Despite AI being blamed for shrinking tech workforces, industry experts say the wave of layoffs in 2025 is being driven far more by macroeconomic uncertainty.
Cost pressures, weak demand and investor expectations for profitability are behind nearly 60-70 per cent of job cuts, compared to around 25-30 per cent linked to AI adoption.
While companies often cite AI as a convenient narrative to frame workforce cuts, in reality, strategic restructuring and subdued demand remain the dominant forces shaping layoffs.
According to data from Adecco India, a staffing firm, the global tech industry has seen over 138,000 layoffs this year, with projections suggesting this number could exceed 243,000 by December.
As of August 2025, the global tech industry has seen over 81,000 tech job cuts across 179 companies. The pace of layoffs is averaging nearly 580 job losses per day in 2025. Unemployment in IT sector has risen from 3.9 per cent in December 2024 to 5.7 per cent in January 2025, reflecting broader economic pressures.
Analysts point out that many of these reductions are a correction of Covid-19 pandemic-era over-hiring and a response to rising capital costs, while AI’s direct impact on workforce needs is still limited, with most deployments in pilot stages.
Pricing pressure
Rajesh Ranjan, managing partner, Everest Group, explained, “Layoffs in Indian IT today are far more about weak demand and pricing pressure than AI. Weak macroeconomic conditions and continued tariff uncertainties are hindering discretionary spending, a key driver of growth. The swing towards GCC leverage is also putting additional pressure on Indian IT companies. In summary, macroeconomics, not machines, are driving the cuts.”
He added that most AI projects are currently at an early stage of adoption, with several still at the pilot stage.
“It is fair to say companies may be using AI as a narrative shield to frame layoffs that are primarily due to weak demand and margin pressures,” he said.
Sanketh Chengappa KG, Director and Business Head, Professional Staffing, Adecco India, echoed that many layoffs are a correction of pandemic-era over-hiring, when companies expanded teams aggressively to meet temporary demand.
Labour costs
Simultaneously, organisations continue to optimise global labour costs through offshoring and outsourcing, a trend that pre-dates AI but is now complemented by automation.
“AI is frequently highlighted as a convenient rationale to justify broader strategic workforce adjustments rather than being the sole driver of job cuts. Understanding layoffs requires viewing them as a convergence of operational, strategic, and technological considerations rather than attributing them to a single cause,” she noted.
Following years of aggressive, growth-driven spending during the pandemic, tech firms are now facing mounting pressure to deliver profits. As a result, they have resorted to hiring freezes and layoffs, particularly in non-core functions. With rising interest rates, inflation and geopolitical instability driving up capital costs, companies are conserving cash and trimming headcount to stay resilient.
Many firms that over-hired during the pandemic to support remote work and digital transformation are reassessing workforce needs and cutting back.
Staffing demand
Chengappa observed that tech staffing demand is likely to recover once macroeconomic conditions improve, even as AI continues to redefine roles. She added that despite recent layoffs, firms are showing fresh hiring intent, moving away from broad cuts toward selective recruitment in areas such as innovation and security.
However, although AI’s impact has not yet materialised at scale, the technology is expected to displace nearly 14 million jobs globally in 2025, including 2.1 million in the US.
Adecco India data showed that AI-driven automation directly contributed to more than 27,000 job cuts since 2023. It is expected to further displace roles involving repetitive tasks, especially in customer support, HR and recruiting, marketing, operations and entry-level software development.
“Clients of tech services companies are under significant financial stress, demanding greater value at lower costs – expectations increasingly shaped by AI-led efficiencies. This pressure is compelling IT firms to reimagine their operating models, shifting from traditional effort-based approaches to outcome-based delivery. The longstanding hierarchical people pyramid is dissolving, replaced by agile networks where humans, AI agents, and ecosystem partners collaborate to deliver outcomes. This AI-led disruption, coupled with subdued demand, is driving workforce rationalisation and a reassessment of skill requirements,” said Nitin Bhatt, Technology Sector Leader, EY India.