‘Tis the season for employment instability. Time Warner’s AOL will shed 10% of its workforce, about 700 jobs, in a bid to cut costs amid the advertising slump.

AOL CEO, Randy Falco, told employees in a company memo that the cuts would occur over the next several quarters and would affect mainly US employees.

His memo also pointed out AOL plans to eliminate merit pay rises in 2009 to help minimise the layoffs.

“The deepening economic recession has affected every corner of the economy, including our own. Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars,” explains Falco.

AOL was in year two of its three-year plan to shift from an internet access company to an advertising focused firm.

The streamlining of AOL has fuelled speculation that the company could now look more appealing to possible acquisition partners, including Yahoo.