Layoffs, AI demand create mismatched talent market for IT skills

Ongoing layoffs in the tech industry and rising demand for AI skills are contributing to a growing mismatch in the IT talent market, which continues to show mixed signals as economic factors and the rise of AI impact budgets and the long-term outlook for IT skills.

Since 2022, the tech industry has experienced massive layoffs, as large tech companies have reduced their workforce numbers in response to rising interest rates and emerging generative AI technology. According to data from Layoffs.fyi, 470 tech companies have laid off around 141,145 employees in 2024 as of this writing, on top of the 428,449 tech workers who were laid off in 2022 and 2023.

Notable layoffs from this year include Dell, which laid off 5% of its workforce in March, amounting to nearly 6,000 employees. In July, Intuit announced plans to lay off 1,800 employees to shift priorities to hiring for AI, while also reducing its number of executives by 10%. Then in August, Intel announced a 15% reduction of its global workforce, amounting to approximately 15,000 jobs.

Just days later, Cisco Systems announced it planned to reduce its workforce by 7%, citing shifts to other priorities such as artificial intelligence and cybersecurity — after having already laid off over 4,000 employees in February. September and October saw more layoffs from companies such as Microsoft, Meta, Apple, Dell, Samsung, and Qualcomm.

Although not all technical roles, these layoffs have contributed to unemployment levels in IT not seen for some time, increasing the available pool of IT candidates. But as these companies and others retrench for AI, the skills they seek remain rare — ensuring a tight talent market remains where companies are ramping up hiring most.

What is driving tech layoffs?

Several driving factors are behind the mass tech layoffs in recent years. The pandemic, for one, pushed organizations to accelerate digital transformation to support a remote workforce, and to adapt to global lockdowns, organizations invested in their technology stacks and teams to do so.

“IT hiring has clearly come down from its peaks of 2021, where the pandemic pressured many organizations to expand their digital offerings and responded to that by over hiring tech talent, and in that fight to find talent, paying premium salaries during a period of low interest rates,” says Fiona Mark, principal analysts at Forrester.

Then, in 2022, as pandemic restrictions began to lift, the US Federal Reserve hiked interest rates in response to historic levels of inflation. This drove organizations to make cuts and shift more toward “maintenance mode” than focusing on growth and expansion, according to Mark.

“In the face of higher costs, organizations needed to focus only on their most critical initiatives, pulling back from non-core activities, and reducing IT spend,” she says.  

Couple inflation with the overall economic downturn, growing fears of a recession, recent geopolitical conflicts, and a tumultuous election year, and it’s clear to see why tech companies are reacting with more caution as they move forward.

But despite a “slowing job market,” data shows a continued “pent-up demand for specific skills and roles,” says Thomas Vick, technology and hiring consulting expert at Robert Half, especially those that help support critical business goals. According to previous data from Robert Half, 58% of hiring managers who oversee IT professionals planned to hire in the second half of 2024, above the average of all industries surveyed (52%).

Vick notes that when it comes to hiring, companies have also become more cautious, pulling back on compensation levels or remote work options. But, he notes, the data suggests organizations will still need to navigate a skills gap, especially around emerging skillsets such as AI.

“When it comes to specific skillsets, our data indicates there aren’t enough candidates with the preferred skills for all open roles, which is fueling competition for top talent. In this case, employers are having to adjust their approach to hiring to attract the right talent, and that includes remaining competitive with salaries, flexibility, and other perks,” says Vick.

The impact of AI adoption on hiring

AI is a double-edged sword for IT careers — will it replace jobs or aid workers in being more productive and efficient? The jury is still out, but it does seem to be impacting entry-level workers, as generative AI tools increasingly take on organization’s entry-level responsibilities. Forrester’s Mark points to this trend in which entry-level and early-career roles are being reduced, leaving less-seasoned candidates struggling to find work and gain more experience.

“AI is a top focus for organizations, and tech talent with AI skills are much more in demand than those without AI related skills. As we look to the future — skills that relate directly to AI, such as NLP [natural language processing], working and training LLMs [large language models], as well as skills related to AI such as cloud architecture and engineering, data science, and management skills — these are continuing to see demand, at the expense of other IT skills,” says Mark.

And for organizations that plan to lay off workers to hire for AI, the question remains whether there’s enough skilled talent available to hire with AI skills. The demand for AI skills is only increasing, along with cloud and data skills, but Marks says we may be “heading towards a skills mismatch in the marketplace — where certain skills remain hard to find and organizations struggle to have enough of them, and yet there are talented, experienced tech workers who cannot find work.”

The best thing organizations can do to prepare for the unknown landscape of AI is to invest in their workforce through upskilling and skills development programs. The best way to beat the skills gap is to identify what skills your organization is going to need in the near future, and then training and upskilling talented workers to meet those skills needs.

“Organizations should be taking a more strategic approach to their talent and demand pipelines in order to put in the place the skills development programs now so that they can take advantage of internal talent and mobility, retaining valuable organizational knowledge and expertise, while building the skillsets required for the future,” says Marks.