Jevons' Paradox & Why Your HR Budget Hasn’t Reduced with Technology (Oops, Did I Think That Out Loud #55)

First of all, anyone with an economics background reading this can probably fast-forward through the first bit. Also, if you are an economist reading this, why have you gatekept this from your HR people all this time?!

What is Jevons' Paradox?

Wikipedia and your favorite AI tool can explain this in much more detail. In short, it is an economic theory developed by William Stanley Jevons' in 1865 (yes, you read this right, we figured it out in the 1800s) and shared it in his book called The Coal Question.

At the risk of oversimplifying, the paradox occurs when technological advancements make a resource more efficient to use, which reduces the amount of said resource that is needed for a single application. However, as the cost of using the resource drops, the overall demand will increase, which causes total resource consumption to increase. The original observation was made on coal consumption in steam engines. In the 1800s, as steam engines became more efficient, industrialists found more use cases for steam engines, and overall coal consumption in British factories increased.

TLDR: When a resource becomes more efficient, its cost decreases. Because it’s cheaper, more people start using it. The increased demand can outweigh the efficiency gains, leading to higher total consumption of the resource.

Why It Makes Sense That Your HR Budget Isn’t Decreasing

1. Automation Lowers Cost Per Task But Expands Scope

While I will be the first person to admit that some HR tech tools feel like we are just automating the 90s. I will also say that this level of automation shouldn’t be underestimated. With the automation of activities like payroll, HR record keeping, and employee Helpdesk, HR activities in these areas have gotten significantly cheaper over the years.

Tasks such as payroll tax calculation, which used to be done manually, are now completed with technology and human verification. Employee address changes that used to take hours to make across multiple paper files and records are now done with a few keystrokes and fed across a multitude of systems through integrations.

This should mean HR becomes cheaper to run, right? Well, not really.

The mistake most of us make when we look at the economic returns of HR and create business cases is that we are capturing this data and calculating it based on a moment in time—without looking into the past or forecasting into the future.

If we were to run a 1990s-esque HR department in 2025 with similar scope and delivery expectations, then dollar for dollar (adjusted for inflation, etc.), it would be cheaper. However, over the years, as activities around payroll, data changes, employee support, etc. got easier, HR is saddled with additional activities in employee experience, engagement surveys, business-driven reporting, skills, learning, talent management, etc. Take that whole spectrum of newly added activities and top it off with a seamless, personalized, and differentiated experience. You can start to understand why HR hasn’t gotten cheaper.

While task-for-task spending has been reduced, that reduction has led to higher expectations of HR, which drives both the required resources and additional spending on tech stack and stack maintenance activities.

2. Technology Shifted Focus and Expectations

Speaking of expecting more from HR, let’s step into an HR practitioner’s shoes momentarily and be really honest with ourselves. Part of the reason we are not doing everything we absolutely can to become the most efficient function is that our leaders suffer from “ROI redistribution amnesia.”

When spending is concerned, when was the last time a pragmatic conversation was had about the additional tasks taken on by HR, between when the business case was presented and when the budget was reviewed?

Sure, HR teams have freed up time when we automated routine work, but instead of directly reducing headcounts, we have also gotten into areas like People Analytics, Wellbeing, Experience, etc. All of these require new software, data tools, and sometimes additional headcounts, all of which increase costs.

Applying Jevons' Paradox here: as the per-unit cost of HR delivery reduces, business leaders are seeing more areas to use the HR function, thus increasing its overall utilization (and therefore cost).

3. Subscription-Based Pricing May Not Be as Economical as You Thought

In recent years, most HR professionals have heard the question, “Can you not use AI for that?” Yes, we absolutely can use AI for whatever we want, but let’s remember that most HR organizations cannot develop their own AI tools from scratch and need to purchase the technology to get the job done. This means your HR teams have to work with HR tech vendors to find and contract the right technology to do the job.

While the rapid development in AI has reduced the technology's overall training and deployment costs, we often forget that we are not paying for direct access to AI tech. Instead, we work through vendors who often operate on a Software as a Service (SaaS) pricing model. This means that even as systems become more efficient, HR teams are not seeing the immediate impacts of that efficiency because licensing cost is held steady based on the initial contract signed (which, by the way, is often a 3-year term).

With this in mind, you can see how HR tech becomes a fixed-budget expense instead of something flexible and scales down with efficiency gains over time.

All in all, Jevons' Paradox in HR simply puts an official name to what we have known all along: HR has not saved money from technology; it has reallocated that money into more sophisticated strategies, insights, and tools. This mirrors Jevons' Paradox—efficiency doesn’t reduce consumption; it often fuels more investment and higher expectations.