The AI Layoff Trap

Falk and Tsoukalas construct a task-based competitive model to show that the real problem with AI-driven displacement is not ignorance but a classic collective action failure: each firm rationally automates while the aggregate result destroys the consumer base everyone depends on. The paper's analytical contribution is the systematic demolition of proposed remedies — wage flexibility, UBI, upskilling, Coasian bargaining, capital taxes — leaving only a Pigouvian automation tax standing. For product directors who regularly sit inside the competitive logic the paper describes, this is a rare case where formal economics makes the strategic trap legible rather than merely naming it. It belongs alongside Brynjolfsson on the productivity paradox and Coase on the firm as the intellectual grounding for why markets in technology do not self-correct toward socially optimal outcomes. The paper directly fills the library's identified gap in platform-economics and behavioral-economics by addressing the structural incentive architecture of automation decisions, not their downstream consequences.