AI reshapes hiring as businesses cut jobs and embrace automation
Rising AI adoption is changing how businesses hire, with automation increasingly replacing traditional recruitment. A recent survey found that 41% of companies now use AI to cut staff numbers, while a third consider AI tools before hiring humans. Meanwhile, UK employers face higher costs from national insurance contributions, pushing some to explore automation instead of new hires.
Prime Minister Rishi Sunak has called for a review of employment taxes, warning that AI is reshaping hiring decisions. He also backs plans for an AI economics institute to track real-time job market shifts as technology advances.
The shift towards AI in recruitment has accelerated since the rise of generative AI. Large British firms now use AI-supported systems to screen CVs, conduct initial interviews via chatbots, and automate onboarding. These changes have cut processing times by up to 70%. However, under the EU AI Act—effective from August 2026—such tools will be classified as high-risk, requiring human oversight, transparency, and bias checks. Fully automated hiring decisions without consent will be banned.
At the same time, hiring costs have climbed due to increased employer national insurance contributions, which bring in over £100 billion annually for the UK Treasury. Some businesses now view automation as a cheaper alternative. Research from Anthropic suggests AI is particularly slowing hiring for younger workers, though broader data on entry-level roles remains limited.
The trend isn't confined to the UK. In the US, over 1.17 million jobs were lost in 2025 as companies restructured after pandemic-era hiring surges. Countries like Denmark and New Zealand, which tax consumption and income more than employment, may face different pressures. Yet globally, AI fluency is becoming a baseline skill, with demand rising for workers who can manage and use AI systems effectively.
Sunak has stressed the need for better data from job markets and tech firms to understand AI's economic impact. While supporting an AI economics institute, he warns that without adjustments, tax policies could further push businesses toward automation over human labour.
The combination of higher hiring costs and advancing AI is reducing demand for traditional roles, particularly among younger workers. New regulations will soon impose stricter controls on AI recruitment tools, but businesses continue to adopt automation for efficiency. With tax policies under review and job markets evolving, the long-term effects on employment patterns remain closely watched.
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