Companies are currently in a race to automate everything, even though they know it will eventually leave their own customers with no money to buy anything.
April 13, 2026
Original Paper
The AI Layoff Trap
SSRN · 6448898
The Takeaway
Even when CEOs realize that mass layoffs will eventually kill consumer demand, they are 'trapped' in a race to automate to stay competitive. The only way to stop this self-destructive cycle may be a specific tax that makes replacing humans more expensive than keeping them.
From the abstract
If AI displaces human workers faster than the economy can reabsorb them, it risks eroding the very consumer demand firms depend on. We show that knowing this is not enough for firms to stop it. In a competitive task-based model, demand externalities trap rational firms in an automation arms race, displacing workers well beyond what is collectively optimal. The resulting loss harms both workers and firm owners. More competition and "better" AI amplify the excess; wage adjustments and free entry c