Penn/BU 'Automation Trap' Study: AI Layoffs Create Self-Destructive Demand Spiral That Hurts the Companies Doing the Cutting

BusinessToday / arXiv·medium signal

A new paper by researchers at University of Pennsylvania and Boston University, published today in BusinessToday and on arXiv, argues that companies are trapped in an 'automation arms race' where each firm benefits from lower costs when automating, but collectively destroys consumer demand as 92,000+ tech workers have been laid off in 2026 with 48% attributed to AI. The researchers find firms automate more than is collectively optimal — even to their own detriment — because each company bears only a fraction of the demand destruction while competitors absorb the rest. For SaaS specifically: fewer employed humans means fewer seats, fewer expense accounts, and lower NRR.