A phenomenon in modern workplaces where companies initially implement artificial intelligence (AI) to reduce headcount through layoffs, citing efficiency gains, only to subsequently rehire human workers—often at lower wages or as contractors—to address the limitations and errors of AI systems.

The term draws from the experience of financial technology firm Klarna, which laid off staff citing AI advancements but later rehired personnel after realizing AI's inability to fully replace human judgment and creativity.

The Klarna Effect highlights the overestimation of AI's current capabilities and its frequent use as a scapegoat for corporate restructuring, with data from workplace platform Visier (2025) showing a 15% year-over-year rise in rehiring rates in the U.S. despite AI adoption.

Example: "The company's initial AI-driven layoffs were quickly followed by rehiring, a classic case of the Klarna Effect."

American psychologist Gary Marcus has also defined an expanded understanding of Klarna Effect. Marcus defines the Klarna Effect as the arc "from premature declaration of AI's ubiquitous power to the 180 proudly announcing human rehirings". He emphasizes that employers often use vague AI rhetoric to justify layoffs without fully understanding the technology's limitations, noting that Klarna was "among the first to announce major AI layoffs" and "among the first to realize they had screwed up".