AI Layoff Anxiety Is Fueling Employee Disengagement

More than a third of American workers say there’s little point in working hard because it won’t protect them from layoffs or AI. 

As AI-related layoffs have become increasingly common, the workforce is disengaging instead of working harder to save their jobs. In the “Employee Engagement Report,” based on a June 2026 survey of 1,000 U.S.-based employees by Founder Reports, 36% said going above and beyond won’t save their job, so they see little reason to give extra effort.

Although rapidly increasing AI adoption directly affects the modern workforce’s feelings, other underlying factors, including distrust of employers, are also at play. This article examines the data to uncover how layoff tension affects employee engagement. 

Fear Doesn’t Motivate

According to the “June 2026 Challenger Report” from Challenger, Gray, and Christmas, AI has been cited as the reason for 101,743 job cuts so far in 2026 (through the end of June). That’s nearly double the 54,836 jobs lost due to AI in all of 2025. AI has been the number one reason for workforce reductions in each of the past four months (March through June).

AI layoffs impact the entire workforce, not just those who have lost their jobs. Fear and anxiety spread quickly, especially when there are office rumors of potential cuts.

The “Employee Engagement Report” indicates that fear is leading people to pull back on their efforts rather than motivating them to work harder. Survey respondents who said they are concerned about their roles being reduced or eliminated due to AI were nearly twice as likely as those who aren’t concerned about AI to feel that extra effort is pointless (49% compared to 27%).

Dr. Gleb Tsipursky, behavioral scientist and CEO of future-of-work consultancy Disaster Avoidance Experts, says anxious workers pull back to protect themselves. “When employees conclude that hard work cannot improve their security, pulling back becomes a rational form of self-protection,” he remarks. “They conserve effort because the psychological contract has weakened: The organization still asks for commitment, but employees no longer believe commitment will be reciprocated.”

Trust Had Already Deteriorated Well Before AI

Employee trust has been degrading for decades. In a 2012 article published by the Wharton School of the University of Pennsylvania, Adam Cobb, a Wharton management professor at the time, identified the 1980s as a pivotal shift in employee trust. This marked the start of healthy companies laying off workers in favor of shareholders’ long-term interests.

In the same article, Peter Cappelli, director of Wharton’s Center for Human Resources, pointed to the end of “lifetime employment” as a turning point in the employer-employee relationship. Cappelli noted that “job security depends now on continuing usefulness to the employer.”

The 2007 report “The Impact of Psychological Contract Breach on Work-Related Outcomes” from Personnel Psychology examined the results of a breach in the unwritten understanding of what the employer and employee owe each other. Decades of research revealed that when employees sense they cannot trust their employer, they quietly withdraw any extra effort they once gave, often while remaining in the same job.

A “2025 Express Employment Professionals” survey conducted by Harris Poll found that 73% of job seekers feel no job is safe, no matter how well the employee performs. And 67% said they used to feel stable in their careers, but now feel uneasy.

Although AI is the leading cause of layoffs in 2026, Andy Challenger, chief revenue officer for Challenger, Gray & Christmas, points out in the “June 2026 Challenger Report” that companies are “reallocating budgets toward new capabilities.” In other words, many of the workforce reductions attributed to AI are not because AI will do the work of the displaced employees. Instead, companies are reducing headcount to free up money to use toward AI and automation. As a result, all workers are vulnerable, not just those whose roles are most susceptible to automation.

Disengaged, But Too Scared to Leave

With the growing number of jobs lost either directly or indirectly to AI, and with organizations looking to free up money for AI, many workers feel helpless.

The Founder Reports data is even more eye-opening than the headline stat. Survey respondents were also asked why they stay in their current jobs. Forty-seven percent said a fear of the job market or their employment prospects factors into their decision to remain in their jobs (45% said they stay because they want to, and 8% are actively looking for a new job). Among those who stay at least partly out of fear, 55% believe effort is pointless and won’t protect them.

A worker staying in a job out of fear instead of loyalty is known as job hugging, and it’s increasingly common. A Resume Builder survey from February 2026 revealed that 57% of workers are job-hugging, up from 45% just six months earlier.

Data from the U.S. Bureau of Labor Statistics shows that quit rates are the lowest in nearly a decade (1.9% for both April and May 2026). April and May of 2020, when many businesses were heavily impacted by the COVID-19 pandemic, were the only months in the past 10 years when fewer employees voluntarily left their jobs (1.5% in April and 1.7% in May 2020). 

Low quit rates may look like stability. But combined with the job-hugging numbers and the common belief that their efforts don’t matter, it’s clear that the modern workforce is not as healthy as the low quit rates might indicate. 

The Result is Quiet Quitting

In the Founder Reports survey, 51% of respondents said they do their defined job and not much more, or even less. Among those who stay in their jobs out of fear, 70% said they do not go above and beyond (compared to only 38% of those who stay in their jobs by choice).

Doing only the minimum of what’s expected and nothing more is known as quiet quitting. Based on the numbers above, this label applies to just over half the American workforce, and it’s especially common among workers who fear being replaced by AI.

Other sources verify that employee engagement is, in fact, very low. A Gallup report from 2025 found that employee engagement reached a 10-year low, with just 31% of the workforce being actively engaged in their jobs.

Every Employer is Impacted

Workers everywhere are impacted, not just those who work for companies that have experienced workforce reductions. The “2025 Work in America study” by the American Psychological Association (APA) found that job security significantly impacts stress at work for 54% of employees.

The “Employee Mindset Report” from INTOO found that as of November 2025, layoff anxiety has increased by 30% since 2019. And it also points out that layoff anxiety “influences employee engagement, retention, productivity, and employer brand, whether layoffs actually occur or not.” Even if the layoffs don’t happen, the fear or anxiety about losing a job causes significant damage to both the employee and the employer.

Research from Perceptyx, released in May 2026, found that 90% of workers who heard rumors of layoffs experienced some level of anxiety as a result. That number is even higher than the 82% of employees at companies that have eliminated jobs. 

What Actually Brings People Back

Although layoff anxiety is widespread, companies that take a proactive approach can reduce the impact on their team members. 

In the “Work in America” study, APA notes that “employees are more likely to thrive when they have a sense of belonging at work.” They point to findings showing that workers who felt like they mattered to their employer and coworkers were less likely to worry about losing their job. APA recommends “transparent communication, empathetic leadership, and a commitment to gathering and acting on feedback from a diverse range of employees.”

Executive leadership and career coach Dr. Benjamin Ritter points out that workers aren’t looking for blanket promises about their job security. “Nobody can promise job security anymore, and employees know it,” he says, “so pretending only feeds the cynicism. Calling out the elephant in the room is important. Employees already see what’s happening in the market, whether leadership talks about it or not.”

Perceptyx agrees, noting that “open, clear communication is one strategy to mitigate layoff anxiety.” They point out that employees displayed lower levels of worry when the organization issued clear communication about layoffs.

The Real Cost of a Fearful Workforce

Low quit rates don’t necessarily indicate that workers are happy. The current data on layoff anxiety and employee engagement prove that a sizable portion of today’s workforce has given up hope. As the Founders Report data shows, more than a third of workers see no point in giving their best effort, and 47% are staying in place at least partly out of fear.

The encouraging part is that fear doesn’t have to be permanent. The same research that shows the damage also points to the way out, and it’s an inexpensive fix within reach for any employer. Open, honest communication about AI and job security, and leaders who treat people like they matter are the best ways to reduce anxiety and make employees feel more comfortable. Companies that get it right will strengthen their team, rather than simply holding on to disinterested workers.