After years of labor unions advocating for an 8-hour day and a 5-day week, Henry Ford finally saw his own self-interest and Ford Motor Company on September 25, 1926, made it company policy.

Why? Workers with free time and money to spend bought cars: long-term profit!

A century later, many companies are doing the opposite: laying off workers and replacing them with so-called AI: short-term profiteering. This trend only increases, because if competitors are doing it, every company has incentive to do it.

But companies are sabotaging themselves. Fired workers cannot easily find new jobs, so they can’t afford to buy. An economy with no purchasing is in trouble.

The AI Layoff Trap 2026-03-02 –Brett Hemenway Falk, Gerry Tsoukalas, No jobs means no buying, One policy works to stop it

There are other issues, such as firing experienced people means companies lose their ability to do new things or to deal with unexpected challenges, and fewer jobs mean people trying to join the job market find nothing, so there’s little new talent incoming and few left to train them. But the chase for short-term profits overrides all that.

Plus the proliferation of hyper-scale datacenters catering to this so-called Artificial Intelligence (AI), using much cooling water, either directly, or through new power plants. See:

https://wwals.net/issues/datacenters

New research models this corporate behavior and finds that most proposed solutions do not stop it.

• Retraining fails without enough jobs.
• Universal Basic Income (UBI) does nothing to stop layoffs.
• A capital income tax does not help.
• Worker equity helps, but many layoffs mean fewer workers, so it’s not a solution.
• Workers collectively bargaining with management, or companies bargaining with each other, sounds promising, but does not get rid of the incentive for layoffs.

Only an automation tax works.

Brett Hemenway Falk and Gerry Tsoukalas, March 2, 2026, The AI Layoff Trap.

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 cannot eliminate it. Neither can capital income taxes, worker equity participation, universal basic income, upskilling, or Coasian bargaining. Only a Pigouvian automation tax can. The results suggest that policy should address not only the aftermath of AI labor displacement but also the competitive incentives that drive it.

Abstract, 2026-03-02 –The AI Layoff Trap

So what’s a Pigouvian tax? One which scales according to the externalities. Tax companies for their job losses.

Table: Policy Instruments, 2026-03-02 –The AI Layoff Trap

The authors sum it up:

No amount of retraining, income support, or bargaining will slow the arms race; only a tax on automation itself changes the calculus that drives it.

Policy implications, 2026-03-02 –The AI Layoff Trap

 -jsq, John S. Quarterman, Suwannee RIVERKEEPER®

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https://wwals.net/donations/

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