When Stabilizers Destabilize: AGI and the Structural Vulnerability of Contribution-Based Welfare States

Paul Lürssen

Track: Track 2: Socio-Economical and Future Visions

Keywords: Artificial General Intelligence, Labor Market Disruption, Automatic Stabilizers, Welfare State Finance, Contribution-Based Welfare Systems, Fiscal Sustainability, Structural Unemployment, Germany

TL;DR: Automatic stabilizers in contribution-based welfare states become fiscally destabilizing when AGI-driven labor displacement is structural rather than cyclical.

Abstract: Contribution-based welfare systems fund unemployment benefits through payroll taxes and employment-linked social insurance. This paper analyzes the structural fiscal vulnerability of such systems to AGI-induced labor market disruption. Using Germany as a case study, three White-Collar substitution scenarios (10%, 50%, 70%) are modeled and their fiscal consequences traced through the existing welfare architecture. Even conservative estimates double current unemployment spending; moderate scenarios would consume over 60% of the federal budget. The core finding is that automatic stabilizers, mechanisms designed to cushion cyclical downturns, become destabilizers when the underlying shock is structural: rising benefit expenditure compounds with shrinking contribution revenue into a fiscal double-bind. This paper introduces the concept of stabilizer inversion to describe this phenomenon. Three policy response categories are identified: alternative financing mechanisms, universal basic income complements, and adaptive fiscal triggers. The analysis does not predict AGI timelines; it maps structural vulnerability regardless of when such capabilities emerge.

Anonymization: This submission has been anonymized for double-blind review via the removal of identifying information such as names, affiliations, and identifying URLs.

Submission Number: 7