{"slug": "ai-could-trigger-a-layoff-trap-that-even-smart-ceos-can-t-escape", "title": "AI could trigger a layoff trap that even smart CEOs can't escape", "summary": "Economists Gerry Tsoukalas and Brett Falk of The Wharton School warn that AI could trigger a wave of layoffs that erodes consumer spending, creating a self-destructive trap for companies. In a research paper titled \"The AI Layoff Trap,\" they argue that in a competitive market, every company has an incentive to automate, leading to a \"dominating strategy\" where firms adopt AI regardless of the collective harm. Tsoukalas suggests policy interventions such as taxes on AI-driven layoffs or subsidies for retaining workers, as relying on voluntary restraint is unlikely to solve the problem.", "body_md": "Economists are warning that AI could push companies into a [wave of layoffs](https://www.businessinsider.com/list-companies-replacing-human-employees-with-ai-layoffs-workforce-reductions) that ends in self-destruction.\n\nGerry Tsoukalas and Brett Falk, authors of \"The AI Layoff Trap,\" a research paper published** **by The Wharton School, said CEOs can become trapped in a race to automate that erodes consumer spending on which their businesses depend.\n\n\"The main question we wanted to understand is who's going to be left to buy products if everyone gets automated and replaced by a robot?\" Tsoukalas, a senior fellow at Wharton, told journalist Katty Kay on the New Normal podcast that was posted on Monday.\n\nThe paper describes a classic economic dilemma: A single company may recognize that laying off too many workers reduces demand for its products, but in a competitive market, every company has an incentive to automate, because failing to do so risks losing to rivals.\n\n\"So no matter what you do, no matter what the other companies are doing, your best strategy is to adopt as much of this technology as possible,\" Tsoukalas said. \"And that's called a dominating strategy in economics.\"\n\nThe warning comes as global institutions raise similar concerns about [AI's impact on work](https://www.businessinsider.com/ai-job-impact-read-letter-economists-executives-openai-anthropic-google-2026-7). In a July report, the World Economic Forum said traditional [reskilling programs](https://www.businessinsider.com/tech-labor-organizers-piloting-ubi-program-for-ai-job-losses-2026-4) are struggling to keep pace with AI-driven disruption, adding that jobs are changing faster than workers can be retrained and that it's not economically realistic to keep retraining a large population.\n\n\"The global conversation about AI and the [future of work](https://www.businessinsider.com/i-run-a-workplace-platform-how-ai-is-changing-offices-2026-7) has been asking the wrong question for a decade,\" the report said. \"We keep asking which jobs will survive. We should be asking whether 'jobs' is still the right unit of analysis at all.\"\n\n\"The shift from jobs to livelihoods is the structural choice between an economy that deploys humans and one that sustains them,\" the report added.\n\nTsoukalas said relying on individual companies to voluntarily restrain themselves is unlikely to solve the problem.\n\n\"Waiting for the firms to figure it out for themselves, I think, is the worst possible thing we can do,\" Tsoukalas said, suggesting that a tax could be imposed on a company for replacing its [workforce with AI](https://www.businessinsider.com/the-ai-layoffs-story-just-got-more-complicated-2026-6).\n\n\"You could also provide subsidies to firms that keep their workers instead of firing them,\" Tsoukalas added. \"So there's all sorts of other instruments around this that might not be perfect, but that we could use.\"\n\nA separate World Economic Forum report said that if the global workforce were represented by a group of 100 people, 59 would be projected to require reskilling or upskilling by 2030, while 11 would be unable to receive help, translating to over 120 million workers at medium-term risk of redundancy.", "url": "https://wpnews.pro/news/ai-could-trigger-a-layoff-trap-that-even-smart-ceos-can-t-escape", "canonical_source": "https://www.businessinsider.com/economists-say-ai-could-trigger-layoff-trap-ceos-cant-escape-2026-7", "published_at": "2026-07-21 08:11:01+00:00", "updated_at": "2026-07-21 08:24:08.132491+00:00", "lang": "en", "topics": ["artificial-intelligence", "ai-policy", "ai-ethics"], "entities": ["Gerry Tsoukalas", "Brett Falk", "The Wharton School", "World Economic Forum", "Katty Kay"], "alternates": {"html": "https://wpnews.pro/news/ai-could-trigger-a-layoff-trap-that-even-smart-ceos-can-t-escape", "markdown": "https://wpnews.pro/news/ai-could-trigger-a-layoff-trap-that-even-smart-ceos-can-t-escape.md", "text": "https://wpnews.pro/news/ai-could-trigger-a-layoff-trap-that-even-smart-ceos-can-t-escape.txt", "jsonld": "https://wpnews.pro/news/ai-could-trigger-a-layoff-trap-that-even-smart-ceos-can-t-escape.jsonld"}}