Back Research Notes THE FUTURE OF LABOR: AI, INCENTIVES, AND THE END OF WORK AS WE KNOW IT Published on October 28, 2025 By Jordi Visser Executive Summary This report examines the structural transformation of the global labor market driven by artificial intelligence and why this shift represents both the most powerful deflationary force in modern history and the greatest challenge to capitalism’s incentive system. The analysis begins with Amazon’s leaked internal plan to replace over 500,000 workers with robots, a signal that the debate over automation has moved from theory to execution. It explores how AI’s second stage the agentic phase is now directly reshaping employment, corporate margins, and monetary policy. The report argues that the traditional relationship between corporate profits and labor demand has broken down since the launch of ChatGPT. Earnings per share continue to climb even as job openings and temporary employment fall, revealing a historic decoupling between capital and labor. This divergence marks the emergence of a K-shaped economy in which asset owners prosper while wage earners face stagnation. Drawing on insights from Marc Andreessen’s “abundance thesis”, the paper frames two potential futures one of deflationary abundance and one of disruptive dislocation and concludes that both dynamics are likely to coexist for years. The middle chapters dissect the corporate incentive structure that makes labor replacement inevitable (“show me the incentive and I’ll show you the outcome”), linking executive compensation, quarterly earnings pressure, and shareholder demands to the acceleration of automation across industries. A dedicated section on political and regulatory backlash highlights growing concern among policymakers, economists, and populist movements, outlining the likely policy tools from robot taxes to shortened workweeks that may emerge in response. Yet, as historical precedent suggests, the report concludes that market and geopolitical competition will overwhelm most restrictions, ensuring the automation trend persists. Finally, the paper explains why this time is different: AI scales at software speed and, for the first time, automates not just physical tasks but cognitive work, soon extending to humanoid robotics. The closing section provides investment implications, emphasizing five principles for navigating the transition: Favor capital-intensive firms with high automation potential. Focus on infrastructure enablers, semiconductors, data centers, and energy systems. Monitor regulatory risk by sector. Track fiscal responses that reshape taxation and redistribution. Prepare for sustained K-shaped outcomes across markets and geographies. In sum, this report contends that AI is not merely another productivity tool but the defining macro driver of the next decade, one that will compress business cycles, challenge monetary policy, and redefine the relationship between labor, capital, and growth. Investors who grasp these dynamics early will navigate the coming disruption from a position of strength. The Catalyst: Amazon’s 500,000-Job Warning Earlier this year, Torsten Slok of Apollo posted a chart showing that the Mag7 had not been hiring people since 2021. In recent videos, I have demonstrated how the historical correlation between S&P 500 stock prices and earnings per share versus payroll data has broken down since the launch of ChatGPT coinciding precisely with the Mag7’s hiring freeze. Last week, a leaked internal document from Amazon revealed plans to replace more than 500,000 jobs with robots in the coming years, a shocking admission from one of the largest employers in the United States and a company whose workforce exceeds 1.5 million globally. Apparently that process is beginning now as a source revealed they would be laying off 30,000 people now. Yet when economists, strategists and inflationistas discuss the weakness in the labor market, they tend to fall back on familiar explanations: immigration declines and the impact of higher interest rates. Given that much of my time is spent debating the widespread obsession, which seems to intensify with older people in the industry, over the supposed AI “bubble,” this myopia doesn’t surprise me. But as we stand on the threshold of stage two of AI, bubble or not, and as the Fed prepares another rate cut while the stock market continues climbing and nominal GDP remains near 5%, it’s time for me to share my perspective on the labor market and how it is being directly reshaped by this next phase of artificial intelligence. Warning at this point to those obsessed with an AI bubble, if you are wrong on that obsession, it sets off a daisy chain of errors across all investments and forecasts as AI is driving everything macro. For investors and parents who are not using AI daily, the real question is whether ignoring AI now risks preparing your children for future competitiveness. I define stage one of AI as the education phase, when AI memorizes everything we once needed to learn in school, effectively commoditizing education itself. Stage two is when they graduate and go to work and disrupt the labor markets. This year, that will manifest primarily in the form of AI agents or digital knowledge workers. But the physical world is not far behind. Last week, Tesla announced on their earnings call that they expect to remove the safety driver from their robotaxi fleet in Austin before the end of this year. For me, this represents the first graduation of workers in the physical world, a continuum that will extend from autonomous transportation to humanoid robots. This brings us back to the Amazon leak, reported by The New York Times. Earlier this year, Amazon had already announced, not leaked, that they had reached one million robot employees. Together, these milestones mark an inflection point in the debate over artificial intelligence and automation. This is no longer a theoretical discussion about whether AI will disrupt labor markets; it is a concrete, accelerating reality with profound implications for corporate profit margins, equity valuations, and the broader structure of the economy. For investors, the Amazon revelation should serve as a wake-up call: the incentives embedded in modern capitalism, particularly the relentless pressure on public companies to maximize shareholder returns, are driving a structural shift toward labor replacement at unprecedented speed and scale. As Charlie Munger famously said, “Show me the incentive and I will show you the outcome.” The outcome here is clear: corporations driven by bottom-lines will replace human workers with machines whenever economically viable. But this transition carries significant risks beyond the balance sheet. Accelerating job displacement threatens to deepen income inequality, fueling political backlash and regulatory interventions that could reshape entire industries. Investors who fail to account for these dynamics, both the profit opportunities and the societal disruptions, risk being blindsided by one of the most consequential economic transformations of our time. The Divergence: Profits Soar as Labor Weakens For investors, this reality has already had a profound impact on monetary policy and the disruptions associated with the K-shaped divide between labor and asset owners. In August, Jerome Powell prepared the market for the Federal Reserve’s pivot toward prioritizing labor market concerns over inflation risks, reflecting growing unease among policymakers about the health of the American workforce. The cries of “Policy Mistake!” echoed throughout X from inflation-focused commentators, many of them disguised permabears. Given that this came after sustained pressure from the Trump administration, the “Fed Independence Short the Dollar!” crowd also jumped into the fray. The reality, based on the Fed’s stated rationale, is that it has begun cutting rates in response to what Chair Powell has described as “softening” lab