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It's Not Just AI: 5 Forces Killing Tech Jobs

AI gets blamed for everything. But tech hiring collapsed due to tax code changes, interest rate hikes, COVID overhiring corrections, and outsourcing—not just automation. Understanding the real causes helps you make smarter career decisions.

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It's Not Just AI: 5 Forces Killing Tech Jobs

The AI Blame Game Is Missing the Point

Every tech layoff headline screams "AI." Every LinkedIn doom post blames automation. Every career advice article says "learn AI or die."

AI is a factor. It's not the factor.

The tech job market didn't collapse because of one thing. It collapsed because of at least five things happening simultaneously—and understanding which factors are reversible (or already reversing) changes how you should respond.

If you blame everything on AI, you'll make fear-based decisions: panic-learn prompt engineering, abandon your domain expertise, or leave tech entirely.

If you understand the full picture, you can make strategic decisions: watch for market recovery in specific areas, position for cyclical rebounds, and focus AI upskilling on what actually matters.

TL;DR: The Five Forces

FactorImpactReversible?Status (2025)
Tax Code (Section 174)Forced R&D cost amortization killed hiring budgetsYesPartially reversed in 2025
Interest RatesCheap money ended, growth hiring stoppedYes, cyclicalRates declining, 1% cut in late 2024
COVID Overhiring2020-2021 bubble created unsustainable headcountOne-time correctionLargely complete
Outsourcing ResurgenceRemote work enabled global hiring arbitragePartiallyOngoing
AI AutomationReal productivity gains reducing headcount needsNo (accelerating)Ongoing, but not the only factor

The insight: Three of these five factors are either already reversing or were one-time corrections. The AI-only narrative misses this entirely.

Factor 1: The Tax Code Nobody Talks About

What Happened

In 2017, the Tax Cuts and Jobs Act (TCJA) made a change that went largely unnoticed until 2022. Section 174 modified how companies could treat R&D expenses—including software developer salaries.

Before 2022: Companies could deduct software developer salaries as an expense in the year they were paid (like any other operating cost).

After 2022: Companies must now capitalize and amortize these costs over 5 years (domestic) or 15 years (foreign).

Translation: If you hire a developer for $150K, you can only deduct $30K in year one. The rest gets spread over the next four years.

Why This Matters for Hiring

Imagine your CFO's reaction:

Before: "Hire 10 developers at $150K each. Tax deduction: $1.5M this year."

After: "Hire 10 developers at $150K each. Tax deduction: $300K this year. The rest? We wait 5 years."

This isn't a small change. It makes every software hire 5x more expensive on the tax books in year one.

The Data

  • One analyst estimated this change would cut 20,000 U.S. software developer jobs
  • Small software firms with limited cash reserves warned of an "extinction event"
  • R&D spending growth slowed from 6.6% average to less than 0.5% after the change took effect
  • The US became the only major country with forced R&D amortization

The Pragmatic Engineer's analysis: This provision directly contributed to reduced tech hiring independent of any AI considerations.

The Reversal (2025)

Here's what most people missed: This is already being reversed.

The "One Big Beautiful Bill" (OBBB) passed in 2025 restores immediate expensing for domestic Section 174 costs starting in 2025. Companies can once again fully deduct R&D expenses in the year incurred.

What this means:

  • Hiring one developer just got cheaper again (on tax books)
  • Companies that held off hiring may resume
  • The reversal is retroactive for small businesses (under $31M gross receipts)

The implication: Some of the hiring freeze attributed to "AI" was actually due to a tax code change that's now being reversed.

Factor 2: The Interest Rate Earthquake

What Happened

From 2010-2021, money was essentially free. The Federal Reserve kept interest rates near zero, and venture capital flowed like water.

Then inflation hit. The Fed raised rates from 0.25% to 5.5% in under two years (2022-2023).

Why This Matters for Tech Hiring

Tech company financing models changed overnight:

The 2010-2021 Model:

  1. Raise VC money at low cost of capital
  2. Hire aggressively to grow
  3. Growth justifies more funding
  4. Profitability can wait

The 2022+ Model:

  1. Borrowing is expensive
  2. VCs demand profitability, not just growth
  3. Every hire must justify immediate ROI
  4. Headcount becomes a liability, not an asset

The Correlation

Roger Lee, creator of Layoffs.fyi, documented the direct correlation: "There's obvious correlation between the Fed raising interest rates and these tech companies doing layoffs. The latest wave of tech layoffs started in the spring of 2022, around the time the Federal Reserve began its aggressive series of interest rate hikes."

The numbers:

  • 2022-2023 combined: 428,449 tech workers laid off
  • 2024: Another 141,467 layoffs at 476 companies
  • Correlation: Layoffs accelerated exactly when rate hikes began

The Cycle Is Turning

In late 2024, the Fed cut rates by 1%, bringing the target range to 4.25%-4.50%. If rate cuts continue, the financing environment that enabled 2010-2021 hiring will partially return.

What this means:

  • Startups may get funding again
  • Growth companies can resume hiring
  • The "profitability at all costs" pressure eases

The implication: Some of the job market pain was due to a cyclical interest rate environment, not permanent AI displacement.

Factor 3: The COVID Hiring Bubble

What Happened

The 2020 pandemic created a massive (temporary) demand surge for tech:

  • Everyone moved online overnight
  • E-commerce exploded
  • Remote work tools became essential
  • Cloud spending spiked

Tech companies responded by hiring aggressively. Meta nearly doubled its headcount from March 2020 to September 2022. Other FAANG companies followed similar patterns.

The Problem

The hiring was based on assumptions that didn't hold:

  • "Remote work will stay at pandemic levels forever"
  • "E-commerce growth will continue at 40% annually"
  • "Cloud spending will never slow down"

When reality normalized, companies found themselves with 2X the headcount they needed for actual demand.

The Correction

Mark Zuckerberg described the layoffs as "a natural response to pandemic-era overhiring." He noted that many organizations "ramped up hiring during the onset of the COVID-19 pandemic in 2020 and continued expanding headcounts during the highs of 2021."

The numbers:

  • Netflix layoffs started the wave: 450 employees (mid-2022)
  • From mid-2022 to Q1 2023: 55,000+ workers left or were laid off from FAANG alone
  • Amazon: 16,000 roles cut
  • Alphabet: 12,000 roles cut
  • Microsoft: 10,000 roles cut
  • Meta: 10,000+ roles cut

The Key Insight: This Was a One-Time Correction

Pandemic overhiring → Correction → New baseline

This isn't an ongoing trend. It's a bubble that burst. Companies that already corrected won't be laying off another 20% next year—they're already at the headcount they need.

What this means:

  • The mass layoff wave (2022-2023) was largely a one-time correction
  • Companies that already "right-sized" are now stable
  • New layoffs are more likely targeted (AI-related) than broad-based

The implication: If you survived 2022-2023 layoffs, the pandemic correction phase is probably over for your company.

Factor 4: The Outsourcing Resurgence

What Happened

Remote work didn't just change where Americans work. It changed who companies hire.

If your developer can work from Denver, they can work from Delhi. If location doesn't matter, why pay Denver prices?

The New Arbitrage

Pre-pandemic outsourcing: Offshore teams for specific projects, time zone challenges, management overhead

Post-pandemic outsourcing: Fully remote teams anywhere in the world, normalized video collaboration, global talent pools

The infrastructure that enabled US remote work also enabled global remote work.

The Impact

This isn't just anecdotal. Companies are explicitly choosing global hiring:

  • Same skills available at 30-70% lower cost
  • 24/7 coverage through time zone distribution
  • Reduced US headcount without "layoffs"

The mechanism: Companies don't fire US workers for outsourcing (bad PR). They just don't backfill US positions when people leave, while expanding teams in lower-cost regions.

The Nuance

Unlike AI, outsourcing isn't new. But the pandemic removed the friction that previously limited it:

Pre-2020 friction:

  • "We need people in the office"
  • "Remote management is hard"
  • "Time zone differences are too disruptive"

Post-2020 reality:

  • All those problems were solved for US remote workers
  • The same solutions work for global remote workers
  • Management learned to run distributed teams

What this means:

  • US tech salaries face global competition now
  • Roles that don't require US time zone presence are vulnerable
  • Customer-facing and leadership roles have more protection

The implication: Some "AI replacement" is actually salary arbitrage enabled by remote work normalization.

Factor 5: AI Automation (Yes, It's Real)

The Reality

Let's be clear: AI is genuinely impacting tech jobs. The previous four factors don't negate this.

What AI is actually doing:

  • Reducing need for junior developers (AI handles routine coding)
  • Automating some QA and testing work
  • Making senior developers 2-3x more productive
  • Enabling smaller teams to ship more

The Data

From our analysis of the entry-level job market collapse:

  • Entry-level positions down 60% since 2022
  • Companies hiring "1 senior + AI" instead of "5 juniors"
  • 85% of developers now use AI coding tools
  • 37% of employers prefer "hiring AI" over recent graduates

The Difference

Here's where the multi-causal analysis matters:

AI impact = Real, accelerating, permanent Tax code impact = Real, but now reversing Interest rate impact = Real, cyclical, already improving COVID overhiring = Real, but one-time correction complete Outsourcing impact = Real, ongoing, but not new

If you attribute 100% of job losses to AI, you'll miss the fact that 50-60% may be due to factors that are reversing or complete.

Why This Matters for Your Career

If You're Blaming Everything on AI

You might be:

  • Panic-learning AI skills that won't help your specific situation
  • Abandoning domain expertise that's actually valuable
  • Missing opportunities in sectors recovering from non-AI factors
  • Making fear-based decisions instead of strategic ones

If You Understand the Multi-Causal Reality

You can:

  • Recognize that some market tightness is temporary
  • Watch for hiring recovery as interest rates drop and tax changes take effect
  • Focus AI upskilling on what's genuinely AI-related (not everything)
  • Position for the post-correction market, not the current trough

The Strategic Questions

Before making career changes, ask:

  1. Was my layoff/difficulty AI-related or market-related?

    • If your company did broad-based cuts in 2022-2023, that was likely COVID correction + rates
    • If your specific role was eliminated for "AI automation," that's different

  2. Is my role vulnerable to AI or vulnerable to cost pressure?

    • AI vulnerability: Tasks AI can genuinely do (routine coding, data processing)
    • Cost vulnerability: Tasks cheaper workers can do (salary arbitrage)
    • These require different responses

  3. Am I in a company/sector affected by reversing factors?

    • R&D-heavy companies may resume hiring as Section 174 reverses
    • VC-backed startups may expand as rates drop
    • Companies done with COVID correction may stabilize

What Actually Protects You

Against AI Displacement

  • Judgment work (what to build, not just how to build)
  • System design and architecture decisions
  • Customer and stakeholder relationships
  • Domain expertise that AI lacks context for
  • Security, compliance, and accountability-required work

Against Cost Pressure (Outsourcing)

  • US time zone requirement for your work
  • Customer-facing roles requiring cultural context
  • Leadership and management positions
  • Highly collaborative roles with tight feedback loops
  • Roles requiring security clearances or data residency

Against Market Cycles (Rates, Tax Code)

  • Profitable company (less dependent on cheap financing)
  • Revenue-generating role (not "nice to have" during cuts)
  • Skills transferable across company sizes
  • Network enabling quick job switches

The Ideal Position

Hardest to displace: Someone doing judgment-based work, in a customer-facing role, at a profitable company, with AI fluency as an amplifier.

Most vulnerable: Someone doing routine coding, in a back-office role, at a VC-dependent company, resisting AI tools.

Your Action Plan

Step 1: Diagnose Your Situation

Audit which factors affect you:

  • Is my company R&D-heavy? (Section 174 matters)
  • Is my company VC-funded? (Interest rates matter)
  • Did my company overhire in 2020-2021? (Correction may be ongoing)
  • Could my role be done offshore? (Outsourcing matters)
  • Could AI do 70%+ of my daily tasks? (AI matters)

Step 2: Watch the Right Signals

For tax code recovery:

  • Monitor Section 174 implementation
  • Watch for R&D-heavy companies announcing hiring

For interest rate recovery:

  • Track Fed rate decisions
  • Watch VC funding announcements and startup hiring

For COVID correction completion:

  • If your company already did major layoffs in 2022-2023, the correction is likely done

Step 3: Position Strategically

If your risk is primarily AI:

  • Build AI fluency (use the tools, don't resist them)
  • Move toward judgment and decision-making roles
  • Develop expertise AI can't easily replicate

If your risk is primarily cost pressure:

  • Emphasize time zone and customer proximity value
  • Build relationships that require continuity
  • Consider management track (harder to offshore)

If your risk is primarily market cycles:

  • Build financial runway for downturns
  • Target profitable companies over growth-stage
  • Develop skills transferable across company sizes

The Bottom Line

AI is not the only force reshaping tech jobs. It's not even the majority cause for most of the 2022-2024 turmoil.

The tech job market contracted due to:

  1. Tax code changes (now reversing)
  2. Interest rate hikes (now declining)
  3. COVID overhiring correction (largely complete)
  4. Outsourcing resurgence (ongoing)
  5. AI automation (ongoing and accelerating)

The narrative matters because it shapes your response:

  • If "AI is taking all the jobs," you panic.
  • If "Multiple factors hit simultaneously, some reversing," you strategize.

The realistic outlook:

  • 2025-2026: Some recovery as tax changes and rate cuts take effect
  • Entry-level remains challenged (AI + market = double pressure)
  • Senior roles more stable (judgment work protected, market recovering)
  • The market won't return to 2021 highs (that was a bubble)
  • The market won't stay at 2023 lows (multiple factors improving)

Your move: Stop asking "Will AI take my job?" and start asking "Which factors affect my specific situation, and how do I position for each?"

Related Reading

Method & Sources

Research conducted: November 25, 2025

Tax code data from:

Interest rate and layoff correlation from:

COVID overhiring data from:

All statistics dated and sourced. Analysis represents synthesis of multiple data points.

Last updated: November 25, 2025

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