Strong software engineers who combine their foundational skills with fluency in rapidly emerging AI tools are more valuable than ever. And while AI boosts overall productivity by 34% on average, its widening the gap between top engineers and those considered weaker.

Those are among the findings from Karat, the Seattle-based technical talent evaluation startup, which released its new “AI Workforce Transformation” report on Wednesday, detailing how artificial intelligence tools are changing the way software is developed and what types of workers are most impacted by the technology.

The findings come from Karat’s survey of 400 engineering leaders across the U.S., India, and China. And the report coincides with the release of Karat NextGen, an AI-enabled talent evaluation solution designed to evaluate software engineers in an era of increased human and AI collaboration.

Among the report highlights:

• 73% of leaders now believe a strong engineer is worth at least 3x their total compensation.
• 59% of leaders say weak engineers deliver net zero or negative value in the AI era.
• The top AI use cases for day-to-day work are code generation (83%), and testing, QA, and code review (61%).
• Agentic AI/autonomous engineering agents are highlighted by the majority of leaders as having the highest return on investment.
• Despite cost pressure, 85% of leaders expect engineering headcounts to stay flat or increase over the next three years, signaling that AI isn’t leading to massive job cuts in the near term.
• China is outpacing the U.S. and India in AI adoption and readiness.

Tech companies and workers are still adjusting to the shifting landscape of an AI-fueled industry that has traditionally relied on coders to help build and maintain the backbone of digital platforms.

When Amazon laid off 14,000 corporate employees from its global workforce in October, among the 2,303 impacted Washington state workers, mostly in Seattle and Bellevue, more than 600 were software development engineers.

That trend mirrored layoffs at Microsoft earlier this year, as companies reassess their engineering needs amid the rise of AI-driven coding tools. 

At Amazon’s re:Invent event last week in Las Vegas, AWS executive Colleen Aubrey went beyond discussing how human employees will leverage AI tools, and said instead that it’s time to consider agentic teammates “as essential as the people sitting right next to you.”

According to Karat’s report, beyond foundational skills such as problem-solving, communication, and product sense, engineers need to be assessed for new AI-native abilities, including familiarity with agentic AI; using AI for coding; integrating 3rd-party AI APIs; prompt engineering; and evaluating and mitigating AI-related risks.

Karat’s report found that nearly 70% of engineering leaders plan to strengthen their AI capabilities through strategic hiring. Yet, almost two-thirds of companies still prohibit AI use in interviews, and less than 30% are updating assessments and training interviewers to identify AI-ready talent.

The startup’s NextGen talent evaluation platform features a human + AI interview format where candidates tackle complex, multi-file projects with an integrated AI assistant while collaborating live with Karat’s expert interview engineers, who probe reasoning, trade-offs, and judgment in real time to reveal genuine engineering ability.

Sagnik Nandy, CTO at DocuSign, a Karat customer, said in a news release that while AI is transforming engineering, “the real breakthroughs happen when human judgment and AI capabilities work together” and a way to measure that combination reliably is what’s been missing.

“A human-led, AI-native interview is exactly the kind of solution organizations need to understand who can truly excel in this new model of development,” Nandy said.

Founded in 2014 by Mo Bhende and Jeff Spector, Karat became one of Seattle’s highest-valued startups after it raised $110 million in a Series C round in 2021, which brought its total valuation at the time to $1.1 billion. Total funding to date is $151.6 million.

Karat currently ranks No. 15 on the GeekWire 200, our list of the top startups in the Pacific Northwest.