Key takeaways:

• Affordability is not just about prices; it’s the outcome of a race between income growth and price inflation. When income growth is slower than price inflation, affordability worsens. When income growth is faster, affordability improves.
• Focusing just on prices is bad for understanding how the economy works and how it has performed in the recent past, and it leads to an overly restrictive policy menu for improving families’ affordability.
• Policy can more reliably address income growth for typical families. This growth has been stunted for decades by the rise of inequality. Closing this gap by ensuring more equitable distribution of future growth is the strongest tool we have for improving affordability.

Affordability has been the policy buzzword of recent years. Much of the affordability discourse—both among policymakers and the public—has focused near-exclusively on prices as the big affordability problem. But affordability is not a problem of high prices, instead it’s the outcome of a race between incomes and prices. And the reason typical families have faced an affordability crunch in recent decades is not because prices have grown exceptionally fast, it’s because incomes for the vast majority have grown too slowly. This income growth has been suppressed mostly by rising inequality that has put a growing wedge between overall economic growth and the income growth of typical families.

Getting the drivers of affordability right is important—it’s not just quibbling. If you only examine price growth and try to infer what has happened to affordability over periods of economic history, you’ll usually get the story wrong. And if policymakers only look at how to change the trajectory of prices while ignoring what they can do to change the trajectory of incomes, they will be far less effective in providing useful relief to U.S. families. There are far more ways to use policy to raise incomes in a targeted and effective way than there are to suppress price growth.

Below, we provide some more background on why analyses of affordability need to include incomes, why policymakers have much more scope to raise incomes in a useful way as opposed to pushing down prices, and why focusing just on prices can obscure whether affordability has improved or worsened.

Why do prices dominate today’s affordability debates?

In modern capitalist economies, prices rise essentially every year (though at quite different rates), but so do incomes. Determining what has happened to families’ ability to afford a decent and secure life requires looking at measures that take into account both sides of the affordability equation, such as real (inflation-adjusted) income growth. Nobody really disputes this. After all, Americans could buy a new car for $600 in the 1930s, but nobody thinks society was generally richer back then.

The narrow focus on prices in assessing one’s own economic struggles likely stems from several factors.

First, inflation was very fast in the early 2020s. Americans hadn’t experienced inflation rates that high in decades, and they didn’t like them, so prices remain front of mind for many.

Second, it is true that price changes can dominate what happens to real incomes over very short time periods (say a year or less). This recognition is why we can be so sure that the oil price shock inflicted by the U.S. bombing of Iran is going to be so damaging to U.S. families. The rise in oil prices so far this year has likely baked in at least a 1.5% increase in inflation over the next 6–12 months. In 2025, real wage growth for the large majority of workers was slower than 1.5% (which was the outcome of roughly 4% nominal wage growth minus 2.5% inflation). Given this, a sharp and unexpected 1.5% jump in prices will likely erase any prospective real wage gains for workers in 2026.

Finally, it has been noted that many Americans see wage gains as something they accomplished themselves through hard work, while prices are out of their immediate control. Inflation is hence seen as damage done to them and something they need relief from. But this is mostly wrong—policy choices impact wage growth at least as much as inflation, and the most effective policy relief for living standards will come through measures that raise wages, not restrain prices.

Policy can target incomes more effectively and precisely than prices

One person’s income is another person’s cost, which means prices are a bundle of different stakeholders’ incomes. The bill you pay at the grocery store must cover payments the store makes to its shareholders, the salary of the CEO and managers, the wages of cashiers, and the cost of buying food from producers. We don’t want all these incomes to be forced down. Given extreme levels of inequality in the U.S., we would likely be fine with lower CEO pay and payments to shareholders, but we would want wages of cashiers and many in the food production supply chain to rise. Efforts to simply clamp down on this price will have uncertain effects on incomes.

In the jargon of economists, focusing on prices is sector-based policy but to genuinely improve affordability we need factor-based policies, where factors of production like capital, rank-and-file workers, and corporate management can be specifically targeted by policies that aim to raise or restrain their incomes.

Fortunately, there are many good policy options for targeted affordability policy specifically toward low- and middle-income families. Incomes for these families—and for anybody without dynastic wealth—are dominated by wages and public benefits. We talk about each of these in turn below.

Boosting public benefits is affordability policy

Public benefits are entirely under policymakers’ control. If policymakers really cared about the affordability of groceries or health care or energy, they could boost benefits for food stamps, Medicaid, and the low-income heating energy assistance program. These programs currently deliver needed assistance to tens of millions of families to make life more affordable—and they do this with vanishingly small administrative costs, meaning they are highly efficient. Yet all of these programs are slated for steep cuts in the coming decade due to the Republican tax and spending megabill passed in 2025. This bill will inflict large damage to the most vulnerable families’ ability to afford decent and secure lives.

Further, Congress and the Trump administration chose to not extend the Biden administration’s more-generous subsidies for people to buy health insurance through the marketplace exchanges of the Affordable Care Act. The failure to extend these subsidies—even after a full federal government shutdown engineered by congressional Democrats aimed at prioritizing this issue—means that average out-of-pocket costs will double for those buying insurance in the exchanges.

Besides just reversing these cuts, making the U.S. welfare state more robust could also greatly boost the affordability of a decent life. Things like making health coverage more universal with lower out-of-pocket costs, reforming unemployment insurance to make it more protective, and providing all families with children a generous universal child allowance could dramatically improve affordability.

Policy can boost affordability through higher wages as well

The link between policy changes and wage growth is slightly less direct than for public benefits, but it remains very strong. Capitalist labor markets are inherently tilted toward employers and against workers. The only periods of history that have seen strong and equal rates of wage growth across the workforce have been periods where policy supported institutions that boosted workers’ leverage with employers.

The 30 years after World War II saw the creation of policies and institutions that successfully spread the gains from rising productivity equitably among workers up and down the wage distribution, with low- and middle-wage workers seeing growth rates as fast as high-wage workers. This equitable distribution of wage growth was a crucial way that income growth more broadly was kept equitable in this period.

Since 1979, however, these institutions have been steadily attacked and weakened with no new institutions being stood up to take their place in ensuring an equitable distribution of economic growth. The result has been that wages and incomes of typical families have lagged far behind average income and wage growth (or productivity). The wedge between income growth experienced by the vast majority of families and average growth is simply income being generated in the economy that is not helping typical families’ affordability struggles. Instead, it is income being funneled reliably away to the top.

There’s no reason that the institutions that equalized wage growth cannot be built back up and modernized.

The federal minimum wage is the most obvious policy institution for raising wages at the low end of the labor market. Raising the federal minimum wage from its current shamefully low $7.25 would directly boost affordability for tens of millions of workers. In the middle of the wage distribution, unions have proven to be the institution that has historically counteracted employer power and given typical workers increased leverage. However, unions are in a far weaker position today relative to their high points because of intentional policy choices—specifically because policymakers failed to act to curb employers’ growing hostility (and often their illegal activities) toward union organizing. If stronger policy boosted union density, unions would raise wages for both members and non-members alike.

Low- and middle-wage workers also benefit enormously from a determined effort to keep unemployment low for extended periods of time. In recent decades, policymakers have tolerated excess unemployment to keep inflation in check, but this is far too costly a strategy to keep potential inflation in check. Besides locking out millions of willing workers from job opportunities, long periods of excess unemployment were periods when real (inflation-adjusted) wage growth became literally stagnant.

Policymakers often seem skeptical of the effectiveness of these wage-boosting policies, arguing that the effects are too indirect and will take too long to provide benefits to workers. It’s true that efforts to boost unionization and sustain full employment will take some time to push up wages. But they will do this reliably. Further, many policies advanced in the name of reducing prices would also take a long time to come to fruition. For example, calls to tighten antitrust restrictions against corporate mergers and to break up established monopolies often have lots of merit. However, they are not policies that happen instantly and have purely predictable effects.

Focusing too hard on prices can obscure when affordability is actually improving

Finally, one key reason to broaden the affordability debate beyond prices is simply to make sure the public and policymakers can correctly identify periods of improvement or degradation of affordability. As an example of how focusing only on prices can lead to an incorrect diagnosis of affordability trends, take the example of two five-year stretches in recent economic history, both measured from a business cycle peak and going five years forward from there: In the years between 2007 and 2012, annual inflation averaged 1.8% and peaked at 5.5%, while between 2019 and 2024, inflation averaged 4.2% and peaked at 9%. Based on price growth alone, one would expect affordability to have eroded more rapidly in that second period, and indeed the popular narrative is that the early 2020s inflation was particularly destructive for affordability.

But between 2007 and 2012, the nation’s unemployment rate averaged 8.3%, while it averaged less than 5% between 2019 and 2024. After 2007, it took 93 months to re-attain the pre-recession unemployment rate, while it took just 29 months after the 2019 business cycle peak. In short, the labor market was far stronger in the second period.

And when it comes to real (inflation-adjusted) wage growth, the second period—largely because of its lower unemployment—saw far better outcomes than the first. In the 2019–2024 period, inflation-adjusted wages for low-wage workers (those at the 10th percentile) and the median worker rose by a cumulative 15.3% and 5.8%, respectively. In short, contrary to most conventional wisdom, affordability improved in this time. Between 2007 and 2012, real wages outright fell for both low-wage and median workers. Even with very slow inflation, affordability was demonstrably worse in that earlier period.

Figure A

More recently, inflation averaged slightly lower in 2025 (2.5%) than 2024 (2.9%). Yet for many workers—and particularly low-wage workers—2025 saw weaker (or even negative) real wage growth. This is largely due to some slight cooling in the labor market as unemployment rose from 4.0% to 4.4% over the course of 2025. Hence, even as inflation decelerated, the cooling labor market led to an even faster deceleration in nominal wages, which meant that affordability worsened for many workers.

Figure B

Reducing inequality is the key to improving affordability

Because many policymakers believe that affordability concerns are a new problem caused by inflation of recent years, they are now on a frenzied search for new and creative solutions to this price problem. But because the real affordability problem for U.S. families did not emerge in the past few years (remember, affordability was improving in the five years before 2025) and because the genuine long-run problem of affordability was about the inequality of income and wage growth, not excess inflation, most of these new and creative solutions just won’t hit the mark.

It’s understandable why many policymakers seem frustrated with being reminded of the long-diagnosed problem of inequality and the proven remedies—such as sustained full employment, higher wage standards like minimum wages, protecting workers’ fundamental rights to organize unions and bargain collectively, and a more robust welfare state.

Some, of course, just don’t believe in some of these solutions, while many who do would argue that these proven remedies are politically unrealistic in the current moment. But because the real affordability problem is an inequality problem that requires those at the top of the income and wealth scales having to accept less growth going forward (less than the stratospheric gains they’ve gotten used to, it should be said), any genuine solution is going to seem impossible in today’s political system that is dominated by the wealthiest families and corporations. Any policy—whether old and well-tested or new and creative—that actually aims to redistribute income, wealth, and power away from where it sits today will face a wall of opposition that must be politically overcome one way or the other. There’s no “one weird trick” where you can develop a policy creative and neat enough that it will somehow fool the rich and powerful about what its end result will be. And if the end result of the new and creative policy does not threaten the prerogatives of the rich, it’s not a real solution.

Today’s affordability concerns are indeed rooted in objective facts about the material circumstances of middle- and working-class families in the United States. Precisely because of this, they deserve more serious analysis and policy responses than they have been getting. This means focusing more on incomes than prices, and it means being clear-eyed that it has been the upward redistribution of income to the top—abetted by policy decisions—that is the drag on typical families’ affordability. Until solutions address that, they’re mostly just noise.

Our decisions about whom and how to tax are decisions about which community needs we have the capacity to address and at what scale. Progressive taxes like personal, investment, and corporate income taxes generate more revenue from those who have the greatest ability to pay, and for whom the cost of losing the next dollar is small, relative to the last dollar of a family struggling to make rent and afford groceries. On the other hand, regressive revenue strategies like non-strategic tariffs, fees and fines, and an overreliance on sales taxes, especially when combined with cuts to social programs, heighten the sense that the system is unfair. Where progressive revenue strategies can bind a community together in mutual support and expand capacity to meet needs through good governance, regressive strategies erode people’s trust in the public sector.

H.R. 1 presents a vision of public finance that is unsustainable and erodes trust in government

Much of the federal tax code is in fact progressively structured, but for decades conservatives have weakened and attacked that progressivity. H.R. 1 (which the White House has referred to as the “One Big Beautiful Bill Act” or “OBBBA”) is the latest Republican-led effort toward breaking down trust in the public sector and social contract. H.R. 1 provides a suite of tax breaks to households across the income distribution; however, the wealthiest households and corporations see a far bigger tax cut from the package than the typical household does. In service to these tax breaks, the bill introduces devastating cuts to Medicaid, SNAP, and critical government agencies designed to help workers and their families thrive. Despite their size and the pain they will cause, these drastic cuts in the federal government’s capacity to serve and support working families are not enough to cover the costs of the corporate tax breaks; the Tax Policy Center estimates that H.R. 1 could increase the federal deficit by between $3.7 trillion and $5.1 trillion by 2034.

But unlike the federal government, states and localities cannot run budget deficits; their budgets must be balanced yearly. When major federal cuts happen, states and localities that rely on federal dollars to maintain critical services are forced to curtail and eliminate services, dive into emergency savings where they exist, or else shift to revenue generation strategies that often fall disproportionately on Black, brown, and poor households. The combination of directly hampering public services working people rely on while shifting more of the burden of raising revenue toward Black, brown, and poor workers and their families weakens worker power and exacerbates racial disparities.

H.R. 1 combines a shift toward regressive revenue strategies with massive tax breaks to corporations and the wealthiest households, in service to the Trump administration’s overarching goal: reasserting white, wealthy, and corporate privilege through tax cuts, deregulation, and the defunding of public institutions.

Regressive revenue strategies: Taking from the poor to give the rich even more breaks

The Trump administration has floated using tariffs as a replacement (either in full or part) for the federal income tax. This is not a new Republican strategy: Tariffs are a kind of consumption tax (on imported goods, along with the intermediate products businesses need to create goods and provide services domestically), and Republican-led state governments tend to rely more on consumption taxes1 (like sales taxes) and less on income taxes to increase revenue. Because poorer households spend a larger share of their income purchasing goods and services than the rich do, consumption taxes are inherently more regressive. The current federal income tax is progressively structured, in spite of the ways conservatives have attempted to weaken that progressivity over time. While tariffs can be a sensible part of a larger industrial policy strategy, governments place too large a burden on low- and moderate-income households when they try to use consumption taxes as a primary source of revenue. 

States and localities may turn to fines and fees to raise revenues in the absence of adequate federal support. These penalties are a poor substitute for progressive taxes. Fines and fees historically have only been able to cover a small fraction of state and local budget costs. And this is baked into the design: If the point of a fine or fee is to deter behavior, the best-case scenario (ending the behavior) would result in no revenue.

Even so, fines and fees cause significant economic pain for working-class families in the Black communities that are most affected by them. On an ethical level, a modern idiom applies: “If the penalty for a crime is a fine, that crime only exists for the poor.” The criminal justice system can trap poor folks in a cruel cycle of penalization for being unable to pay traffic tickets, court fees, and even their own surveillance through ankle monitors. Fines and fees increase the economic burden on those with the least ability to pay, all for a low return, making them a poor substitute for broad, progressive taxes.

Faux-progressive revenue strategies are ineffective and distract workers, their families, and policymakers from the need for real change

Ineffective tax gimmicks like temporary deductions on overtime and tipped income distract from the need for real reform around worker pay and scheduling. The point of requiring businesses to pay time-and-a-half for overtime is to discourage pushing workers to work beyond what we have collectively decided is a full and reasonable period of labor. Tipping is an outdated practice with racist roots, designed to shift the cost of maintaining a workforce onto consumers, rather than having employers properly compensate employees. Instead of cynically gesturing toward affordability through encouraging bad business practices, we should empower workers to fight for better wages and consistent scheduling.

Conservatives may also try to balance budgets by allowing progressive tax expenditures to expire (e.g., the recent expiration of the ACA premium tax credits or the expiration of the expanded child tax credits passed as pandemic relief). Temporary tax breaks themselves are not the most effective means of addressing structural economic issues; if health care or health insurance is persistently inaccessible to wide swaths of the population, we should seek to remedy that by making access universal—or, at the very least, making the credits that allowed greater access in the first place permanent. Allowing tax breaks implemented to address structural inequities to expire without an alternative solution to the problem being addressed is negligence. There are ways to balance budgets that do not involve reversing hard-won progress toward equity.

Progressive ways to generate revenue: Worker-centered tax policies can reduce inequality and expand the tax base

There are better ways of raising revenue that will support workers and their families, rebuild public trust in government, and get us the public goods and services we want and need. Since most Americans earn their living through selling their labor, it makes sense to keep some progressive tax on income to ensure people remain invested in the social contract. But with so much wealth and income concentrated amongst a few individuals, a necessary step is shifting more of the tax burden toward extremely high earners, wealth, and investment income. This will generate more revenue to improve public services and infrastructure, while tamping down on inequality. Adding tax brackets for the highest earners, adopting a legitimate tax on wealth holdings, and taxing the income made from investments at a rate closer to that of income from wages and salaries progressively raise revenues without increasing the burden on most U.S. households.

Proper enforcement of the current tax code would go a long way toward improving both our ability to raise funds and the public’s trust in public finance. The tax code is rife with opportunities for wealthy individuals and corporations to evade paying their fair share of taxes, allowing them to skirt holding up their end of the social contract. The IRS is also critically underfunded and recovering from recent staff reductions from the Trump administration. With enough resources to enforce existing tax law effectively, the IRS could go after the largest tax evaders and see returns that matter, as opposed to disproportionately targeting Black households without the funds to instigate a drawn-out legal battle over an audit.

Table 1

We need a tax code that supports states and localities and promotes full economic participation, not temporary tax gimmicks and handouts to the wealthiest

Taxpayers (literally) cannot afford to accept the conservative propaganda that all taxation is a burden on households. Taxes are one way of binding a democratic community together and allowing us to share in the costs of creating collective prosperity and community. Especially at the state and local levels, tax revenues are essential to providing the services people need to thrive. When federal funding gets pulled back and states and localities turn to regressive revenue strategies, it is working-class families who pay the price.

If we are going to rebuild a sense of trust in the social contract, we need to structure the tax code such that it becomes more progressive, tapping into a greater portion of the massive amounts of wealth and income that have pooled at the top. We can use that revenue to fund programs and new infrastructure that allow more people to fully participate in the economy:

• improved funding for public schooling, increasing teacher pay and quality of education
• a fully funded federal food assistance program, and/or adequate funding to states to support their own cash-assistance programs more comprehensive than Temporary Assistance for Needy Families (TANF)
• expanded access to and adequacy of Medicaid, or Medicare for All

Each of these initiatives could improve affordability and remove the need for state and local governments to pursue revenue regressive strategies that do more harm than good (like fines and fees). We won’t solve every structural inequality and eliminate all disparities through reforming the tax code; but building the resources and will to collect taxes in a progressive way are steps toward a fairer economy and a government that earns the public’s trust.

1. Consumption taxes have some potential uses. Carbon taxes, for example, tax the consumption of goods whose production intensively uses greenhouse gas-emitting inputs; if consumers look to avoid these goods by switching to others whose production involves fewer greenhouse gas emissions, we achieve an important social good.

Strengthening collective bargaining rights is one of the most powerful policy levers states have available to confront primary economic challenges facing all workers today: an affordability crisis driven by the long-term suppression of workers’ pay, growing income inequality, and persistent racial and gender labor market disparities. It’s widely recognized that in today’s wildly unequal economy, millions of workers wish they had a union contract but face daunting obstacles to exercising their legal rights to get one. Moreover, many workers have never been protected by federal labor law at all due to Jim Crow-era exclusions.  

For the second year in a row, Colorado and Virginia state legislators have passed landmark legislation to remove barriers to unionization:  

• In Colorado, legislators have passed the Worker Protection Act to repeal an 83-year-old state policy that has limited Colorado workers’ freedom to form unions by requiring they undergo a state-mandated “second election” before they can secure full collective bargaining rights.  

• In Virginia, lawmakers have passed collective bargaining legislation to ensure full union rights for more than 500,000 state and local government employees and home care workers—all of whom have historically been denied coverage under federal labor law. The legislation would replace Virginia’s longstanding ban on public employee collective bargaining that has resulted in one of the largest public-sector pay gaps in the nation. 

Both pieces of legislation would correct historical wrongs—restoring rights that Colorado and Virginia workers have been denied since the 1940s, when past state lawmakers adopted anti-union policies amid a wave of white supremacist, big business backlash to multiracial union organizing. Yet both pieces of legislation were vetoed by their states’ respective governors in 2025 and are now once again awaiting governors’ signatures in 2026. 

In Colorado, Governor Polis has already indicated intent to once again veto the Worker Protection Act, but it’s not too late for Polis to seize his second chance to sign the bill.  

In Virginia, Governor Glenn Youngkin vetoed the collective bargaining legislation in 2025 and was ineligible to run for reelection because of term limits. This year, when the legislation was first sent to newly elected Virginia Governor Spanberger, she proposed extensive, damaging amendments to weaken the bill instead of signing it. The General Assembly has since rejected those amendments, and now Spanberger has her own “second chance” to sign this transformative legislation into law. 

Meanwhile, scores of anti-worker actions from the Trump administration are continuing to accelerate a decades-long trend of weakening workers’ rights, suppressing wages, and eroding bargaining power. This year, state lawmakers have handed both Governor Polis and Governor Spanberger historic opportunities to rebalance unequal power in their states’ economies and remove major obstacles Coloradans and Virginians face to exercising their rights to unionize and collectively bargain. And the choices Polis and Spanberger make in the next few weeks will shape economic outcomes in their states for years to come.

Today’s jobs report came in stronger than expected as payrolls increased by 115,000 in April. As a result, average monthly growth the last three months was 48,000 jobs. The unemployment rate held steady as both labor force participation and the employment level dropped slightly.
#NumbersDay #EconSKy

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— Elise Gould (@elisegould.bsky.social) May 8, 2026 at 7:37 AM

Overall job gains were 115k in April. Job gains were strongest in health care. transportation and warehousing, and retail trade. Losses continue in information, financial activities, and the federal government.
#NumbersDay #EconSky

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— Elise Gould (@elisegould.bsky.social) May 8, 2026 at 7:50 AM

The federal workforce continues to suffer down another 9,000 jobs in April. Federal employment has shrunk an alarming 345k jobs since Jan 2025. The vital services federal employees provide cannot be done without these essential workers.

Note: Federal employees on furlough are counted as employed.

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— Elise Gould (@elisegould.bsky.social) May 8, 2026 at 7:56 AM

After finally seeing some reversal of grave losses in recent months, manufacturing employment ticked down again in April. Since January 2025 when Trump took office, the manufacturing sector has lost 77,000 jobs.

#EconSky #NumbersDay

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— Elise Gould (@elisegould.bsky.social) May 8, 2026 at 7:59 AM

Nominal wage growth continued to slow in April. Over the last three months, wages have growth only 2.8% (annualized). The one-month change was even slower (1.9%).

As inflation rises, real wages fall as workers and their families find it increasingly difficult to make ends meet.
#EconSky #NumbersDay

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— Elise Gould (@elisegould.bsky.social) May 8, 2026 at 8:12 AM

Overall unemployment masks important differences by race and ethnicity. The Black unemployment rate ticked up slightly to 7.3% in April. Even given volatility due to smaller sample sizes, it’s clear that the Black unemployment rate remains elevated, particularly much higher than any other group.

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— Elise Gould (@elisegould.bsky.social) May 8, 2026 at 8:33 AM

With a depressed hires rate, I’ve been concerned about young people having opportunities to break into the labor market. The unemployment rate of young workers—16-24 years old—ticked up again in April, once again hitting 9.5%
#EconSky #NumbersDay

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— Elise Gould (@elisegould.bsky.social) May 8, 2026 at 8:37 AM

Key takeaways:

• The unemployment rates for young college graduates and young noncollege workers have risen slightly faster than the overall unemployment rate.
• But the rise in young college graduate unemployment in particular was mostly due to higher labor force participation: The employment-to-population ratio for young college graduates has held steady since 2024.
• Certain demographic groups, such as Black and Hispanic workers, face higher unemployment and lower hourly wages, even for young people with limited work experience.
• In the long run, the college degree is losing its edge: Unemployment for young college graduates has risen in historical terms, and the college wage premium has been flat or falling in recent years.

Over the last couple of years, the overall labor market has slowly weakened—with many arguing that the weakening is most pronounced for young college graduates (whom we define as young workers ages 22–27 with only a college degree).1 The evidence is actually pretty mixed—by some measures the young college graduate labor market is notably weaker, but their outcomes are largely no worse than those of noncollege young people or the labor market writ large.

In this first blog post of our series on young college graduates, we examine the labor market the college graduates of the Class of 2026 are entering. We look at unemployment rates and employment-to-population (EPOP) ratios for young workers with and without a college degree and examine wages for young college graduates by demographic characteristics. We also explore longer-term trends in unemployment driven by rising educational attainment, as well as changes in the college wage premium—the pay advantage college graduates earn over their high school graduate peers. In the next post, we will analyze trends in the industries and occupations young college graduates tend to work in, and take a closer look at the tech sector and any fingerprints of AI on labor market outcomes.

Unemployment on the rise for young college graduates—but mostly because of higher labor force participation

Over the last couple of years, the labor market has shown some signs of weakening, though some often reported measures are overstating it. For example, payroll employment growth has slowed significantly, but this is largely driven by much slower population growth over the past year and a half as net immigration has collapsed. The unemployment rate has slowly increased, though the share of the prime-age population—those 25 to 54 years old—with a job has remained high. Of most concern is the hires rate—the number of hires as a share of total employment—which has been steadily falling over the last three years. The hires rate is now at the same levels seen in 2013 and 2014, a period during the prolonged recovery from the Great Recession that saw unemployment rates 3.0 percentage points higher than they are today. Focusing just on unemployment rates, the softening of the overall labor market appears to be hitting young college graduates more acutely.

Figure A shows the overall unemployment rate, as well as the unemployment rate for young college graduates and young workers without a four-year college degree. Since 2023, the overall unemployment rate has risen from 3.6% to 4.3%, a slow and measured increase of 0.7 percentage points. The unemployment rate for young college graduates has increased from a low of 4.0% in July 2023 to its recent high of 5.3% in March 2026, a faster increase of 1.3 percentage points. Young workers without a college degree also experienced a rise in unemployment, though their rise began a little later than the other groups. Their unemployment rate has risen by 1.2 percentage points since March 2024, up from 5.9% to 7.1% by March 2026.

Figure A

Some have pointed to this disproportionate rise in young college graduates’ unemployment rates as evidence that AI is beginning to substitute for the white-collar jobs young graduates typically enter. But this conclusion is premature for several reasons. First, while the rise in the unemployment rate in the most recent period is faster for college graduates than for all workers, the same is true for other young workers without a college degree (see Figure A). This suggests that there isn’t anything particularly damaging to young college graduates happening today, such as AI specifically destroying their labor market prospects.

Further, the increase in the unemployment rate for young college graduates over the last two years appears to be driven by an increase in labor force participation rather than a declining probability of having a job. The EPOP for young college grads has held steady over the last two years as the unemployment rate rose. Nearly all (98%) of the increase in the unemployment rate between 2024 and 2026 for young college graduates was driven by the increase in the labor force—meaning more young workers are entering the labor market in search of opportunities as opposed to giving up and leaving the labor force or never entering it at all. This would actually fit a historic pattern in which labor force participation rates tend to respond with a surprisingly long lag to labor market developments. The historically strong labor markets of the early 2020s likely are still pushing up the labor force participation rates of young college graduates today.

When we look at EPOPs since 2019, shown in Figure B, we see that young workers, college and noncollege alike, fall in line with the overall trend. Not surprisingly, given the industries and occupations hit the hardest, young noncollege workers fared the worst in the pandemic recession, but now are faring similarly to their college-educated counterparts. Prime-age EPOPs have remained the most resilient through this business cycle.

Figure B

Data from the Job Openings and Labor Turnover Survey provide useful insights into job openings, hires, quits, layoffs, and other separations, but they are not broken down by demographic, limiting our ability to analyze young workers. However, the depressed hires rate suggests that it is more difficult for new entrants to get a foothold in the labor market. The quits rate is down, signaling a reduction in the overall churn in the labor market as workers and employers sit tight through this period of economic uncertainty—likely related to chaotic policy decisions and implementation around tariffs, deportations, and the conflict with Iran. If the layoffs rate ticks up now, the unemployment rate is likely to spike quickly and could spell even more trouble for young people who tend to experience larger swings in unemployment with the business cycle.

Finally, there is no evidence that young college graduates are sheltering in school—i.e., going on to graduate school—to weather out the weakened labor market. In fact, enrollment rates among young college graduates have been falling slightly over the last couple of years, from 19.1% in 2024 and 18.8% in 2025 to 18.5% in 2026. Even though opportunities in the labor market are weaker, it’s perhaps not surprising that enrollment rates are on the decline. The Trump administration’s attacks on higher education have reduced available funding at colleges and the ending of student loan forgiveness and caps on borrowing make it increasingly difficult for students to make those educational investments.

Wages remain unequal across demographic groups

Real (inflation-adjusted) median wages of young college graduates rose slightly over the last year, up just 0.4% since 2025, consistent with the slowdown in wage growth for workers overall. Since 2019, young college graduate wages have grown 7.4% after adjusting for inflation.

Despite this positive wage growth, racial and gender wage gaps remain large even among young college graduates who are just starting their careers. Figure C shows that women are paid $4.18 less per hour than their male counterparts. At 85.9% of men’s pay, a young woman working full time with a college degree is paid $8,700 less over the year.

Young Asian American Pacific Islander (AAPI) college graduates are paid more than white, Hispanic, or Black workers. The demographic categories shown in Figure C are mutually exclusive: AAPI, white, and Black workers are non-Hispanic, while Hispanic workers can be of any race. Young white college graduates are paid $2.76 per hour less than their AAPI counterparts, while Black and Hispanic workers are paid $5.36 and $5.05 less, respectively. For a full-time worker, this translates into more than $10,000 in lower earnings over the year for Black and Hispanic workers. Not only are wages lower for these historically disadvantaged groups, but the unemployment rates of young Black college grads in particular are also higher. Therefore, their ability to secure employment at all—at any wage—is diminished.

Figure C

Young college grads are competing against a wider labor force that is more educated 

As educational attainment has risen across the broader workforce, the advantage that young college graduates once enjoyed relative to the rest of the labor force in terms of lower unemployment and higher wages has steadily declined.

The young college graduate unemployment rate recently surpassed the overall unemployment rate, meaning a greater share of young college graduates are now out of work than workers writ large. The erosion of the unemployment advantage for young college grads, however, isn’t a sudden shift; as shown in Figure A, the trend has been building since 1979, when young college graduates had an unemployment rate of 4.0%, 1.9 percentage points below the national average. Over the following four decades, that advantage eroded. By February 2020, young college graduates had an unemployment rate of 3.8%, 0.2 percentage points above the overall rate, a slow but complete reversal of the historic edge. In recent years, the historic trend has continued—now the young college graduate unemployment rate is a full 1.0 percentage point above the overall. And the young college graduate unemployment rate is at historically high absolute levels today, currently sitting higher than it was during the worst of the 1990 and 2001 recessions.

The shift is not explained by young college graduates faring worse relative to their noncollege peers, as that gap has held relatively stable at around 2.0 percentage points. Instead, as the educational attainment of the overall workforce increased, young college graduates became less advantaged compared to the overall labor force. Further, as a greater share of young adults now attend college and are likely from a wider range of socioeconomic backgrounds, a college degree for somebody in their early 20s today is likely a less reliable marker of general economic privilege than it used to be.

Figure D displays educational attainment over time for young workers and all workers. From 1980 to 2026, the share of the workforce with a bachelor’s degree increased from 12.5% to 26.1%, more than doubling as a share of total employment. The overall level of college attainment for young adults rose from 18.0% in 1979 to 31.6% in 2026. If we include those with bachelor’s and/or an advanced degree in the overall workforce, the increase in educational attainment is even more stark, rising from 18.4% to 41.9%.

Figure D

The democratization of college degrees carries some clear upsides for productivity and the overall health of the U.S. economy. A more diverse set of people have accessed higher education and benefited from the advantages of being a degree holder in recent decades. This rise in college attainment has obviously not been costless, as many of these degrees could only be obtained by taking on large amounts of student debt, which may well provide some constraints on labor market opportunities and options for young adults.

Young college graduates used to be more male, white, and likely to come from higher-income families—all characteristics rewarded (fairly or not) in labor markets. This growing diversity of college graduates may well mean that young grads are less likely to exit (or not enter) the labor force when job prospects are bad. In prior decades, it is possible that young college graduates were more likely to have resources to fall back on during periods of unemployment, and they clearly had less student loan debt. Now, with fewer fallback options and greater debt levels, the cost of being jobless may weigh more heavily on this group, leading people to continue actively searching for work instead of staying out of the labor force even when jobs are scarce, driving the unemployment rate higher.

The long-term rise in educational attainment may also have helped squeeze the wage advantage college graduates hold over those with just a high school degree. Some of the same reasons discussed above—the college-educated population becoming more economically diverse and more workers attaining advanced degrees—may also have eroded the measured earnings edge that once came with just a bachelor’s degree.

A useful way to measure this is the college wage premium. The college wage premium is the percentage boost in wages associated with holding a college degree, after controlling for demographic factors like race, gender, age, and geography. As Figure E shows, this premium peaked around 2015 and has declined slowly since. Today, the overall college wage premium stands at 55.2%, roughly where it was in the late 1990s. For younger workers ages 22–27, the premium is slightly lower, but follows the same pattern, also peaking around 2015 before flattening or trending downward.

Figure E

The labor market is weakening and young workers’ prospects seem worse-off than they did just a couple of years ago. But young college graduates are facing a weakened labor market only slightly worse than that experienced by other workers. Their unemployment rate has risen faster, though similarly to noncollege young workers, while their employment-to-population ratio has remained generally strong. A depressed hires rate may make it even harder for these young workers to get a foothold in the labor market. Much of these short-term trends of higher and rising unemployment are the continuation of a decades-long trend of worsening outcomes as the overall population increases their educational attainment.

1. Throughout this brief, we define young college graduates as people between the ages of 22 and 27 with only a college degree. Unlike similar analyses of young workers, We do not exclude young college graduates that are currently enrolled in school, but the results here are robust either way. Unless otherwise noted, data for 2026 represent a 12-month average from April 2025 through March 2026 for the most up to date and reliable estimates, which removes seasonality and increases sample sizes. Analysis for smaller demographic groups uses a 36-month average to improve reliability.

Key takeaways:

• Black unemployment rose and employment fell in Q1 2026, reflecting a deterioration in labor market conditions. In the first quarter of 2026, the Black unemployment rate (7.6%) was 1.2 percentage points higher than in the first three months of the second Trump administration.
• Black men’s employment-population (EPOP) ratio decreased by 1.7 percentage points (from 60.5% to 58.8%) since the first quarter of 2025, with noncollege graduates driving this decline.
• Black women’s EPOP ratio was the same in Q1 2026 as in Q1 2025 (56.4%), with gains among noncollege graduates offsetting losses among college graduates.

The rising Black unemployment rate and big employment losses among Black women made major news headlines in 2025. In a February 2026 analysis, I examined the nature of those losses, noting the large impact on Black women who were college graduates and public-sector workers. With so much of the Trump policy-induced 2025 labor market decline appearing to land first on Black workers who typically have relatively secure employment, the longer-term significance of those losses is of continuing interest. This post provides an update for the first quarter of 2026, examining changes in the overall Black unemployment rate and gender-specific employment trends for Black women and men relative to the first quarter of 2025. For consistency with the prior analysis, I apply the same mutually exclusive race and ethnicity categories used in EPI’s State of Working America Data Library and include all people age 16 or older when examining outcomes by gender. While these estimates differ slightly from those reported by the Bureau of Labor Statistics (BLS), they lead to similar conclusions.

In the first quarter of 2026, the Black unemployment rate (7.6%) was 1.2 percentage points higher than in the first three months of the second Trump administration. While a rise in the unemployment rate can sometimes be for “good” reasons—workers getting drawn into the labor force because of strengthening job opportunities—that was not the case here: the rise in the Black unemployment rate reflected a decline in employment. The Black employment-population ratio (EPOP)—the share of working-age people who are employed—declined 0.8 percentage points over the same period, from 58.3% in Q1 2025 to 57.5% in Q1 2026 (see Figure A).

Figure A

Looking more closely at changes in employment for Black women and men separately, Black women’s first quarter EPOP was the same in 2026 as in 2025 (56.4%), while employment among Black men was 1.7 percentage points lower (from 60.5% to 58.8%). BLS published estimates by race—limited to the sample of people age 20 or older and not exclusive of ethnicity—show a similar decline for Black men (-1.5 percentage points), but a 0.4 percentage point increase for Black women.

Figure B shows that among Black women, Q1 2026 employment was lower than Q1 2025 for college graduates but higher for noncollege graduates, resulting in essentially offsetting effects. The opposite was true among Black men, for whom the decline in employment was driven by lower employment among noncollege graduates and higher employment for college graduates.

Figure B

These first quarter 2026 estimates incorporate annual population adjustments applied to Current Population Survey (CPS) data each January to reflect updated population estimates from the U.S. Census Bureau. Since the previous year’s data are not adjusted, monthly data across the two years are not strictly comparable. This year, shifts in the demographic composition of the population also resulted in larger than usual discontinuities in labor force measures by race, ethnicity, and gender between December 2025 and January 2026—which is why this analysis is focused on a comparison between the first quarters of 2025 and 2026, when the population controls are the most up to date.

Based on this analysis, we can conclude that overall, labor market conditions for Black workers were not better in the first quarter of 2026 compared with the early months of the Trump administration. Black men’s employment is lower than what was reported in the first quarter of 2025, and while Black women’s employment is unchanged overall, employment among college-educated Black women is lower than first quarter 2025 estimates.  

Workers in Chicago, including many immigrants, went on strike on May 1 to demand the eight-hour workday. At least four strikers were killed while picketing the McCormick Harvester factory, at that point the largest factory in the world. A large rally was held on May 4 to protest violence against peaceful picketers. As police moved to disperse the crowd, someone threw a bomb that killed seven officers. Police fired back indiscriminately, wounding and killing an undetermined number of workers.

What followed was a sweeping crackdown: police raids, the arrests of hundreds of men and women, and the indictment of eight people—five of whom were German immigrants. The partisan judge Joseph E. Gary conducted the trial where all 12 jurors acknowledged prejudice against the defendants. All defendants were convicted with no evidence and seven were sentenced to death; four were hanged, one died by suicide, and two had their sentences commuted. The trial is widely considered a miscarriage of justice.

In the aftermath, socialists and unionists worldwide began marking May 1st as a day of international worker solidarity. However, in 1894, U.S. President Grover Cleveland—looking to make peace with labor prior to the midterm elections after more than 30 workers were killed during the Pullman Strike—established Labor Day in early September. He did this explicitly to avoid associating it with May Day and the labor unrest it represented. In 1955, at the height of the Cold War, President Eisenhower proclaimed May 1 “Loyalty Day” instead of “May Day” in response to the holiday’s popularity in communist countries.

Labor unions today

Now 140 years after Haymarket, workers are still fighting for higher pay, better working conditions, and a voice on the job. In recent decades, policymakers have done little to stem the relentless tide of anti-union actions by employers, conservative governments, and a hostile Supreme Court. As workers’ rights have been eroded, the share of unionized workers fell from over 30% in the 1950s to just 11.2% in 2025. Fewer workers were involved in major strikes or work stoppages in 2025 (307,000) than during the Haymarket year of 1886 (610,000).

Nonetheless, there are clear signs of momentum in the labor movement. The post-pandemic period has brought a notable resurgence in labor’s popularity and organizing activity. Figure A shows that 68% of Americans now approve of labor unions, levels not seen since the 1960s. Unions are also more highly regarded among young people. Further, 43% of Americans want unions to have more influence in the country, a record high.

Figure A

Not only are unions more popular, but more workers have been trying to join a union. Figure B shows that the 2024–2025 period saw the highest number of newly unionized workers since at least 2000.

Figure B

Indeed, while the Trump administration has taken a decidedly hostile approach to unions and made labor organizing more difficult, union representation in the United States increased by 463,000 in 2025. More workers were represented by a union than at any point in the past 16 years, a sign that workers see unions as a means of resisting authoritarianism.

The time is ripe for policymakers to support workers’ struggles for dignity and respect. Key policies such as passing the Protecting the Right to Organize Act, ensuring workers can reach a first contract, expanding collective bargaining rights, and eliminating anti-union “right-to-work” laws can help workers organize their workplaces. Beyond improving the lives of their members, unions have spillover effects that benefit whole communities and democracy.

This May Day, workers and their unions across the country are holding thousands of events, encouraging participants to join an economic blackout and “demand a nation that puts workers over billionaires.” Just as workers around the world came together to demand fair hours and wages after the events of 1886, we can hope the workers of the future will find inspiration from May Day 2026.

Key takeaways:

• Income inequality has skyrocketed since 1979 because of intentional policy choices that suppressed wages for typical families to accelerate income growth at the top.
• Middle-class household incomes would be roughly $30,000 higher today if their incomes had simply kept pace with average income growth since 1979.
• Recognizing that today’s affordability problems are overwhelmingly inequality problems is the key to constructing the right policy solutions.
  • As a start, protecting workers’ right to organize unions, fostering long periods of very low unemployment, and keeping minimum wages high will help typical families claim their fair share of income growth.

When most people—including policymakers—complain about a lack of affordability, they think of prices being too high. But affordability is the outcome of a race between prices and incomes. After all, goods and services were a lot cheaper 90 years ago during the Great Depression, but we all know that nearly everybody is richer today than their peers back then. Bringing incomes into the affordability picture makes for better understanding and better policy.

New Congressional Budget Office (CBO) data show that rising income inequality is the main reason that affordability feels out of reach for too many U.S. families. For more than four decades, most of the income growth in the U.S. economy has been funneled to those at the very top, leaving typical families with far less than their proportionate share of the economy’s gains. If middle-class household incomes had simply kept pace with average income growth since 1979, their pay would be roughly $30,000 higher today. If we account for taxes and government transfers, incomes would still be $19,000 higher today for these middle-class households. Think of this gap as an “inequality tax”: the amount that rising inequality has cost the typical U.S. family. Life would be much more affordable for these families today if they hadn’t been hit by this inequality tax.

This inequality is not the result of competitive markets fairly rewarding people’s skills and hard work. Instead, it resulted from an intentional policy campaign of wage suppression. Labor markets in capitalist economies are inherently tilted toward employers. Fair pay and broadly shared prosperity only materialize when policy affirmatively aims to correct this power imbalance. This can happen—policy choices that bolstered workers’ leverage and bargaining power in labor markets kept growth fast and equal for decades following World War II, for example. But lawmakers rolled back these policies at the behest of capital owners and corporate managers.  

The latest CBO inequality data make the scale of this policy shift visible. Figure A shows the distribution of market income growth for non-elderly households by income group since 1979. We use market income to look at pre-tax, pre-transfer outcomes to assess the equality of outcomes generated by markets. We isolate non-elderly incomes because older households tend to have very low market incomes and these older households have grown as a share over time—so we don’t want any poor performance of market incomes documented here to simply be the outcome of natural population aging. Among this non-elderly group, the top 1% have captured a hugely disproportionate share of market income growth. Between 1979 and 2022, market income for the top 1% grew 277% (from $784,573 to $2.958 million) compared with just 26% growth for the middle fifth of households (from $76,359 to $96,335). This lopsided growth is the root of America’s affordability problem. Even as the economy grew and average incomes rose, typical families fell further behind those at the top who captured most of income growth.

Figure B shows the inequality tax over time, plotting actual market income for the middle fifth of households against what their income would have been if it had grown at the same rate as overall average income. By 2022, the inequality tax reached $30,676 per household, meaning middle-class families are forgoing that much income each year because of rising inequality. The gap has widened steadily since 1979, a sign that the affordability problem facing typical families is not a recent development but rather the cumulative result of decades of policies that have shifted income upward.

Because market income for middle-class families is driven predominantly by labor income, the inequality tax in Figure B reflects the consequences of decades of wage suppression. Of course, the United States has a system of taxes and means-tested transfers (safety net programs like Medicaid and food stamps, for example) that leads to post-tax and transfer income being more equal than market income in any given year. But the tax and transfer system did not ramp up in importance as market income inequality grew after 1979, and even after accounting for its effects, inequality increased significantly. Figure C shows that even when using post-tax and transfer income, the inequality tax remained substantial at $19,320 per middle fifth household in 2022.

Figure D shows who loses and who gains from rising inequality. While the inequality tax cost middle-income families $19,320 in 2022, families at the very top benefited enormously. The 96th to 99th percentiles gained about $88,000 from rising inequality, while the top 1% gained $1.1 million in 2022.

Perhaps surprisingly, the lowest quintile also slightly gained. For this group, lower taxes and higher levels of means-tested benefits counterbalanced a significant loss of market income due to inequality (their market income inequality tax would be around $4,000). The greater fiscal transfers to the bottom fifth are an under-recognized policy achievement of recent decades. It is also an achievement under constant threat, with the latest one being the large cuts to Medicaid and food stamps coming because of the Republican tax and spending bill that passed in 2025.

Figure D

U.S. families’ feeling that life is less affordable than it should be is grounded in objective realities about how the economy has failed them. And it’s understandable why so many of these families think about prices, which they see as the final barrier between them and being able to obtain what they need for a good life, whether the price is for a gallon of gas or a loaf of bread or a monthly health insurance premium.

But the forces causing this affordability crunch are far larger than any given set of prices. Instead, they are mostly the forces that led to rising income inequality by intentionally suppressing the power of workers in labor markets. This wage suppression meant that middle-class income growth was never going to outpace inflation consistently enough to ensure steadily improving economic security.

In short, today’s affordability problems are overwhelmingly inequality problems. Recognizing this fact is the key to constructing the right policy solutions. As a start, protecting workers’ right to organize unions, fostering long periods of very low unemployment, and keeping minimum wages high will help typical families claim their fair share of income growth.

Once the Assembly’s bill reached her desk, Virginia Governor Abigail Spanberger had the opportunity to strengthen it or sign it into law. Instead, Governor Spanberger put forward her own heavily amended version of the bill last week, weakening the proposed collective bargaining framework so extensively that her version would lock Virginia into an unstable, ineffective system in which collective bargaining would remain merely “optional” and where employers and workers would remain perpetually uncertain about what rules might apply to them from year to year depending on what appointees of future governors might decide. The governor’s amended bill will now be considered by the Assembly in its one-day veto session this week. Below, we analyze some of the many substantive differences between the Assembly bill and the governor’s bill, as well as the likely economic impacts.

Virginia’s ability to reap economic benefits of collective bargaining will depend on strength of any new law 

EPI has previously analyzed the economic importance of strengthening collective bargaining rights in Virginia, where the state’s long-standing ban on public-sector collective bargaining has suppressed workers’ wages and union membership. Our most recent analysis showed that state and local government employees in Virginia earn, on average, 26.7% less than private-sector peers with similar education and experience. Virginia’s public-sector pay gap is the second highest in the nation while its public-sector unionization rate (at 14.1%) is the fourth lowest, outcomes that our 50-state data show are closely correlated with the strength or weakness of a state’s collective bargaining laws. Recent EPI research further shows that beyond helping states narrow public-sector pay gaps and improve conditions for directly affected workers and the public they serve, stronger collective bargaining laws are highly correlated with widely shared benefits including higher wages, more equitable state economies, and healthier democracies.

State public-sector collective bargaining laws are complex and highly variable. In our prior research, we grouped state laws into three categories based on assessment of whether collective bargaining is:

1) illegal: state law prohibits public employers and unionized workers from entering into collective bargaining agreements.

2) permitted: collective bargaining is “optional” insofar as it is allowed in certain jurisdictions but occurs only if both parties agree to engage in it; whether parties are required to negotiate over wages or other terms and conditions of work is not defined in state law.

3) required: once a group of workers has gone through the process of forming a legally certified union, employers have a “duty to bargain” over pay (at a minimum), and there is a specified process for both parties to follow in negotiating to reach agreements that result in a legally binding collective bargaining agreement.

Currently, Virginia’s collective bargaining law straddles the first two categories: collective bargaining is illegal for units of state government in Virginia, but the state has recently (since 2021) permitted local governments to enact their own collective bargaining systems.

As shown in Table 1, data show that average public-sector pay gaps vary across states depending on the strength of their collective bargaining laws. Virginia’s large public-sector pay gap is an extreme outlier, currently exceeding even the average among all states with the weakest laws (where collective bargaining is illegal).

Table 1

Governor’s bill deletes essential elements of a strong collective bargaining system

Virginia lawmakers now face a choice between two dramatically different visions for collective bargaining: an Assembly bill that would move Virginia into the stronger “required” category, and the governor’s substitute bill that would lock Virginia into the weaker “permitted” category.

The Assembly’s collective bargaining bill includes clear language recognizing the rights of public employees to choose whether to unionize; setting forth consistent rules, timelines, and processes for workers and employers to follow for union elections and contract negotiations; and establishing a new, independent state labor board to support and administer the new framework across all covered state and local jurisdictions. The Assembly bill also has limitations—for example, it falls short of equalizing rights of all public employees by excluding most higher education workers—but it does provide a clear, strong roadmap for implementing a robust, effective collective bargaining system modeled on proven best practices from other states to serve as a solid foundation for Virginia to build on.

The governor’s amended version of the bill weakens all these key elements of the statutory framework proposed by the Assembly and the proposed labor board’s role in enforcing a clear statutory framework. In many important sections of the bill, the governor’s amendments include changing the word “shall” to the word “may”—a critical change that converts entire sections of statutory rules and requirements into mere suggestions, rather than legally enforceable expectations applying equally to all workers and employers. Another repeated pattern throughout the governor’s bill is the deletion and replacement of a host of detailed statutory guidelines with directives that such guidelines should instead be “determined by the board” or that the board “shall adopt regulations” to answer critical questions about workers’ rights and employer obligations in the unionization and collective bargaining process.

Table 2 summarizes just a few of the key differences between the Assembly bill and the governor’s bill. The Assembly bill proposes a framework similar to those successfully implemented in many other states, including statutory language defining the topics parties are required to negotiate over, clear rules for union elections and negotiations procedures, and binding arbitration to ensure that negotiations will eventually conclude with a contract settlement. These standard elements are essential to a strong, effective collective bargaining system that enables workers to have an equal voice at the bargaining table—but the governor’s bill removes all of these elements.

Table 2

The stark contrast between the scope of bargaining as defined in the Assembly bill versus the governor’s bill is especially salient. The strength of any collective bargaining system depends on clear, consistent rules for which topics unions and employers must be willing to discuss in negotiations and which subjects must (or may) legally be incorporated into a collective bargaining agreement. When subjects of bargaining are “permitted” but not required, parties may try to pick and choose what to discuss, one party may refuse to negotiate over matters that are important to the other, and non-mandatory topics are generally not considered as part of arbitration procedures and often therefore never get included in final contracts. Alarmingly, the governor’s bill leaves the scope of bargaining completely undetermined, giving the labor board discretion to determine when and whether it is “appropriate” to require parties to negotiate even over topics as basic as wages.

This change alone would lead us to categorize the governor’s bill as a model for “permitting” (but not requiring) collective bargaining, making it unlikely to significantly narrow Virginia’s public-sector pay gap or achieve other important economic outcomes associated with stronger collective bargaining laws. As shown above in Table 1, workers in states where collective bargaining is “permitted” but not required continue to experience pay gaps far above average (and far greater than in most states with strong collective bargaining laws).

At a minimum, any collective bargaining legislation in Virginia should be measured against the status quo and whether it represents progress toward achieving full and equal collective bargaining for all workers. Here, the governor’s bill falls woefully short and could even represent a step backwards for some workers. At best, the governor’s bill would lock Virginia into a system where collective bargaining becomes “permitted” for more workers than are currently covered by local collective bargaining ordinances. At worst—depending on rules yet to be determined by a future labor board—the governor’s bill could erode existing rights of some local government workers who might find themselves in the future governed by weaker state collective bargaining procedures than those they’ve been able to win at the local level since 2021.

The governor’s bill includes additional significant changes too numerous to cover in detail here. Among other notable amendments that weaken the proposed framework for collective bargaining or its implementation, the governor’s bill:

• delays application of the new law to January 1, 2030, for local governments
• excludes Virginia Port Authority workers from coverage
• maintains exclusion of most higher education workers from coverage (including faculty, professional staff, researchers, graduate assistants, etc.) and specifies that this exclusion extends to health care workers at university hospitals and health care facilities

In the short term, the numerous exclusions, delays, and weaknesses introduced or expanded by the governor’s bill would leave Virginia workers with a limited patchwork of different rights covering different localities and occupations. In the long term, this would create permanent uncertainty about whether and when various rules covering particular groups of workers might be changed by the labor board.

It’s clear that the fight to ensure every employee in Virginia has a voice on the job has only just begun. Collective bargaining is a fundamental right, not intended to be left up to the whims of individual local elected officials or to-be-determined future members of a new state labor board. Collective bargaining is both a labor issue and a civil rights issue, as NAACP Virginia State Conference leaders recently pointed out. Nowhere is this clearer than in Virginia, where the denial of collective bargaining rights to generations of workers is directly rooted in a history of white supremacist backlash against Black worker organizing. Virginia lawmakers still have a chance to enact meaningful collective bargaining legislation in 2026, but doing so will first require rejecting the damaging amendments put forward by Governor Spanberger.

But diverting public funds away from public K–12 schools and toward private schools does not guarantee educational opportunities will be expanded for all students—and this is especially true in rural communities. Most obviously, because students in rural communities often don’t have a private school option and therefore cannot use the vouchers, state voucher programs—which are financed by all the taxpayers in a state—amount to an education subsidy for wealthy urban families at the expense of strong public schools. Moreover, for rural areas that can support multiple school systems, voucher programs introduce a potentially large cost for the students that remain in public schools, as any sharp drop in public school enrollment will raise the fixed cost per pupil of running schools. For example, school facilities and staff that are efficient for 1,000 students in a school may no longer be efficient if enrollment were to drop to 800 or 900.

Voucher programs work like this: Parents who wish to send their kid to private school can receive public funding to cover part of the tuition or education-related expenses, rather than paying out of pocket. In states with vouchers programs, this added cost to government of paying for private educational expenses makes a big dent in state budgets—see examples here, here, and here. These programs also often entail fraud and abuse of funds and strip away funding for public schools. As a share of K–12 budgets, voucher spending accounted for as much as 26% in 2025, squeezing public schools of sorely needed funds. Moreover, recent reports have documented accounts of voucher funding getting used for high-end concert tickets and rideshare apps like Uber and Lyft. For wealthy parents in urban districts who were already planning to send their kids to private school, these slippery regulations and extra funding for education expenses are a feature, not a bug, of voucher programs. Vouchers are disproportionately taken up by students already attending private school, compared with those who consider a private school option when voucher laws get passed in their state.

For students in rural areas with no private school option, voucher programs simply mean there is less to spend on public schools, which leads to teacher shortages, fewer educational opportunities, and worse building maintenance. In rural communities with homeschooling or private school options, voucher programs impose an added cost to public education when students transition from public to private school.

We call this cost the fiscal externality of voucher programs, and it is borne by school districts, students, and their families when voucher-driven declines in student enrollment intersect with the fixed nature of many school costs. In rural districts, many key education costs—such as interest on bonds issued in the past, heating, electricity for school buildings, bus drivers, and even some staff—cannot easily adjust to student enrollment declines.

While public schools’ fixed costs do not decline when they lose students to voucher programs, their revenue does. Thus, when students in rural areas take up vouchers to leave public school for private school or homeschool, public schools have less revenue to cover the same level of fixed costs. The costs that can be adjusted—such as supplies or certain personnel—will get forced down due to shrinking school budgets. These variable costs are crucial for effectively educating children, meaning students who remain in public schools will pay the price of voucher program takeup.

This fiscal externality therefore leaves districts unable to deliver the same level of instruction to the remaining public school pupils. When students leave public schools in rural areas with voucher programs, there are fewer resources available on a daily basis to educate kids—fewer teachers and other staff members and fewer curriculum and education supplies. Education quality suffers.

How large is the fiscal externality that voucher programs impose on public schools in rural districts? Take the McComb Local School District in Ohio, which had 627 students in 2022 and is classified as a rural district according to the U.S. Census. Using EPI’s Fiscal Externality Calculator, we estimate that a 5% decline in enrollment would lead to an increased cost of $520 per pupil for the remaining students in the district, or a total of $309,530.

The key assumption is that there is some fraction of schools’ costs that is fixed and can’t be adjusted in the near term when enrollment falls. We assume that instruction and services costs (the cost of teachers and services like transportation, counseling, nurses, and school administrators) can only partially adjust to changes in enrollment. Specifically, we assume that when enrollment declines, instruction costs are only able to adjust by 50% of the enrollment decline, and service costs are only able to adjust by 20%. We assume that capital and building and maintenance costs can’t be adjusted at all. (Users can set their own adjustment rates for their school districts using the fiscal externality calculator here. The method behind this calculation is detailed in our report.)

Under these assumptions, aggregating all the rural Ohio districts using the rural categorization of school districts from the National Center for Education Statistics, a voucher-driven 5% enrollment decline would impose a fiscal externality of just over $206 million on Ohio public schools.

Rural districts have the most to lose when states enact voucher programs. For rural communities, vouchers are not a cost-free policy that simply expands education options for children—they are a subsidy for wealthy urban and suburban families at the expense of strong public schools. Voucher programs also introduce a large potential cost for the students that remain in rural public schools. The public spending declines associated with the introduction of vouchers will reliably cause significantly worse educational outcomes at a time when states should be spending more—not less—on public schools. States that promote voucher programs at the expense of funding for strong public education are signaling that rural students are not a priority.