The rapid expansion of artificial intelligence (AI) is reshaping the tech labor market, leading to an increase in unemployment among information technology (IT) workers.

According to WSJ, the latest report from consulting firm Janco Associates, based on U.S. Department of Labor data, reveals a sharp rise in IT unemployment from 3.9% in December to 5.7% in January, well above the overall jobless rate of 4%.

The number of unemployed IT professionals rose from 98,000 in December to 152,000 in January, underscoring how automation and AI-driven transformations are affecting the workforce. This comes at a time when the broader U.S. job market remains resilient but slowing, with the economy adding 143,000 jobs last month, a lower pace compared to the previous two months.

The rise in IT joblessness is being driven in part by the increasing adoption of AI-powered automation, which is eliminating traditional roles within the industry. Many jobs that involve routine tasks—such as reporting, clerical administration, and even software development—are being streamlined or outright replaced by AI, reducing the need for human employees.

“Jobs are being eliminated within the IT function which are routine and mundane, such as reporting, clerical administration,” said Victor Janulaitis, CEO of Janco Associates. “As they start looking at AI, they’re also looking at reducing the number of programmers, systems designers, hoping that AI is going to be able to provide them some value and have a good rate of return.”

Tech companies, particularly Big Tech giants like Amazon, Microsoft, Meta, and Alphabet, are spending billions of dollars on AI-driven infrastructure, but this investment has not yet translated into increased hiring for IT workers. Instead, cost-cutting measures are being prioritized, and many firms are relying on AI-driven “cost avoidance”—a strategy where automation takes over tasks traditionally done by humans, eliminating the need to expand IT teams.

Tech Layoffs and Budget Cuts Compound Job Losses

January’s tech job losses were also compounded by corporate budget cuts, as companies began implementing cost-reduction strategies planned during last year’s fiscal cycle. Some of these reductions were based on economic uncertainties from 2023, leading companies to adjust their spending in anticipation of a challenging business environment in 2024.

Among the notable layoffs: Meta announced that it would cut 5% of its workforce through performance-based layoffs in the U.S. Workday, a major enterprise software provider, said it would cut 8.5% of its workforce as part of a broader restructuring effort.

However, there are still some areas within tech that continue to see hiring activity. Cloud security company Netskope, for example, is expanding its workforce in areas such as data engineering, data analytics, and cloud operations. Mike Anderson, Netskope’s chief digital and information officer, noted that his company is “making investments to drive productivity across the business.”

White-Collar Unemployment at Its Highest Since 2020

Beyond the IT sector, white-collar job losses are becoming a broader trend. According to Cory Stahle, an economist at the hiring website Indeed, job postings for knowledge-based positions have stagnated, while demand for in-person, skilled labor roles remains high.

“What we’ve really seen, especially in the last year or so, is a bifurcation in opportunities, where white-collar knowledge worker type jobs have had far less employer demand than jobs that are more in-person, skilled labor jobs,” Stahle said.

New job postings for software development roles on Indeed declined by 8.5% in January compared to a year earlier. However, Stahle pointed out that the trend may be stabilizing after the drastic tech-sector layoffs of 2023.

The Future of IT Jobs in an AI-Driven Economy

The ongoing wave of AI automation presents both opportunities and risks for the IT job market. While AI investments are driving unprecedented growth in certain areas, they are also eliminating jobs at a rapid pace. The current trend suggests that companies will continue to prioritize automation over workforce expansion, particularly in roles where AI can replace human labor efficiently.

However, emerging fields within AI and cybersecurity could offer new job opportunities for displaced workers. Companies investing in AI infrastructure, cloud security, and data engineering will require skilled professionals to manage, train, and oversee these systems.

Despite these possibilities, the immediate impact of AI on employment is more displacement than job creation, raising concerns about long-term job security in the tech industry.