As leading investment banks (IBs) on Wall Street rush to adopt artificial intelligence (AI), they are cutting staff even as they post record-high results. Goldman Sachs formalized additional layoffs within this year, and JPMorgan Chase instructed managers to refrain from new hiring as much as possible. Experts said AI-driven "jobless growth" is becoming a reality on Wall Street, where capital flows are highly sensitive.
On the 15th (local time), CNBC and other outlets reported that Goldman Sachs sent a memo from its management to all employees the previous day, notifying them that it would restrict hiring and reduce some roles through the end of the year. Chief Executive Officer (CEO) David Solomon said, "To fully harness AI's potential, we need faster speed and agility across operations." It is part of the "OneGS 3.0" strategy to overhaul the organization's operating system using AI.
Goldman Sachs posted third-quarter revenue of $15 billion and earnings per share of $12.25, far surpassing market expectations. The third-quarter aggregates of employee compensation and allowances also surged 14% from a year earlier to $4.7 billion. Yet the company chose layoffs amid this "money feast." In the memo, CEO Solomon stressed, "We have a duty to carefully review operations even when business is good and to position the firm for the future."
Experts said Goldman Sachs is not resting on short-term strong results and is placing greater weight on long-term expense savings and productivity gains that AI will bring. Under the "OneGS 3.0" strategy, Goldman Sachs plans to actively use AI technology to fundamentally re-engineer procedures such as new client management, lending, regulatory report drafting, and sales support. Yevgenia Mikuliak, founder of B2PRIME Group, told the New York Post, "Goldman Sachs is reorganizing its workforce to leverage automation and AI-based processes," adding, "AI is gradually changing how investment banking works."
JPMorgan Chase, the biggest bank on Wall Street, also decided to lean on AI instead of new hiring. JPMorgan likewise posted a record third-quarter net income of $14.4 billion this year. However, total headcount grew by only 1%. Chief Financial Officer (CFO) Jeremy Barnum said after the recent earnings release, "As we deploy AI across all institutional sectors, we issued strong guidance to managers to avoid new hiring." Earlier, JPMorgan CEO Jamie Dimon also acknowledged that "AI will eliminate some jobs," while saying, "Employees who could be affected will be retrained." Citing an anonymous JPMorgan executive, CNBC said, "Thanks to AI, JPMorgan could reduce support and operations staff by at least 10% over the next five years."
Morgan Stanley, led by new CEO Ted Pick, decided to cut 2,000 jobs, equivalent to 2.5% of its total workforce. Citigroup, under CEO Jane Fraser, is carrying out the largest restructuring on Wall Street. It set a goal to cut 20,000 jobs over two years to save $2.5 billion in annual expense by 2026.
The reason major Wall Street banks are speeding up AI adoption is closely tied to the knowledge labor–intensive nature of finance. As AI technology advances, tasks such as document summarization, data analysis, and report drafting have been largely automated. Goldman Sachs has already developed an internal generative AI tool, GS AI Assistant, which thousands of employees use for document summarization, report drafting, and data analysis.
Experts said roles in operations and support, commonly called the back office or middle office, will be the first to be replaced by AI. In a report earlier this year, Bloomberg Intelligence predicted, "As financial corporations introduce AI systems for routine functions, up to 200,000 jobs in the industry could disappear within five years."
These shifts are leading to a new economic phenomenon called "jobless growth." Until now, when U.S. gross domestic product (GDP) grew solidly, new jobs in the United States also increased. But as AI boosts productivity, the trend is that new jobs are not increasing as much as in the past even when GDP grows steadily. In a recent report, Goldman Sachs said, "The recent combination of steady GDP growth and modest job gains is likely to become the new norm for the next several years." The report added, "Most of the growth will come from productivity gains driven by AI advances, while the contribution from labor supply will be modest due to population aging and lower immigration."
In recent months, new hiring across most industries in the U.S. labor market, except in healthcare, has turned negative. Jerome Powell, chair of the U.S. Federal Reserve (Fed), recently characterized the U.S. labor market as a "low-hire, low-fire" state with low layoff rates and low hiring rates, diagnosing that "young people who have just graduated from college and minorities are having difficulty finding jobs."