The AI job suck is the China shock of today

REARVIEW-mirror policymaking seems as unavoidable as it is self-defeating. President Donald Trump is falling into this trap with his focus on reversing the past quarter-century of trade policy — trying to put the toothpaste back in its tube. In attempting to undo the so-called China shock, he is missing the opportunity to preempt collateral damage from the coming artificial intelligence shock, which will reshape labor markets over the coming decade.

Even relatively positive economic changes hurt some workers. As did the decline of America’s manufacturing hubs, AI is likely to prove a challenge for millions of workers. At the more apocalyptic extreme, Anthropic chief executive officer Dario Amodei told Axios this week that AI could eliminate half of entry-level white-collar jobs and push unemployment as high as 20 per cent over one to five years. While I’m not expecting anything that dire, there are subtle signs — as The Atlantic’s Derek Thompson pointed out last month — that the impacts may be already materialising in the unique and recent increase of the unemployment rate for recent college graduates to the highest since 2021.

Brookings Institution research projects that about 30 per cent of the workforce could see at least half of their tasks disrupted by generative AI. That could include close to 19 million people in office and administrative support; 13 million in sales and related jobs; and 10 million in business and financial operations, according to Brookings’ analysis of OpenAI and Bureau of Labour Statistics data. Geographically speaking, economists Scott Abrahams and Frank Levy found that such work is most concentrated in expensive coastal areas, including the Bay Area and the nation’s capital. For the government, the key is to stand ready to provide help to those who need it.

The wildly uncertain fallout from AI requires modern tools for monitoring trends in employment and wages. In the China shock, the negative outcomes were concentrated in manufacturing communities. By failing to appreciate the scope of the problem early, policymakers allowed parts of the country to fall into a self-reinforcing cycle of decay, engendering a sense of unfairness and lighting a fire under a populist backlash in American politics. In contrast, the Abrahams and Levy study shows that a generative AI shock could nudge workers away from expensive coastal cities to places such as Savannah, Georgia, or Greenville, South Carolina, which offer affordable housing and economies that are less exposed to the job losses.

One source of forward-looking data is online job postings, which can be mined for keywords related to AI, Abrahams told me this week. Such data is far more comprehensive than it was in earlier shocks, and it reveals in real time the areas where companies are expanding and replacing workers — and, equally important, the areas where they aren’t. As Abrahams pointed out, AI’s impact may play out in large part through job-leavers that go unreplaced, rather than large and obvious layoffs.

In terms of the latter, improved disclosure would help. Kevin Frazier, the AI Innovation and Law Fellow at the UT Austin School of Law, has suggested updating the Worker Adjustment and Retraining Notification (WARN) Act, which generally requires companies to provide 60 days advance notice of closures and layoffs of 50 workers or more. Frazier has suggested that medium and large-sized firms be required to disclose “widespread integration of new AI tools”, whether or not the new technology corresponds with immediate job cuts. Though compliance could be a challenge, this would add a layer of forward-looking visibility. Frazier also wants to change the WARN policy to capture more layoffs and give communities and policymakers more time to respond.

Second, the US should make preparations to provide a strong response to any visible labour market disruptions, including getting its fiscal house in order. While some people believe that AI will eventually be so disruptive that it demands a version of Universal Basic Income, the near-term solution is likely to look like an improved and probably costlier version of Trade Adjustment Assistance, the programme rolled out during John F Kennedy’s presidency to help workers sidelined by trade. That programme was too bureaucratic and small to blunt a development as big as the China shock. Any new effort would have to cut down on red tape and be better funded. Frazier has suggested businesses themselves be required to pay into rainy-day-type funds for worker retraining.

Third, policymakers should make it easier for workers to move for new opportunities. Many lost jobs will be replaced by new and even better ones, but we can’t take for granted that the labour supply will automatically migrate to the sectors and regions with the greatest opportunity. In fact, one key takeaway from the China shock literature is that, while the labour market migrated, many individuals didn’t. David Autor, David Dorn and Gordon Hanson have found that incumbent workers were “largely frozen in the declining manufacturing sector in their original locations”.

It’s not clear why so many stayed. Personal ties may have motivated some, but others may have faced financial constraints — a problem exacerbated by today’s housing affordability crisis. As for Trade Adjustment Assistance, it provided only a laughable relocation allowance of no more than US$1,250, a figure that should be much larger if it’s going to promote labour mobility.

Finally, the US must ensure that the next generation is equipped with the skills of the future, including general AI literacy as well as domain expertise around AI and robotics engineering. The future is also likely to place a premium on the general critical thinking skills and emotional intelligence that liberal arts degrees engender. While the payoffs of higher education may become less clear, it’s likely to remain essential to America’s success. Policymakers can support it through thoughtfully allocated student and research grants, and immigration policies that bring the best inventors and entrepreneurs to our country.

Unfortunately, Trump has paid short shrift to the AI challenge. He’s spending much of his time pursuing a policy of ex post protectionism, seemingly trying to reverse the outcomes of a shock that the US inadequately prepared for a quarter century ago. Instead, if he wants to leave an economic legacy, he should take steps to ensure that AI maximally benefits Americans by mitigating the inevitable dislocations along the way. Left unaddressed, America could face another populist backlash against uneven labour market outcomes, and the Republican Party may well find itself on the wrong side of this one. BLOOMBERG