According to analysts at Goldman Sachs, a slowdown in hiring in the US technology sector primarily stems from the repercussions of excessive staff expansions during the pandemic, rather than advancements in artificial intelligence or monetary policy tightening.
The bank’s estimates that hiring rates in the IT industry have lagged behind historical trends by 5 percentage points on an annual basis since 2022. About half of this decline can be attributed to the normalization of staffing levels following aggressive recruiting from 2020 to 2022.
The market typically identifies three main reasons for the cooling of the tech labor market: high Federal Reserve interest rates, enhanced efficiency through AI, and a correction in staffing levels. However, Goldman Sachs’ research questions the significance of the first two factors.
The investment bank found no evidence that costly borrowing has been the main reason for the hiring freeze. Analysts categorized public IT companies based on changes in their interest coverage ratios. It turned out that corporations with both high and low sensitivity to interest rates are hiring employees at nearly identical rates, remaining aligned with overall industry averages.
The influence of artificial intelligence on employment does exist but is relatively minor. The bank estimates that automation accounts for only about 0.5 percentage points of the overall slowdown. At the same time, analysts confirm that corporations citing layoffs due to AI implementation are indeed reducing specialized positions more aggressively than competitors not using AI as justification.
The primary driver of the slowdown has been the correction in staffing levels. Companies that saw the greatest excess hiring during the pandemic are currently demonstrating the most significant lag in recruitment. This explains up to 2 percentage points of the current decline. As Goldman Sachs summarizes, the factor of normalizing staffing levels impacts hiring slowdowns in the IT sector three to four times more than the shift to artificial intelligence technologies.
