The Layoff Lie

Last week, Jack Dorsey announced Block would cut nearly half its workforce. In one move. Overnight. The market cheered loudly. 

Cue the doomsday headlines. 

But before you accept the narrative that AI is eating the workforce whole, let’s ask a more honest question: what’s actually happening here? 

Remember When Workers Had All the Power? 

Not long ago, the consensus view was that COVID had permanently restructured the employer-employee relationship. Workers were job-hopping for outsized pay bumps. “Quiet quitting” became a cultural phenomenon. Labor economists wrote earnest pieces about how the power balance had finally — irrevocably — shifted to employees. 

I wasn’t so sure. As I wrote at the time, the post-COVID hiring boom was built on zero interest rates, fiscal stimulus, and a collective corporate panic that the talent would never come back. Companies hoarded workers the way consumers hoarded toilet paper in 2020. And like any glut, it was always going to get worked off — the only question was timing. 

The answer, it turns out, is now. 

This Is Cleanup, Not Collapse 

January opened with the highest layoff count for any January in years. Amazon, UPS, Mastercard, Pinterest, Block — the list goes on. Alarming on the surface. But here’s what the data actually shows: AI was explicitly cited as the reason for a small fraction of those cuts. A very small fraction. 

The vast majority was your garden-variety corporate correction — over-hiring, management bloat, misallocated capital, and the slow unwinding of decisions that made questionable sense even when money was free. Block is a perfect illustration. Dorsey tripled headcount during the pandemic, poured capital into multiple overlapping product lines, and ran two redundant corporate structures simultaneously. Industry analysts noted the broader wave was driven more by over-hiring and reducing layers than by new technology. 

AI is the cover story far more often than it is the cause. 

AI as Courage, Not Culprit 

That said, something real is changing. I don’t want to undersell it. 

For the past two years, AI’s impact on employment was mostly expressed through hiring restraint — companies quietly stopped filling open roles. Freezing the front door was step one. Restructuring the back office is step two, and we are now firmly in it. 

What AI has provided isn’t mass displacement — it’s organizational courage. “AI is reshaping how we work” lands better in a shareholder letter than “we hired too many people when capital was cheap.” Both may be true. Only one gets said out loud. Block’s Dorsey explicitly cited an internal AI tool called Goose as part of the rationale. Whether Goose did the work or served as the justification, the result is the same: thousands fewer employees and a stock the market rewarded handsomely. 

The market is not rewarding the layoffs. It is rewarding the confidence that the productivity math works. 

The Structural Shift Is Real — Just Slower Than the Headlines Suggest

This is both a cyclical correction and a structural shift, layered on top of each other. The cyclical part — the COVID unwind — has a natural end point. The structural part is more durable. AI raises the productivity ceiling, which means companies can achieve the same output with fewer people. That doesn’t mean mass unemployment. It means a modestly higher structural unemployment floor, much the way inflation has resettled above its pre-COVID baseline. Not a crisis. A new normal. 

Recent labor data confirms the picture: payroll growth has softened meaningfully, unemployment has drifted higher, and the duration of unemployment is stretching out.1 Temporary factors — strikes, weather, federal workforce reductions — explain part of the softness, but the underlying trend is clear. The labor market is adjusting. 

One counterpoint worth watching: wages remain sticky. Fewer jobs, stubborn wage growth, a potential energy-driven inflation rebound — that’s a stagflationary mix. Not the base case, but no longer hypothetical. The Fed is watching it carefully, and so are we. 

The labor market is restructuring. It is not collapsing. 

The Investment Read 

Some companies we’ve consistently ranked highest in our frameworks — ServiceNow, Palantir, Veeva, Cloudflare — aren’t threatened by this dynamic. They own it. As companies restructure around AI, mission-critical software with process flow ownership gets further entrenched, not rationalized away. 

On the other side: companies that hired their way to growth, that mistook headcount for strategy, are being corrected. Block’s stock tells you which bucket the market thinks it now belongs in. 

Jack Dorsey put it plainly: “I’d rather get there honestly and on our own terms than be forced into it reactively.” 

Which is really just a CEO saying: I over-hired, the jig is up, and at least I get to write the press release. 
 

Source 

1 Nicolas Petrosky-Nadeau, “SF FedViews: Slow Job Growth in a Strong Economy – San Francisco Fed”, Federal Reserve Bank of San Francisco, January 15, 2026.