In boardrooms and layoff statements, a wave of job cuts is being presented as proof that AI can already replace large parts of office work. That claim is running ahead of the evidence. Challenger, a firm that tracks layoffs, reported 108,435 US job cuts in January 2026, the highest January total since 2009. Only 7,624 of them were explicitly tied to AI. The same report described a large share of Amazon’s cuts in terms such as overhiring, fewer levels of management and efficiency, not AI fully replacing workers.
Even so, 59% of companies emphasise AI when explaining layoffs or hiring freezes, according to a survey by Resume.org. Their reason, the survey found, is that the AI story plays better than admitting the business is under financial pressure. OpenAI chief Sam Altman made much the same point, saying some companies are blaming AI for cuts they would have made anyway, a practice he called “AI washing.” The technology is real, but the story around it is doing work of its own.
Block, Jack Dorsey’s company, is the clearest example of how the story works in practice. In its letter to shareholders for the last quarter of 2025, it said it was cutting more than 4,000 roles, nearly half its workforce. It argued that a smaller team using its own AI tools could do more, and do it better. Block’s shares rose around 25% in after-hours trading when the cuts were announced. Investors were rewarding the prospect of lower costs and higher margins from a smaller workforce.
Performance data gives the strongest reality check on what AI can deliver. The Remote Labor Index, a test built from real paid remote work, measured how much of that work AI could do. The best AI system built to complete work on its own finished only 2.5% of the tasks to the required standard. The systems tested can help with slices of work, but they are far from replacing whole functions.
Klarna shows the limit of replacing people with AI. After leaning hard into AI for customer support, the company moved back towards hiring human support staff, because customers still wanted access to a real person.
