There’s plenty of concern around AI layoffs, especially in tech, but one of the most prominent VCs in the game believes that the current layoffs aren’t being caused by AI at all.
Marc Andreessen, co-founder and general partner at Andreessen Horowitz — one of Silicon Valley’s most influential firms, with over $90 billion under management and early bets on OpenAI, Airbnb, and Coinbase — made the case on the 20VC podcast that the real culprits behind today’s mass layoffs are rising interest rates and reckless pandemic-era hiring, not artificial intelligence.
“Number one, interest rates. Interest rates were at zero, and then they went from zero to 5% at record speed — like three years ago. Every big company had to completely replan their financials, and their cost of capital went up five points.”
The second factor, Andreessen argues, compounded the first:
“Number two is they all overhired during Covid. The hiring binge the companies went on during Covid was just wild. It was the combination of the two — interest rates going to zero during Covid, and then the complete loss of discipline at all these companies when they went virtual. When employees just became an icon on a screen, they’d just go hire tons more of them.”
The result, in his view, is a bloat problem that’s only now being corrected — but with a convenient narrative attached:
“Essentially every large company is overstaffed. We could debate how much — it’s at least overstaffed by 25%. I think most large companies are overstaffed by 50%. I think a lot of them are overstaffed by 75%. And now they all have the silver bullet excuse, right? ‘Ah, it’s AI.'”
Andreessen says he knows this isn’t AI-driven for a simple reason: “AI until literally December was not actually good enough to do any of the jobs that they’re actually cutting. So it just can’t have been AI.”
He extends the argument to the struggles facing new graduates:
“People look at the spike in how hard it is for new college grads to get new jobs, and again, people peg that on AI. But I think that’s actually two things. Number one, of course the companies that overhired and over-invested and have to bring down their spend and headcount — obviously they’re not going to hire very many people. And then the other is, one might make the observation that maybe the skillset of a lot of college graduates over the last decade doesn’t necessarily match the job market. That’s a very uncomfortable conversation for people to have. But if you talk to any employer, they’ll immediately tell you that.”
Andreessen’s framing is blunt, but it isn’t without support. IBM CEO Arvind Krishna said last year that the wave of tech layoffs was a “natural correction” from pandemic overhiring, not an AI-driven purge. Oxford Economics reached a similar conclusion, finding that many layoffs CEOs labelled AI-related were in fact the result of hiring excesses from 2020–2022.
The “AI excuse” dynamic Andreessen describes has become something of an open secret in corporate circles. As one analysis put it, “We overhired during a bubble” doesn’t inspire investor confidence the way “we’re reallocating resources toward AI” does — and executives have taken note. Layoffs attributed to AI tend to be met with stock price bumps; layoffs attributed to poor planning do not.
That said, the picture isn’t entirely clean. There are sectors where AI is visibly and genuinely displacing work. Customer support hiring has collapsed — the share of new hires going into those roles fell from 8.3% to 2.88% in under two years, according to a16z data. Amazon expects its corporate workforce to shrink as AI efficiency gains compound. And Klarna famously reduced its headcount from 4,500 to 3,500 through a hiring freeze it explicitly tied to AI productivity. It remains to be seen how AI-related layoffs shape up, but with models getting better all the time, and becoming more autonomous, it would be hard to argue that they wouldn’t cause any displacement among the labour market.