Mark Schniepp
July 2025
The key issue emerging for the California economy in 2025 is the broad based weakness of the labor market. Only 3 sectors are responsible for all of the job creation this year, and two of the three are either entirely or largely financed by public sector funding—healthcare and local government. Up to now, these two sectors have been mostly unaffected by the recent advent of Artificial Intelligence.
As AI tools and technologies continue to advance, companies are increasingly exploring ways to leverage AI to enhance productivity, automate certain tasks, and reduce cost. This includes roles in sales and customer interaction, which may be affected by the increasing efficiency of AI systems.
Displacement of jobs by AI is no longer a warning; it has become a reality.
Microsoft announced on June 19, 2025 that thousands of layoffs will occur in July with the sales team taking the largest hit. On July 2, the company confirmed that 9,000 workers would be laid off. Last month, Microsoft cut 3 percent of its global workforce, or 6,000 workers. Amid these cuts, the company is investing $80 billion in AI infrastructure and data centers.
IBM announced 8,000 layoffs in late May, mostly in HR, with 9,000 more layoffs planned.
Intel also announced in June that it would lay off 10,000 workers or about 20 percent of its foundry workforce. Those layoffs are occurring this month to streamline operations and eliminate human bureaucracy with more automated systems. Other tech companies like Amazon, Meta and Google have also been implementing workforce reductions and restructuring as they prioritize AI investments.
Simply put, AI is automating tasks that are repetitive and time consuming for people. This includes data entry, answering phones, warehouse stock picking and sorting, and assembly line manufacturing, to name a few.
By industry, here’s how AI will help business with analytical precision and cost reduction:
Chatbots will handle routine customer inquiries. AI can also categorize and route customer support tickets to appropriate teams or agents. This eliminates administrative support jobs, one of the subsectors of professional business services.
AI can analyze customer behavior patterns in spending data, anticipate where products should be marketed and sold, and make recommendations for business strategies. AI can quickly process large datasets, identifying trend and/or anomalies. The action eliminates intro and mid-level data analysts in the Information labor market of data analytics and processing.
AI can evaluate customer interactions with either AI customer service agents or human agents to gauge their emotional state to identify business areas for improvement. Humans doing this now are in the professional business services sector.
AI can power robots and automated systems that handle tasks like packing and sorting goods in warehouse and distribution center settings. Robots will replace warehouse jobs that are part of the transportation and warehouse labor
market.
AI currently analyzes data from sensors and equipment logs to predict machine failure rates and develop schedules for maintenance, minimizing downtime and increasing equipment lifespans. Fewer workers are needed in manufacturing to handle these activities to keep assembly lines operating continuously. Jobs in manufacturing are now being eliminated and will continue to be eliminated.
AI can process financial data to automate routine reporting tasks for reports that banks and securities firms need to file with regulating agencies. This will eliminate jobs in the financial activities sector of the broader labor market
AI can handle facial recognition and object detection for security systems. Business services employment for these tasks can be entirely eliminated.
Chatbots are able to answer customer inquiries and resolve some issues, operating 24/7 without breaks or overtime pay. In fact, no pay.
Layoffs that have been the most prolific since the release of ChatGPT have occurred in software programming. AI-powered tools like GitHub Copilot and others can suggest and generate code snippets, functions, or even entire programs. This significantly reduces manual coding efforts and speeds up development. AI-driven tools can analyze code, identify potential bugs and vulnerabilities, and even automatically apply fixes.
We have witnessed the loss of 70,000 tech jobs in California since the beginning of 2023; 18,000 of those are in software development. We have also witnessed the elimination of 50,000 jobs in TV, Film and Sound recording, also since early 2023.
AI is rapidly advancing in areas like 3D modeling, character design, and environment design, displacing traditional modelers, designers, the need for expensive sets or filming on location. Google Veo 3 is a video generation model that produces cinematic visuals, voice generation and lip-syncing for characters, and adding ambient sound and music. It is designed for businesses to produce short films and ads. AI-powered tools including Veo are accelerating video editing, special effects creation, script writing, animation, art in general, and many post-production tasks, which has led to the need for fewer professionals and technicians in these areas.
Surveys have shown that AI has already displaced many workers in the information, entertainment, and gaming industries,
and that it has also created new job opportunities [1]. However at this point, the layoffs appear to have far offset jobs created.
Yet the labor market shows very little trauma as a result. Despite minimal job creation in California this year, the unemployment rate is 5.3 percent and relatively stable over the last 12 months. It has actually declined modestly since December.
As AI matures in tandem with the physical capabilities of autonomous vehicles, taxi drivers, uber drivers, bus drivers, and truck drivers will be largely eliminated. As robotics that lift, move, and sort continue to advance, the factory and warehouse workforce will be meaningfully reduced.
The aging population of the state (and nation) is demanding more human healthcare resources than AI can currently 
displace. Healthcare is the only private labor market that has consistently created jobs over the last 5 years. But even here, AI is now capable of replacing social workers, therapists, nursing assistants, and laboratory technicians. This will undoubtedly begin to reduce the rate of positive job growth that we’ve been observing in California healthcare since 2020.
Employment in all other industries is now consolidating, largely due to the rapid onset of AI.
While California’s population was in decline between 2019 and 2022, a turnaround occurred with modest growth in 2023 and 2024. This was entirely driven by a rebound in immigration across the southern border. In early 2025, border security was strengthened, resulting in fewer new immigrants arriving at southern and northern entry points.
As the decline in California’s population resumes (due to few new immigrants and deportations of illegal immigrants), limited labor force growth will coincide with the AI induced slowdown in job growth. Unemployment is very likely to rise in California in the second half of 2025 and 2026, but significant trauma is not in the forecast.
The onset of AI has occurred rapidly, becoming adopted in a more widespread fashion by all sectors of the economy. AI has generated significant cost savings in technology, the financial sector, real estate, manufacturing, video and sound recording, and professional services. A large part of these cost savings have come at the expense of jobs, a condition that is unlikely to change as AI becomes both smarter and more pervasive in the economy.
But at the same time, job formation in the form of developing, maintaining, and overseeing AI systems is expected. New opportunities have and will continue to emerge in AI engineering, data science and data adaptation, AI training, AI ethics, and AI safety specialists.
Up to now however, it appears that new AI job creation will not offset jobs displaced by AI. Consequently, this becomes a pressing social issue that will need to be addressed as AI evolves.
[1] Los Angeles Times, “Why Hollywood Studios are Downsizing,” June 15, 2025
The California Economic Forecast is an economic consulting firm that produces commentary and analysis on the U.S. and California economies. The firm specializes in economic forecasts and economic impact studies, and is available to make timely, compelling, informative and entertaining economic presentations to large or small groups.
