Policies to Address Displacement

2026-March-26

One of the key policy challenges of the past few decades has been how to deal with shocks that displace workers. The original major shock was the China shock, which displaced workers in textiles and other manufacturing sectors. The broader shock is automation, and the more recent one is AI, which has the potential to displace a very large number of workers.

Where is the literature that asks what the optimal policy response to these displacement shocks is?

In public policy debate and in the media, the question is often posed as a yes-or-no question — should we ban robotaxis from the city of Boston, for example?

On one hand are the economists and industry people who point out the large benefits of new technology: the cost of taxis goes down, traffic accidents diminish, and so on. On the other side are the representatives of the workers — in this case, taxi drivers and Uber drivers — who want to ban the technology entirely to preserve their jobs.

In the past, policies were often most aligned with the industry and economic side of the argument. When China joined the WTO, trade was opened, workers were displaced, and not much was done to limit the losses these workers faced. We later found out that these losses were quite large, in part because workers weren't willing to move either geographically or into other industries.

Clearly, optimal policy must find a compromise between these 2 competing interests.

There is an insurance value in protecting workers against large macro shocks that could upend their entire careers and dramatically reduce their lifetime earnings. What we realize more and more is that workers want jobs — not just any kind of jobs, but good jobs, whatever that means — for the sense of purpose and fulfillment they provide.

As it stands, it seems that economists have very little to say about the key policy question: what kinds of policies can limit the losses that existing workers incur because of these large macro shocks, while at the same time, perhaps gradually, introducing new technologies and reaping their benefits?

Why does this literature not exist?

(Or am I just now aware of it?)