The AI Layoff Trap: Rational Firms Automate Into a Collective Loss, Paper Finds
mdancho84 · x · 2026-10-14
A paper titled "The AI Layoff Trap" (Falk & Tsoukalas) models why firms keep automating even when they see the consequences: each firm captures the full cost savings of replacing workers but bears only a fraction of the resulting demand loss — a demand externality that traps rational firms in an automation arms race harming both workers and firm owners. Wage adjustments, UBI, upskilling and Coasean bargaining can't fix it; only a Pigouvian automation tax can.
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