Researchers Just Mathematically Proved That AI Layoffs Will Destroy The Economy — “The AI Layoff Trap”

And every CEO already knows it. But none of them can stop.

Two researchers from UPenn and Boston University just published a paper called "The AI Layoff Trap." They proved something terrifying.

Every company replacing workers with AI is also firing its own customers. Every laid-off employee is someone who used to spend money. When enough people lose their jobs.. Nobody can afford to buy anything. And the companies that fired everyone go bankrupt, selling products to an economy with no purchasing power.

Every CEO can see this coming. The math is obvious. Fire workers. Lose customers. Lose revenue. Collapse.

But here's the trap. No company can afford to stop.

If you don't automate, your competitor will. They cut costs. Undercut your prices. Steal your market share. And you die anyway.

So every company automates. Knowing it's collectively suicidal. Because the alternative is dying alone while everyone else survives.

It's a Prisoner's Dilemma. And the researchers proved it mathematically.

The numbers are already stacking up.

Block cut nearly half its 10,000 employees this year. CEO Jack Dorsey said AI made those roles unnecessary and that "within the next year, the majority of companies will reach the same conclusion."

Salesforce replaced 4,000 customer support agents with AI.

Goldman Sachs deployed an AI coder that lets one senior engineer do the work of a five-person team.

Over 100,000 tech workers were laid off in 2025 alone. AI was cited as the primary driver in more than half the cases.

80% of US workers hold jobs with tasks susceptible to AI automation.

And here's what should scare policymakers. The researchers tested every proposed solution.

• Universal Basic Income. Doesn't fix it. It raises living standards but doesn't change a single company's incentive to automate.

• Capital income taxes. Don't fix it. They change profit levels but not the per-task decision to replace a human.

• Worker equity and profit sharing. Narrows the gap but can't close it.

• Collective bargaining. Can't fix it. Because automating is a dominant strategy. No voluntary agreement between companies is self-enforcing.

Only one thing works. A Pigouvian automation tax. A per-task charge that forces every company to pay for the demand it destroys when it fires a worker.

The researchers call it a "Red Queen Effect." Better AI doesn't solve the problem. It makes it worse. Because every company sees a bigger market share gain from automating faster than its rivals. But at the end.. Everyone automates equally. The gains cancel out. And the only thing left is more destroyed demand.

The paper's conclusion is devastating.

This isn't a transfer from workers to company owners. Both sides lose. Workers lose their income. Companies lose their customers. It's a deadweight loss that harms everyone. And no market force can break the cycle. The AI layoff trap isn't a prediction. It's already happening. And the math says it won't stop on its own.

Post on X handle Evan Luthra | @EvanLuthra : https://x.com/EvanLuthra

Think about this for a moment.

“Imagine a small town with 10 restaurants. Every restaurant employs local people - cooks, servers, dishwashers. Those employees eat out at each other’s restaurants on their days off. The whole town’s dining economy is basically a circle: restaurants pay workers, workers eat at restaurants.

Now, a magical cooking robot arrives. It costs half what a human cook costs and never calls in sick....”

— Source: Sat Grewal | @satgeze | https://x.com/satgeze/status/2043205025422626927