https://aifaultline.com/authors/ambarish-moharil/New papers by Ambarish Moharil in the AI Fault Line guide, and news naming them. https://aifaultline.com/research/p/doi-10-5281-zenodo-20633148/https://aifaultline.com/research/p/doi-10-5281-zenodo-20633148/Wed, 10 Jun 2026 00:00:00 +0000Responding to the 'AI layoff trap' argument, this report distinguishes AI adoption breadth, depth of labor replacement, and productivity effects, arguing that the demand externality (automation eroding the consumer purchasing power firms depend on) is driven not by AI use per se but by worker-equivalent displacement, the actual labor income removed from the economy; human-in-the-loop systems soften the externality while full-replacement designs amplify it, and competition pushes firms toward more replacement-heavy designs than is collectively optimal. This reframes the automation-tax debate: policy should target displaced labor income rather than AI adoption broadly, giving regulators a margin that penalizes replacement without discouraging augmentation.