Employers increasingly see AI as a way of reducing headcount

One in six (17 percent) employers expect AI to shrink their workforce over the next year, with junior roles most at risk, according to the CIPD’s latest Labour Market Outlook which surveyed over 2,000 employers on their hiring, redundancy and pay plans.  Of those, almost two thirds (62 percent) believe that clerical, junior managerial, professional or administrative roles are most likely to be lost because of AI. The risk is highest in large private sector firms, where one in four (26 percent) expect headcount to fall, compared with 17 percent in the private sector overall and 20 percent in the public sector.

Among those who expect headcount to reduce because of AI in the next 12 months, a quarter (26 percent) expect to lose more than 10 percent of their workforce. The CIPD claims that these findings highlight the need for urgent action to support people whose roles are most exposed to AI-driven changes to headcount- particularly those in early-career or lower-level professional roles, and industries including finance and insurance, IT and administrative and support services. It argues that the government must avoid measures that dampen recruitment or limit opportunities for those displaced by AI. With employer confidence already at a record low outside the pandemic, the CIPD has emphasised the need for the government to ensure that measures in the Budget and Employment Rights Bill don’t undermine hiring further.

The quarterly survey of more than 2,000 employers also found that:

• The net employment balance – the difference between organisations expecting an increase in staff levels and those expecting a decrease in the next three months – remained at +9 overall. It fell markedly in the non-compulsory education sector, which includes universities, from –4 to –15 this quarter, as many universities face financial crisis. In the public sector, the net employment balance fell from –6 to –8.
• 61 percent of employers plan to recruit in the next three months. This is unchanged from the last two quarters, and down from 67 percent recorded a year ago. Recruitment intentions remain highest in the public sector (74 percent), compared with 58 percent in the private sector. Only 13 percent of employers anticipate significant problems filling vacancies in the next six months.
• One in five employers (22 percent) plan to make redundancies in the three months up to December 2025 – no change from the previous quarter.
• The median expected basic pay increase for the next 12 months remains at 3 percent for the sixth consecutive quarter.

James Cockett, senior labour market economist at the CIPD, the professional body for HR and people development, said: “AI is transforming the way many people work and has great potential for improving productivity and performance, but it also risks leaving many people behind.

“Junior roles stand to be most affected by AI, but we need a national drive to retrain and upskill people of all ages and career stages. It’s crucial that we see rapid progress on the development of the Growth and Skills Levy, informed by genuine consultation with employers, to ensure workers are equipped with the skills for an AI-driven economy.

“We need to see a stronger focus by the government and employers on longer-term workforce planning and investment in skills to help people use AI effectively in their roles or transition into different jobs or occupations as AI use grows. Jobseekers are already feeling the impact of slower hiring since employment costs rose in the last Budget, and measures in the Employment Rights Bill could make it even harder for employers to take on people with less experience and more development needs.”