job loss as a result of AI. But we do know that this is something that is becoming increasingly important for all of us.

And as it relates to the cuts that are happening, the government just can't ignore it any further. It's becoming a really big deal. And the the cuts are massive. So let's let's talk about that too, because that is also part of this story, where it's not just that AI exists, it's that companies are acting on it.

So Meta this week enacted the job cuts that they were they've been talking about for a while. There were rumors, and then they confirmed them, and now it finally happened. So they laid off 8,000 people, they reassigned 7,000 to AI teams. And when you think about those numbers, they're easy to say, right?

8,000, 7,000. This is an enormous amount of people whose lives were just affected by the layoff in a very significant negative way. And now we have 7,000 roles being reassigned specifically to AI. That is just, it should be major news on its own, its own, as I said earlier.

But it just kind of gets buried now because these big numbers, we're seeing them so frequently that we don't really react to them anymore. It all almost seems like monopoly money that we're talking about. It's yeah, we read it, but it's not real. Or unless it impacts us specifically, it's hard to react to it.

But these are major things taking place right now. They also cancel 6,000 rolls. So a total of 21,000 positions affected at a single company, all centered around AI. Meanwhile, they're spending up to 135 billion, 135 billion on AI in 2026.

So this is such a big thing that is going to impact all of our lives, that of course the government has to start getting involved. State of California's trying to protect workers. The federal government seems to be backing off, putting some restrictions in place. But as the weeks and months go on, I think we're going to continue to see more people calling for the government to do something about it.

I just don't know how much they will or can do about it going forward. But this cut and rebuild model seems to be what's in vogue right now, where companies are making big cuts. Maybe they work out, maybe they don't. Maybe they're specifically because of AI, maybe they're not.

Maybe they were overhiring reasons, maybe they're not. But we know the cuts are happening, and that's what's most relevant here. The reasons behind it to me are secondary. But companies are trying to figure out how to leverage AI.

They're trying to figure out how to gain efficiencies, how to cut costs, and as we talked about earlier, when you're faced with 100% depreciation on a new technology that you can invest in versus an expensive employee, these public companies at least are probably going to err on the side of trying to get the savings. It just makes sense to do. Whether they should do it morally, ethically, that's a different discussion. It is happening.

So that is what's been going on there. And we've also seen some cuts at other major companies, which I continue to say and be surprised by that these things on their own would be big story. Standard Chartered eliminates 7,000 jobs. 7,000, like it's no big deal.

And their CEO said that what they're doing is replacing lower value human capital. Okay, so that's where AI really starts to have an impact first on what's happening. And yes, AI makes mistakes, yes, it hallucinates. Oh, it's far from perfect.

I mean, my own AI that I use continues to not be able to grasp what day of the week it is. It's almost become laughable to me how consistently it happens, where it just puts, it has access to a calendar of all the complex things it can do. It doesn't ever seem to be able to match up the day of the week with the day of the month. And it I, you know, so it's far from perfect at this point.

We know that. But what AI does effectively is repetitive tasks. And there's the CEO of Standard Charter referred to this as lower value human capital. And I see where he's coming from with that because if AI can do something that is a low-level administrative effort that is easy to replace, well, of course they're going to do that.

Now the hope is that we're in the and the AI optimists will say that the result of all of this is going to elevate what humans get to spend their time doing. No one likes to do administrative repetitive tasks that are boring and dull. We want people to be doing things that are more interesting to them, that add more value to an organization. But when you see the cuts, that's not happening.

And that's that's my issue with this. It's great that the potential is there to do more strategic things and creative things and really let humans be the best that they can be. But what's going to happen to those 7,000 workers who are losing their jobs in a very competitive market? Because since presumably they're the ones doing this low-value human capital work, as he put it, well, those are the other people getting cut too.

So now we have people competing for the same jobs. And we'll talk about in just a minute how it's kind of a state of two different job markets. But I first just want to mention that in two it also cut 3,000 jobs, which is 17% of its workforce. 3,000 jobs, 3,000, 3,000 people affected and no longer employed.

And that one just gets buried, right? It was in all the headlines for a second and now it's gone. But individually, these are all really big stories that uh at least should be bigger stories in a normal world, but right now they're they're just getting buried. And so you if you look at who's getting cut, this is not equal.

It's not equal. And a lot of people will say that the job market is really strong right now because of all the hiring that's going on in construction, in healthcare. And yes, those things are true. But here's the problem: we have a shortage of workers in those areas.

So the people who, those low-value people who are getting cut, they can't step into nursing jobs, they can't step into skilled trades work. This is a this is two job markets. One's getting worse, right? That we're having a greater need for healthcare professionals as people are dying faster than they're being born, people are getting sick faster than new people are coming into the workforce.

So the need for healthcare professionals is going to increase in the foreseeable future over the over the next 10 years. By 2030, deaths will outpace births in our country. And we have immigration dropping. It's going to drop 90% over the next two years.

There was a story about that this week that indeed put out, and so we're seeing lower interest for foreign workers right now. Okay, so immigration's down, people are getting older, people are getting sicker, and we already don't have enough nurses. We already have it don't have enough healthcare professionals who are not easy to replace. Similarly, with construction, those roles are booming right now.

And it's great for the workers in that area, but it's not great for us overall because we don't have enough people to do the work. We already have a shortage of half a million skilled trades workers in the country. And similar to healthcare, we're losing people faster than we're replacing them. For every five people who retire in skilled trades, only two are coming in behind them.

So that is what is so fascinating to me and also somewhat terrifying about the current state of the job market. And yes, it's awesome that AI is creating a lot of jobs in construction because of the data centers. We won't get into whether the data centers are a good idea right now. There's obviously two very uh different camps on that, on whether they're a good thing, whether they're a bad thing.

But no one can deny that they are creating a need for more people to work in the construction space, more skilled trades workers. But that just means it's gonna be harder for everyone else to hire skilled trades. It's gonna be higher at the residential level level, it's gonna be harder at the uh for construction projects that don't involve data centers because these AI companies building the data centers have unlimited budgets to throw at this. So it's it's it's really just a big mess.

And so the theme for this week to me is the government is starting to draw a line in the sand about this. California's made their position very clear. They're looking to protect workers. I expect other states to follow soon.

I don't know how effective they can be at it, but they're going to try. The federal government, at least for now, has seemed to back off trying to slow these things down. They don't want the U.S.

to fall behind to China. If that is truly their motive for doing this. And just like all these decisions that are being made, unless you're in the room where it's happening, you don't really know. But that's what they're saying publicly.

The floodgates are still open, AI is going to continue to go full speed ahead for the foreseeable future. So expect more job loss, expect more cuts, and we'll see where it where it all leads. Because we are living this in real time together. And as I always say on this topic, anyone who tells you definitively that they know what to expect, don't believe them.

Because we've never experienced anything like this before. This is an experiment. We're living in real time together. So it makes sense to pay attention to it.

That's why I talk about it so much and pay attention so closely to what's happening. And that's what I encourage everyone else to do, because eventually this is going to come to your doorstep. So even if you're going to retire soon, well, that means you're probably older, and that means what's happening in the healthcare market's going to affect you. If you work in an industry that doesn't, you don't think is going to be impacted by I by AI, well, good luck because it ultimately will.

It's going to hit all of us. So for everyone in the workforce, pay attention to this. Use it, embrace it. Don't don't be afraid of it.

Don't ignore it by by all by all means. And try your best to look ahead and see how it is going to impact your profession, your company, your ability to earn income. That's incumbent upon all of us because I don't think there's anyone coming to save us, right? The government's going to try, they're going to try to jump in, maybe for different interests that align with yours.

And so don't count on anyone else here. So that those are the big stories for today. Again, big cuts, big employers' cuts that happened, and these executive orders, one signed, one canceled. We'll see what happens with that over the weeks and months to come.

There's definitely going to be more news in that area. But before we close, I do want to try to find some positive news. I don't I always look for this to end with. Sometimes we find it, sometimes we don't.

But there is some, there is there is some positivity right now, and that is that we're seeing some uh we're seeing an uptick in in in hiring, at least at the private level, according to ADP. The ADP pulse rebounded this week with 42,250 jobs, or rather last week that were added. So that's heading in a good direction. Uh unemployment seems to be just flat.

So even though we're seeing all these big layoffs, that hasn't caught up to the unemployment numbers. They came in at 209,000 for last week. So we're we're holding pretty steady there, which is good because the unemployment isn't historically high. And I do scratch my head a little bit about that, why we haven't seen that uptick yet.

But for now, we're holding pretty steady. So the job market as a whole isn't bad, although selectively it is, right? I mean, and it's balanced by some areas doing really well, some certainly at the lower level, starting to be impacted. So, but for now, overall, it is steady.

And then Strata Institute found that employers expect AI to increase entry-level hiring at a three to one ratio over time. So let's hope they're right. And and that is ultimately what if I if I try to be optimistic, if I have to be optimistic about AI's impact on the job market, is that we'll, while we're dealing with cuts now, and then granted this doesn't help anyone who's who is dealing with it in the moment, but that ultimately new opportunities will be created that we just can't foresee yet, that there will be a need for people in roles that have never previously existed.

So that that is, I I I believe that is going to happen. To what degree versus the cuts, that's where it gets a little fuzzy for me or really fuzzy for me. And I'm not as optimistic. But there are a lot of a lot of smart people who are very optimistic about it, and I have to acknowledge that.

And Strata Institute. Saying that this is going to increase entry-level hiring three to one instead of decreasing it. Well, let's hope they're right. And let's hope I'm wrong.

But we're all going to see. So please pay attention to it. And um, you know, it's not it's not going away. That we all I'm sure agree on.

So that is it for today. I will say goodbye for now, and I will look really hard between now and next Friday to find some really optimistic news and positivity in the job market to talk about. But in the meantime, have a safe, great Memorial Day weekend. We'll talk soon.