Abstract: Organizations deploying artificial intelligence increasingly cite labor cost reduction as a primary driver, with over 100,000 technology workers displaced in 2025 alone. Yet recent theoretical work reveals a structural paradox: even when every firm recognizes that mass automation erodes the consumer demand they collectively depend on, competitive incentives trap them in an acceleration dynamic that harms both workers and shareholders. This article synthesizes emerging research on demand externalities in AI-driven labor displacement with organizational evidence to demonstrate that the automation problem is not merely distributional but constitutes a market failure requiring targeted intervention. Analysis of six policy instruments—upskilling, universal basic income, capital taxation, worker equity participation, voluntary agreements, and automation taxes—reveals that only the last operates on the correct margin to align private incentives with collective welfare. The findings suggest organizations and policymakers must address not only displacement's aftermath but the competitive structures that accelerate it beyond socially optimal levels.
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