Klarna Initiates Mass Layoffs Due to AI, Affecting 2,000 Workers

AI's Impact on Employment

In March, Goldman's chief economist Jan Hatzius reported that approximately two-thirds of current jobs are at risk of AI automation. This could mean that generative AI could replace up to a quarter of current work. This translates to potentially one-third of a billion layoffs in the US and Europe, or as it's been put, "the robotization of the service sector."

First Major AI-Driven Layoffs

While the number may not be as high as 300 million yet, the first 1,200 job losses due to artificial intelligence have taken place. Swedish fintech company Klarna is responsible for these layoffs, having already let go of over 1,000 of its workers. The company plans to cut almost half of its 5,000-strong workforce due to AI. This move comes as the company, which operates on a buy now, pay later model, prepares for a stock market flotation.

CEO's Stance on AI

CEO Sebastian Siemiatkowski highlighted the benefits of AI in Klarna’s second-quarter results, which showed a significant reduction in its net loss from SKr854mn ($84mn) a year earlier to SKr10mn. Klarna has already reduced its workforce from 5,000 to 3,800 in the past year, and Siemiatkowski stated that the company could employ as few as 2,000 employees in the future as it increasingly utilizes AI in tasks such as customer service and marketing.

AI and Employment

Klarna has imposed a hiring freeze on workers, excluding engineers, and is using natural attrition rather than layoffs to reduce its workforce. Siemiatkowski has been vocal about the benefits of AI, even if it leads to lower employment, arguing that this is a matter for governments to address.

Klarna's IPO and AI

Klarna is preparing for its long-anticipated initial public offering, which could happen as early as the first half of next year. The company has increased its average annual revenue per employee from about $400,000 a year 12 months ago to $700,000 now, thanks to workforce reduction and expense cutting through AI. This is likely to be a key selling point for any Klarna IPO.

Klarna's Financial Status

Klarna has experienced some financial difficulties, with credit losses increasing 22% to SKr1.1bn in the second quarter compared to a year earlier, even as revenues increased 25% to SKr6.9bn. The company had been consistently profitable from its founding in 2005 until 2019 when its rapid expansion in the US led to significant losses. However, last year, it made its first quarterly net profit in more than four years, and Siemiatkowski stated that it would not return to making losses, arguing that AI was boosting its gross margins.

Implications for Other Companies

If Klarna is successful in maintaining its productivity and output with 50% fewer workers, it's likely that other service companies will follow suit. This could lead to a significant number of layoffs across all industries, potentially surpassing Goldman's forecast of 300 million layoffs.

Bottom Line

The rise of AI and its impact on employment is a complex issue. While it can lead to job losses, it can also result in increased productivity and efficiency. It's clear that we're on the cusp of a significant shift in the workforce, but what does this mean for the future of work? What are your thoughts on this? Share this article with your friends and join the conversation. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.