In February 2026, Block cut nearly half its workforce. Close to 4,000 people. CEO Jack Dorsey said AI had made many of those roles unnecessary, and that within a year, the majority of companies would reach the same conclusion.

He wasn't guessing. Over 100,000 tech workers were laid off in 2025 alone, with AI cited as a primary driver in more than half the cases. Salesforce replaced 4,000 customer support agents with AI. Goldman Sachs started piloting autonomous coding systems where one senior engineer does the work of a five-person team.

These are not small moves by small companies. These are massive organizations cutting tens of thousands of jobs because AI made it cheaper to do so.

And here's the part that should concern you, even if you've never worked at any of these companies and never will.

The AI layoff race happening at the top of the economy is a trap. The companies caught in it know it's a trap. They can't stop. Your job as a small business owner is to understand the dynamic so you can see what's coming downstream and position your business for it.

The trap, in plain terms

A recent paper from researchers at the University of Pennsylvania and Boston University lays this out clearly (Hemenway Falk and Tsoukalas, The AI Layoff Trap, March 2026).

The mechanism is simple once you see it.

When a company replaces workers with AI, it saves money on every task those workers used to do. That's the upside, and it's real. But those workers were also customers. Not necessarily customers of the company that fired them, but customers of other companies. Their rent, their groceries, their subscriptions, their spending at local businesses. All of that spending power disappears when the income disappears.

Now here's where it becomes a trap. When one company automates, it captures all of the cost savings but only feels a small fraction of the demand loss. Most of that lost spending lands on other companies. So from the perspective of any single firm, automating is always the right move. The savings are yours. The damage is mostly someone else's problem.

Every company does this calculation. Every company reaches the same answer. Every company automates.

And collectively, they all end up worse off. The spending power they all depend on has been drained out of the economy. The paper calls this a demand externality: each company makes a rational decision that, when everyone makes the same decision at the same time, destroys the thing they all need.

The researchers tested every popular solution against this. Wages falling doesn't fix it. Universal basic income doesn't fix it (it raises the floor on living standards but doesn't change any company's incentive to automate). Retraining helps but doesn't close the gap. Companies can't agree among themselves to stop, because any company that holds back while the others automate just loses market share for nothing. It's a Prisoner's Dilemma, and the bars are real.

The only thing the paper found that actually corrects the incentive is a government tax on automation. That's a political solution, and politics is slow.

Why this matters to you

You're probably not running a company with 10,000 employees. You're not laying off 4,000 people to cut costs. So why does this matter?

Because you're downstream.

Block's 4,000 former employees were somebody's customers. They bought coffee. They paid rent. They hired contractors. They used local services. They spent money in the economy that your customers also spend money in.

When a regional employer automates a warehouse, Main Street feels it. When a tech company fires thousands of support staff, the restaurants and shops near their offices feel it. When an entire industry decides it needs fewer people, the ripple doesn't stop at the industry's borders.

This isn't hypothetical. This is already happening. And the paper's most uncomfortable finding is that better AI makes it worse, not better. Each company sees a market-share advantage in automating further than its competitors. But at the industry level, those advantages cancel out. Everyone automates more, nobody gains a relative edge, and the demand destruction accelerates. The researchers call this the Red Queen effect: running faster just to stay in the same place, except the ground is eroding underneath.

The opportunity sitting inside the problem

Now here's the reframe, and this is where Posts 1 through 3 of this series connect.

Big companies are trapped in a race to cut humans out. They can see the cliff. They can't stop running toward it. Every incentive pushes them to automate more, even though they know the collective outcome is bad.

You are not in that race.

A small business doesn't have 4,000 employees to cut. A small business has a handful of people, maybe just one, whose relationships and expertise are the business. The big company's move is to replace humans with AI. Your move is the opposite: use AI to make your humans more valuable.

The things big companies are cutting right now — real human service, specific expertise, local presence, personal relationships, follow-through — those are exactly what a small business does best. AI gives you the ability to compete on scale and efficiency. Your humans give you the ability to win on everything the big companies are abandoning.

And here's the part that compounds. As big companies cut and cut and the customer experience gets worse and more generic, the market for businesses that still feel human is going to grow. Not shrink. Grow. Every automated phone tree, every chatbot that can't actually solve the problem, every form letter that replaced a real conversation — each of those is an opportunity for a business that still puts a person on the other end.

What the spending picture means for your planning

There's a practical dimension to this beyond positioning.

If your customers are consumers, pay attention to which industries are automating near you. That's where local spending power will weaken first. A wave of layoffs at a major employer in your area isn't just a news story. It's a signal about what your revenue might look like in six months.

If your customers are other businesses, pay attention to whether they're caught in the trap. Their budgets are about to get squeezed. The businesses selling to companies in the middle of aggressive AI-driven cost-cutting need to be realistic about what those customers can afford going forward.

And inside your own business, use AI to do more with what you have. Not to cut the people who are your edge. To extend their reach, their hours, their ability to deliver.

I said in the first post of this series that there are five types of people when it comes to AI. Category four — the people who've decided AI is all hype — are in for a rude awakening. This post is the shape of that awakening.

AI isn't hype. It's real. And the economic consequences of how big companies are using it are going to touch every business, including yours, whether you use AI or not.

The businesses that come through this well won't be the ones that ignored it. They won't be the ones that copied the big-company playbook either. They'll be the ones that understood the dynamic, positioned themselves on the right side of it, and used AI to strengthen the things that make them hard to replace.

Three things to do this week.

First, look at your customer base and ask: who employs my customers? If any of those employers are in industries automating aggressively right now, that's a signal. Not a reason to panic. A reason to diversify and plan.

Second, look at your own business and ask: what am I doing that a customer can't get from a chatbot or an automated system? That's your moat. Invest in it. Talk about it. Build your positioning around it.

Third, go back and read Post 3 in this series. The Automation Trap. Because the same discipline applies here: the hours AI gives you back should go toward strengthening your position, not toward becoming a higher-volume version of what's getting cheaper every month.

The next post gets into the clearest framework I've seen for how to think about all of this. One sentence from one of the people who helped build modern AI, and it changes the whole conversation.

If this post made you think differently about how the bigger economic picture affects your business, hit reply and tell me what you're seeing in your market. I'm paying attention to these patterns and I'd like to hear what's happening on your end.

Best

Jono