This is part two of a series on the economics of debt, deficits, and today’s high interest rates—and how policymakers should respond. Read part one here. 

The effects of deficits and debt on the broader economy are largely straightforward—with one big exception: They differ radically depending on whether the economy is operating near its productive potential or is instead operating well below it (which occurs most notably during recessions).

The main economic effects of deficits in these two states of the world are essentially as follows:

• Large deficits during times when the economy is operating near its productive potential (or during times of full employment) put upward pressure on either interest rates (more likely) or inflation (less likely).
  • The higher interest rates in turn can “crowd out” productive private-sector capital investments. If this happens chronically, this can shrink the size of the capital stock U.S. workers have available to them—with the capital stock being factories and other buildings, equipment, software, and research and development efforts. This smaller capital stock in turn reduces productivity, or the income generated in an average hour of work in the U.S. economy, hence shrinking the growth of potential living standards.
• Large deficits when the economy is operating well below potential actually stabilize the economy and aid its return to potential.
  • Economies start operating below full employment when aggregate demand—spending by households, businesses, and governments—falls short of what is needed to fully employ productive resources. By increasing spending and lowering taxes (hence boosting private-sector disposable income that can be spent), higher deficits boost aggregate demand and push the economy closer to potential.
  • Because private-sector investment responds to income growth as well as interest rates, deficits run during times of less than full employment can actually “crowd in” productive private-sector investment.

The one noncontroversial effect of budget deficits: They raise aggregate demand

If there is one noncontroversial statement about budget deficits, it is that they raise the economy’s aggregate demand. Whether this increase in aggregate demand is good or bad depends on the broader economy.

Deficits when private spending is strong

When private-sector sources of demand are strong—consumers are buying a lot, businesses are demanding lots of new capital goods to undertake production, and imports and exports are roughly balanced—all available productive resources (like workers) are fully employed and the economy does not need the public sector to inject extra demand into circulation with larger deficits; additional increments to demand will not bring forth more output. Instead, additional demand sent into a full employment economy will bid up prices rather than cause more output to be produced.

If the Federal Reserve is determined to not let strong demand bid up prices and push inflation above its preferred 2% target, it will respond to this excess of demand by raising its short-term policy rates to try to tamp down private sources of demand. Higher interest rates are generally effective in reducing demand through lower consumption, business investment, and larger trade deficits.

Besides the Fed’s response, higher deficits in a full employment economy can also put upward pressure on interest rates through financial crowding out. At full employment, the supply of savings available to be loaned to households or businesses looking to make long-lived investments is largely fixed. Federal deficits by definition mean that the government has to go into financial markets, where supplies of savings and demands for investment meet, and increase its own demand for a share of these savings. Deficits are financed by selling government bonds to households and businesses—that is, by convincing savers to lend their money to the government for a period of time. The extra demand for borrowing meets the fixed supply of savings and pushes up the price of loans, or interest rates.

Because most capital investment by businesses (building new factories and buildings, purchasing new equipment and software, and paying salaries of workers engaged in research and development) is financed by borrowing, higher interest rates stemming from large budget deficits in economies that are already strong will slow capital investment over time. As the price of something rises—in this case, the price of borrowing to finance new investment—less of it will be demanded.

This reduction in capital investment slows long-run economic growth. A key contributor to growth in productivity—the amount of income generated in an average hour of work in the economy—is how much capital workers have available to them to do their jobs. Construction workers today are far more productive than 50 years ago because they’re more likely to use mechanized earth movers rather than shovels for excavation.

If deficits crowd out capital investment, this can slow productivity growth. Productivity growth is the ceiling on how fast average living standards can rise in an economy. So when large deficits during full employment crowd out of investment, this can damage economic growth. A key point in this analysis is that it is higher interest rates that are the transmission mechanism for this damage: If interest rates do not rise, there is no damage being done.

Deficits when private spending is weak

When private spending is too low to fully employ all available productive resources, the boost to aggregate demand from large deficits actually helps to employ these resources and move the economy closer to its productive potential.

Some increases in deficits that push the economy closer to its productive potential during downturns happen automatically. Spending rises on safety net programs like unemployment insurance, and this supports private consumption. Tax collections fall as private incomes fall, buffering disposable incomes from the full fall in pre-tax incomes.

Some increases in deficits that push the economy back to its potential come from discretionary legislation passed by Congress in direct response to the downturn—relief packages like the American Recovery and Reinvestment Act (ARRA) of 2009 and the CARES Act of 2020.

Weak private spending places sharp downward pressure on inflation and interest rates as it generates idle resources (like rising unemployment). Given this, a boost to demand from larger deficits tends to not manifest as faster inflation or higher interest rates. A boost to demand when there are idle resources mostly causes output, not prices, to rise. And the higher output and income generated by higher deficits create savings that keep interest rates from rising in response to greater demand for investment.

Because this scenario sees no rise in interest rates, and because investment responds positively to output growth, larger deficits that boost economic activity almost certainly “crowd in” private investment, leading to more investment and higher productivity than would have occurred had deficits not been allowed to rise.

Excessive structural deficits are hurting the U.S. economy today

The upshot is that deficits can hurt if they’re too large when the economy is already near full employment, and that the data signature for this damage is rising interest rates. For decades, large budget deficits have not been accompanied by higher interest rates, making it very hard to argue that the economy’s long-run growth prospects were being damaged by crowded out private investment.

Over the past year, however, interest rates have risen noticeably. In fact, as of September 2026, 10-year Treasury rates have reached their highest levels since the early 2000s (though still far below highs reached between the mid-1970s and mid-1990s when—among other things—inflation expectations were much higher). Because inflation is a bit higher now than in the early 2000s, real (inflation-adjusted) rates have not risen quite as fast, but they are always noticeably higher than the average of the past 20 years. Between this and the fact that unemployment is likely not too far above full employment at the moment and the fact that inflation remains above the Fed’s 2% target level, it seems clear that too large U.S. deficits are putting unwelcome pressure on the larger economy.

Too large U.S. deficits are not the only driver of recent interest rate increases. Another contributor is larger deficits being run by many European countries. Many of these countries have loosened fiscal rules to spend more on the military in the face of the Russian invasion of Ukraine. The Japanese economy is also stronger than it has been in decades, and interest rates there are rising for the first time in decades. Finally, there has been a huge surge in private investment demand driven by the race between AI companies to dominate the market.

On the one hand, it seems hard to worry that higher interest rates are crowding out private-sector investment if it is precisely strong private investment contributing to higher rates. But the investment in AI is clearly not interest-sensitive (at least so far). It is driven by exogenous events and factors: Now just happens to be the time that the technology has reached tipping points where scalability and profitability seem possible, hence sparking a race between private companies to be the first to capitalize on this. Additionally, investment in sectors in the U.S. not being pulled along by the AI boom is notably weak in 2026, posting negative growth. If U.S. fiscal deficits were lower and this led to lower interest rates, this would help investment in non-AI sectors.

Noting that too large structural deficits are likely slowing U.S. growth today does not map directly onto policy solutions. It’s not the case that the damage from too large deficits right now is so overwhelming that anything that reduces deficits should be done in response. In a later post, I will walk through the considerations about how policymakers should optimally respond to too high structural deficits. They definitely should do something—but it’s not the case that they should just do anything.

This is part one of a series on the economics of debt, deficits, and today’s high interest rates—and how policymakers should respond. Read part two here. 

Long-term interest rates have been rising steadily over the past six months and have now reached their highest levels since before the Great Recession of 2008. These higher rates, combined with inflation that remains above the Federal Reserve’s 2% target, are likely driven in part by unsustainably high federal budget deficits.

In an upcoming series of blog posts, I will examine some of the economics of debt, deficits, and today’s high interest rates—and close with how policymakers should respond. The posts will examine the following questions, sketched out briefly below:

How do we know when deficits are too high—or too low?

Today’s deficits are too high, but the same size of deficit (or an even larger one) might be fine and useful in times when the economy is weak and needs stimulus. But unemployment is just over 4%, the economy does not need significant fiscal stimulus, and interest rates are rising. These are all good signals that too high deficits are contributing to higher interest rates and pressuring the economy.

What’s the best way to measure the pressure that excessive deficits and debt are putting on the U.S. economy?

The best measure is the real debt service ratio—inflation-adjusted interest payments as a share of GDP.

Is the rise of interest rates in 2026 just chickens coming home to roost from decades of too high deficits and debt?

Deficits in the 2010s and early 2020s were either a function of or a useful response to economic conditions of the time. Today’s problems would be just as bad had we run more austere fiscal policy in those years.

How do too high structural budget deficits harm typical families?

The harm almost always comes gradually. Too high structural deficits reduce capital investment and lead to slower productivity growth. A crisis driven simply by the economics of U.S. debt is extremely unlikely. A crisis driven by deranged political choices and dysfunction that intersect with U.S. debt is sadly imaginable.

What’s the optimal policy response to today’s too high structural deficits?

Raising revenue significantly from the richest households and corporations is the best path forward.

Does today’s too high structural deficit significantly constrain policymakers from doing the right things if the economy enters recession?

Putting measures in place to solve the structural deficit should not preclude policymakers from responding to the next recession with fiscal relief that temporarily boosts deficits.

Her lasting impact on the lives of farmworkers is almost impossible to overstate. Farmworkers are notoriously some of the most difficult workers to organize because of extreme poverty and language and immigration status barriers, and because farm jobs are seasonal and unstable. Nevertheless, Huerta set out to organize them by starting the Agricultural Workers Association in 1960 and two years later co-founding the United Farm Workers Association, which became the United Farm Workers (UFW) in 1972—one of the few farmworker unions in the country. She masterminded successful strikes and boycotts against wealthy farm owners and businesses and negotiated the first-ever collective bargaining agreement with an agricultural employer, which won farmworkers long-overdue raises and newfound benefits.

Her advocacy extended far beyond the fields and negotiating rooms, helping win major policies that reshaped the legal landscape for farmworkers in California and showed the rest of the country what was possible. Perhaps the most notable is the 1975 Agricultural Labor Relations Act (ALRA), which gave farmworkers in California the right to organize and bargain collectively. The ALRA also created the Agricultural Labor Relations Board, which operates similarly to the federal National Labor Relations Board (NLRB) by conducting union elections and adjudicating unfair labor practice charges—standing in for the NLRB because farmworkers are excluded from the federal law that governs labor rights. Throughout her life, Huerta also pushed for policies that would, for example, protect farmworkers from pesticide exposure, provide disability insurance for injured farmworkers, and expand voter and language access for Latinas and Latinos.

She lobbied for months in Washington, D.C. for passage of the Immigration Reform and Control Act (IRCA) of 1986, which is perhaps one of the most impactful immigrant rights laws ever passed. Through IRCA, an estimated 2.7 million undocumented immigrants ultimately became eligible for green cards and were put on a path to citizenship, 1.1 million of whom were farmworkers eligible through IRCA’s Special Agricultural Workers program. The granting of status via IRCA had significant economic benefits for workers—including reducing poverty rates and raising wages by as much as 20%.

Huerta never got full credit for her efforts on IRCA, as the New York Times recently reported. She was sent to Florida under false pretenses so that she would not be present for a news conference to celebrate its passage, allegedly so that the male-dominated leadership at the UFW could take the credit. This exemplifies the darker side of what Huerta faced. She encountered repeated retaliation for her organizing: She was severely beaten by a police officer who left her with broken ribs and a ruptured spleen, she was arrested 22 times, and she was put under F.B.I. surveillance for alleged ties to communism.

While putting her life on the line to improve conditions for workers, she constantly faced discrimination, sexism, and abuse—including by her closest allies—and as we all sadly discovered near the end of her life, she was raped.

All of us who strive to improve conditions for workers are indebted to her for her trailblazing leadership, remarkable achievements, and many sacrifices. I’m personally grateful to her for giving me someone to look up to when I was younger. As a Mexican-American kid growing up in a small farming town in the rural California Central Valley—just 45 minutes from where Huerta grew up and began her organizing and activism—people like me had few role models who shared our background, had similar upbringings, and came from similar places.

But I sincerely hope that one of her legacies now will be to remind us all that “la lucha sigue” (the fight continues), because there is much more to do to ensure decent conditions for farmworkers. Despite the monumental strides made, farmworkers are still some of the lowest-paid workers in the U.S. labor market and the victims of rampant wage theft and other workplace violations. Farmworkers also suffer some of the highest rates of injury and death because the vast majority work in dangerous, toxic, and unsafe conditions. Well over half of farmworkers also lack full workplace rights because so many are undocumented or employed with temporary H-2A visas, which are controlled by employers. Lacking an immigration status or having a precarious, temporary status leaves farmworkers virtually powerless and fearful of retaliation. They cannot report employer abuses, join a union, or even talk with worker advocates without risking their livelihoods.

Congress has failed to protect farmworkers—excluding them from key elements of the two main federal laws governing workers’ wages, working conditions, and union rights. It’s an infuriating legacy rooted in racist policy dating back to the 1930s, when most Black workers in the South were either farmworkers or domestic workers. Huerta helped fill the gap left by Congress through winning reforms at the state level. But while California has the ALRA and a law requiring that farmworkers be paid for overtime hours, nearly all states have opted not to enact overtime pay and collective bargaining rights for farmworkers, and many exclude or limit them from coverage under minimum wage laws.

Farmworker advocacy has never been more important or more challenging, with a presidential administration hell-bent on terrorizing and impoverishing immigrants, as well as accelerating climate disasters and new disease outbreaks like COVID-19 and avian influenza that impact farmworkers first. There are too few influential voices out there fighting to protect farmworkers’ rights. The world now has one fewer, and she will be missed.

International labor and human rights standards are widely recognized but rarely enforced. The Universal Declaration of Human Rights, the conventions and declarations of the International Labor Organization (ILO), the Organization for Economic Co-operation and Development (OECD) guidelines, and the performance standards of international financial institutions all set out expectations for how workers should be treated, yet each lacks a meaningful mechanism for compelling compliance. Trade law has emerged as a possible exception. Renegotiation of the United States-Mexico-Canada Agreement (USMCA) offers an opportunity to significantly strengthen efforts to effectively enforce labor and human rights in a regional trade agreement. 

While USMCA’s labor chapter and its annexes—including the Rapid Response Labor Mechanism (RRM)—represent the most ambitious labor enforcement architecture in any U.S. trade agreement, serious criticism remains over its impact on improving labor and human rights. Mexico’s reforms have not gone far enough, implementation has raised serious questions, the RRM—while representing a significant step forward—is narrow, slow, and procedurally burdensome, and the wage and trade balance outcomes the agreement was meant to improve have not moved in the right direction.

Principal recommendations

In the USMCA joint review, the United States should:

1. remove the footnote limiting labor rights obligations only to the 1998 ILO Declaration on Principles and Rights at Work;

2. replace the “sustained or recurring” requirement for a labor violation to a significance-based standard;

3. expand the RRM to all core labor standards explicitly referenced in the ILO’s 1998 Declaration on Principles and Rights at Work and simplify its evidentiary and procedural requirements; 

4. require at minimum National Labor Relations Board (NLRB)-style “laboratory conditions” for union elections in Mexico, including prohibiting incumbent unions from administering them;

5. limit the use of the 30% support requirement for initial union elections to prevent misuse by illegitimate (protection) unions.

6. strengthen and extend strict rules of origin and Labor Value Content (LVC) requirements to other sectors, convert LVC “to a simple wage floor,” raise the $16 per hour reference, and tie it to sectors and the rules of origin; and 

7. strengthen traceability and customs enforcement to close third-country transshipment loopholes including the utilization of “substantial transformation.”

The evolution of labor standards in U.S. trade agreements

NAFTA and the side agreement model

When the North American Free Trade Agreement (NAFTA) was negotiated in 1993–94, labor unions and other civil society groups argued that labor standards were as much an economic issue as intellectual property or other traditional trade concerns. The theory was straightforward: If a country such as Mexico could hold down labor costs by suppressing union formation and collective bargaining, or by permitting discrimination, child labor, or forced labor, its goods would unfairly undercut goods made in the United States. U.S. companies and workers would lose market share, wage growth and bargaining power would be chilled, and plant closures would hollow out local economies. 

Despite these arguments, labor standards were left out of the core text of NAFTA. They were relegated to a side agreement—the North American Agreement on Labor Cooperation (NAALC)—outside NAFTA’s principal enforcement mechanisms. The predictable results followed. U.S. employers used the threat of relocation to Mexico to restrain wages, plants closed, and Mexican workers saw no meaningful improvement in wages, union rights, or discrimination. The maquiladora sector became a symbol of the gap between the treaty’s promise and workers’ lived experience.1

From Seattle to Peru

Pressure to include enforceable labor standards grew through the second half of the 1990s. At the 1999 World Trade Organization (WTO) Ministerial Conference in Seattle, hundreds of members of the International Association of Machinists and Aerospace Workers (IAM Union) who depended on exports led the peaceful protests over the absence of labor standards in the WTO framework. 

Labor’s central argument was that artificially suppressing labor costs by failing to recognize and enforce fundamental human rights amounts to an unlawful subsidy and thus an unfair trade practice. President Clinton’s proposal concerning a WTO Working Group on Trade and Labor never gained a consensus and went nowhere at the WTO talks.

The next major step was the U.S.-Peru Trade Promotion Agreement (as revised in 2007), the first U.S. agreement to place labor standards in the core text rather than a side accord. The parties committed to “adopt and maintain” laws consistent with the 1998 Declaration, and all core standard obligations became enforceable through the same dispute settlement used for commercial matters, making trade sanctions formally available for labor violations. 

Despite the improvement, several serious criticisms of this model remained, including: 

1. Reference only to the 1998 Declaration was inadequate. Tying the labor chapter to the Declaration rather than to the Conventions reduced complex standards, such as the right to organize and bargain collectively, to a general principle. Critical questions, such as the controversial use of permanent striker replacements, were left unresolved. A footnote excluding the Conventions, Recommendations, and ILO supervisory-body guidance from consideration furthered muddied possible interpretations of the Declaration.
2. The trade-effect requirement. A violation had to affect trade or investment, a burdensome requirement that most workers would not know and had no practical means of proving.
3. The “sustained or recurring” requirement. A violation had to be sustained or recurring, eliminating isolated acts of retaliation even when the act itself (e.g., an unlawful discharge) could crush the right to form a union.

USMCA’s labor architecture

Chapter 23

USMCA, negotiated during the first Trump administration and in force since July 1, 2020, improved on the Peru model through footnotes, new annexes, and new rules of origin. Among other things, it added a footnote in Chapter 23 creating a rebuttable presumption that a violation relates to trade or investment.  

However, USMCA retained the footnote limiting interpretation of labor standards to the 1998 Declaration and preserved the “sustained or recurring” requirement.

Annex 23-A: Mexico’s labor law reform

Annex 23-A sets out specific requirements for reforming Mexican labor law in order to effectively include, in practice, international labor rights. One of the goals of the reform was to eliminate the presence of “protection unions” controlled by corrupt union leaders, companies, or political parties, which did not represent workers’ interests and which many workers did not even know represented them. The Annex required new Mexican law providing for: 

1. personal, free, and secret elections;
2. ready accessibility of collective bargaining agreements (CBAs) to covered workers prior to votes;
3. votes to “legitimize” existing CBAs;
4. votes on the formation of new unions; and
5. a new, independent system of labor courts.

Annex 31-A: The rapid response labor mechanism

Annex 31-A establishes that, for Mexico, a denial of rights occurs upon a violation of the new Mexican labor law itself rather than of the 1998 Declaration. The violation must occur at a “covered facility,” one producing goods or supplying services traded between the United States and Mexico in priority sectors such as automotive, aerospace, and steel. A Rapid Response Labor Mechanism panel then determines whether a denial of rights has occurred. Remedies range from suspension of preferential tariff treatment to, ultimately, blocking entry of the goods into the United States. 

Assessment: results and deficiencies

Results to date

Despite improvement, USMCA fell far short of providing the effective enforcement of labor and human rights standards that were needed. During its negotiation, congressional testimony warned that these shortcomings would negatively impact the agreement’s effect on workers’ rights:

“First, enforcement must be adequately funded and staffed, independently administered and monitored, and must provide swift relief for victims of labor rights violations and sanctions for states and employers that violate those rights; Second, since enforcement is meaningless if the substantive standards to be enforced are weak, labor obligations must be based on strong clear standards based on internationally recognized rights and reports established by the International Labor Organization, an arm of the United Nations; and, third, labor obligations must cover broad sectors of workers and remove obstacles that narrow the types of labor violations that are recognized and actionable under the agreement.”

Five years into its implementation, the results of USMCA have, predictably, been disappointing. The U.S. trade deficit with Mexico grew from $111.0 billion in 2020 to $197.0 billion in 2025.

The wage gap between U.S. and Mexican manufacturing workers remains substantial; Mexican manufacturing wages remain a fraction of U.S. manufacturing wages. Auto production and other manufacturing jobs did not move back to the U.S. from Mexico. And despite Mexico’s labor law reforms, implementation and enforcement remain serious problems: Many workers still do not know whether they are represented by a union, protection unions remain widespread, and questions persist about the integrity of union elections and CBA ratification votes. The Independent Mexico Labor Expert Board’s (IMLEB) 2021 and 2025 reports documented continuing obstacles in the transition away from Mexico’s protection contract system and identified significant implementation concerns.

Deficiencies in Mexico’s implementation

1. Election integrity. Elections in many cases are not secret and would not meet the “laboratory conditions” required for NLRB elections: Votes are taken by show of hands, government monitors appear only at the moment of the vote, and workers report not understanding what they were voting on. One study found that workers in the maquiladora region were often unaware of what a legitimation vote entailed. 
2. Statutory loopholes exist. Legitimizing an existing, often “protection,” union and CBA requires 50% plus one vote, but forming a new union requires only 30% to negotiate a CBA. Some entrenched unions skipped legitimation and simply registered as “new” unions to clear the lower bar. Of roughly 10,773 initial CBAs registered under the new system, a substantial number appear to reflect this loophole, alongside more than 30,000 legitimation votes conducted to date.
3. Credibility of oversight. Mexican authorities reported over 16,000 verification elections between March and July 2023 alone—roughly 1,000 per week—a volume that raises doubts about whether the government could meaningfully oversee each one. 
4. Penalties have not been imposed. Mexico’s new federal labor center has not imposed penalties on employers, even in RRM cases where both governments agreed that a violation occurred and a remedy was warranted, undermining the mechanism’s deterrent effect.

Deficiencies in the RRM’s design

1. Narrow scope. The RRM covers only Mexico’s labor law reform, not the 1998 ILO Declaration of Principles and Rights in the Workplace and is limited to freedom of association and collective bargaining, not discrimination, child labor, forced labor, or health and safety.
2. High evidentiary burden. The United States Trade Representative (USTR) and the Department of Labor must find “sufficient credible evidence,” often demanding proof that workers have little or no practical means of obtaining.
3. Cumbersome procedure. U.S. rules require petitioners alleging violations across multiple facilities of a single company to file separate complaints for each facility.
4. Burdensome “covered facility” requirement. Mexico’s process places an unreasonable burden on petitioners to show that a workplace produces goods or supplies services traded with the United States or competing in the U.S. market. Workers in general and especially those in a supply chain often lack that information.
5. Serious violations excluded from the “sustained or recurring” standard. It ignores serious isolated violations—such as retaliatory firing or harassment—used to deter organizing, and remains ambiguous in application.
6. Rapid mechanism not rapid. Some RRM matters have remained unresolved for more than a year, while cases proceeding through the first stages of the mechanism have often been resolved in months.

Recommendations for the USMCA joint review

USMCA represents an important step toward providing a framework to enforce labor and human rights. However, if it is to be effective, much more work needs to be done. Some suggestions for improving USMCA include the following: 

1. Eliminate the footnote limiting labor standards to the 1998 Declaration, which perpetuates ambiguity over what freedom of association and collective bargaining require in practice.
2. Replace “sustained or recurring” with a standard based on the significance of the violation.
3. Eliminate the “covered facility” requirement, or presume coverage for any facility in a priority sector in either country.
4. Adopt a uniform “good faith belief in denial of rights” standard for both interagency U.S. claims and Mexican filings. Eliminate any requirement that a U.S.-side violation be established by an enforced NLRB order before a claim may proceed.
5. Expand the RRM to cover all core labor standards, including non-discrimination, child labor, forced labor, and health and safety.
6. Require “laboratory conditions” for union elections comparable with NLRB standards. Bar incumbent unions from any role in administering elections, including selecting neutrals or counting ballots. Strengthen worker awareness and education about their rights in Mexico.
7. Limit the use of the 30% support requirement for initial union elections to prevent misuse by illegitimate (protection) unions. Institute a credible, adequately resourced legitimation process with real oversight capacity.
8. Extend coverage to other sectors such as agriculture.
9. Extend and tighten strict rules of origin from automobiles to all priority manufacturing sectors. Add due-diligence provisions requiring tracing of the true origin of parts and materials, closing the China and other non-party routes. Enforce rules of origin through active government oversight rather than importer self-reporting.
10. Expand Labor Value Content to other manufacturing sectors, convert LVC “to a simple wage floor,” raise the $16 per hour reference, and tie it to sectors and the rules of origin.

Notes

1. See also Harley Shaiken, Owen Herrnstadt, and Catha Worthman, “Crossing Borders: Trade Policy and Transnational Labour Education,” Labour, Capital and Society, vol. 35, no. 2 (November 2002), pp. 342–368.

Key Takeaways:

• Colorado Amendment 87 would help fix a structural funding problem that has undermined the state’s public services for 35 years. The measure would modestly raise taxes on the top 3% of taxpayers while generating $2 billion in revenue.
• Florida Amendment 3 would devastate public services across the state. It would cut annual local government revenue by an estimated $12 billion, equivalent to 17% of statewide local government compensation. This translates to 123,000 jobs at risk of being cut from local government payrolls across the state.

Lots of media attention around the upcoming midterm elections is understandably focused on which party will win control of Congress, as well as the many state legislative chambers and governorships that are up for grabs. However, there are also over 150 state ballot measures going before voters next month, some of which will be tremendously consequential in shaping state economies for years to come. Two such proposals warrant greater attention: Amendment 87 in Colorado and Amendment 3 in Florida. Both would be transformative for their respective states—the former in positive ways, the latter in catastrophic ones.

Colorado Amendment 87 would make the state tax system fairer while boosting revenues for essential public services

On November 3rd, Colorado voters will vote on Amendment 87, a measure that would replace the state’s constitutionally mandated flat tax—which requires a teacher’s aide making $40,000 a year to pay the same tax rate as a billionaire tech CEO—with a progressive, graduated income tax. The new tax system would maintain current tax rates on households and businesses earning $100,000–$500,000 a year, lower taxes for those making less than $100,000 a year, and raise taxes modestly on households and businesses making more than $500,000 a year. All told, these changes would mean a modest tax increase on the richest 3% of Colorado taxpayers, with everyone else in the state paying the same or less than before.

In a state and country shaped by tremendous income inequality, even modest changes to tax rates on the highest earners—like those being considered in Colorado—can yield substantial new revenues. Analysts estimate Amendment 87 would generate over $2 billion in new funds to support public education, health, and child care in the state. (The state’s general fund gross revenues for FY25–26 were projected to be about $17 billion, so a $2 billion increase is sizable.)

In many ways, the Colorado measure is not very different from other high-earner taxes passed in Maine, Washington, Rhode Island, and Hawaii this past year. Massachusetts’ “fair share” tax, adopted by voters in 2022, has been a huge success, exceeding revenue projections and funding significant investments in public transit, free school meals, free community college, and early childhood education.

Amendment 87 is notable because it would begin to fix the state’s uniquely broken funding system. In 1992, Colorado voters adopted a “Taxpayer’s Bill of Rights” (TABOR) amendment that caps state revenue even when the state economy grows. Colorado is the only state that has such a measure, and for over 30 years, it has kept the state’s public services from keeping up with a growing and aging population. Low teacher salaries have driven high teacher turnover in Colorado public schools, many of which have increasingly had to shift to four-day school weeks. The state workforce has similarly struggled with turnover, and federal funding cuts to Medicaid, among other programs, exacerbate existing strains on programs serving one of the fastest aging populations in the country.

Unsurprisingly, opponents are making typical arguments that the measure would cause high earners and small businesses to flee the state en masse—arguments that empirical research has thoroughly debunked. Colorado’s Governor Jared Polis, himself a wealthy tech entrepreneur, has claimed the measure would hurt small businesses, though independent analysis from the Institute on Taxation and Economic Policy (ITEP) found that the corporate tax changes would fall overwhelmingly on large multinational corporations with shareholders located across the globe. ITEP estimates that 90% of the corporate impact would fall on people who aren’t Coloradans.

Amendment 87 would go a long way toward fixing a nearly 35-year-old structural funding problem that has hamstrung public services in Colorado while making the state tax system fairer. If voters there see through the fearmongering, it could help motivate lawmakers and advocates in other states to pursue similar tax changes critical to bolstering vital public services, combating inequality, and improving outcomes for everyday working families.

Florida Amendment 3 would lead to substantial job losses and public service cuts

Florida Amendment 3, a constitutional amendment placed on the ballot by the state legislature at the request of Governor Ron DeSantis, would fundamentally undermine Florida local governments’ ability to raise revenue and fund public services. The measure would dramatically increase the state nonschool property tax exemption on homesteads from the current $25,000 to $250,000 in 2028, indexing it to inflation thereafter; lower the 10% assessment growth cap on all other properties to 5%; and require the legislature to establish procedures allowing local governments to raise homestead exemptions even further—opening the door for potential full elimination of nonschool property taxes. The state Office of Economic and Demographic Research estimates that the amendment would cut local tax revenue by nearly $14 billion in the first two years alone and structurally reduce local tax revenues by nearly $12 billion annually thereafter.

Funding losses of this magnitude would be devastating for public services in every community across the state. Keep in mind that when analysts describe funding cuts and reductions in “public services,” what they’re often really describing is people—who work on behalf of their neighbors and communities—losing their jobs.

To make Amendment 3’s potential damage concrete, we can compare the estimated permanent funding losses with current local government compensation and employment data in the state to get a rough sense of the potential shock to local government employment.

The map above shows the projected permanent revenue losses that would result from Amendment 3 for every Florida county. It also shows what these losses represent as a share of total compensation of local government employees in each county. (Table 1 below contains the same data for all counties and the state overall.) The data show that the projected funding losses are equal to roughly 17% of total local government compensation statewide, rising as high as 39% of compensation in Flagler County.

The map and table also report local government employment as of 2025, which statewide totaled almost 720,000 workers. If local governments were forced to cut staffing in direct proportion to their funding losses, it would mean job losses for almost 125,000 local public-sector workers across the state. In Flagler County, a 39% loss in public-sector employment translates to over 1,500 people losing their jobs. Notably, Flagler county—a relatively small Atlantic-Ocean-adjacent county north of Daytona Beach—had fewer than 29,000 jobs total in 2025, meaning that a loss of 1,500 jobs would be over 5% of total employment (public and private) in the county.

Of course, not every county and municipality will absorb these funding losses entirely through staffing cuts; most will likely adopt a mix of staffing cuts, reductions in services, fewer supply purchases, canceled contracts with private vendors, and possibly sales of public assets. Each of these would have ripple effects on local households and businesses. If a county, for instance, is forced to stop contracting with a local lawn care or building services company, those formerly contracted local businesses could also have to cut staff.

Local governments will also likely try to increase revenues from other sources, such as service fees and tax increases on entities not eligible for the amendment’s exemptions. For instance, Amendment 3 does not provide an expanded tax exemption for non-homestead properties—meaning that commercial property owners will likely see their property taxes rise, which they could very likely pass on to renters and tenant businesses.

This would shift more of the local tax bill away from homeowners and onto renters, who are typically less wealthy. With no income tax and a large portion of state and local revenues generated by sales and excise taxes, Florida already has the most regressive tax system in the country. The lowest-income taxpayers in the state pay effective tax rates nearly five times higher than the top 1% of taxpayers.

If voters adopt Amendment 3 next month, the consequences for communities across the state will be dire. Researchers at the Florida Policy Institute have described in detail how Amendment 3 would gut resources for public hospitals, child and family services, and emergency and disaster response services, among other things. In the short run, especially as the labor market is looking increasingly unsteady, enacting massive funding cuts to local governments is incredibly foolish just for the direct impacts it will have on jobs and spending in local economies. In the long run, the harm to the welfare of Florida residents from a severely diminished public sector could be devastating.

Together, these measures show how much is at stake on state ballots this November. Colorado could begin to fix a decades-old structural funding problem, while Florida may create a new one of its own—one that would strip billions from local governments and the services they provide.

Table 1

Notable weakness in today’s #jobs report for this morning. Payroll employment grew by 29,000 while downward revisions to both July and August totaled 60,000. July is now recording losses. The job growth in September (29,000) is slower than the prior 12 months (45,000).
#EconSky

[image or embed]

— Elise Gould (@elisegould.bsky.social) 8:39 AM · Oct 2, 2026

Payroll employment growth has averaged 50,000 over the last three months, but it continues to be relatively volatile. Four months of jobs losses over the last year, while some notable gains recorded as well. Economic uncertainty may be at play in the latest spell of weakness and downward revisions.

[image or embed]

— Elise Gould (@elisegould.bsky.social) 8:51 AM · Oct 2, 2026

Health care employment continues to chug along, adding 17,000 in September. Modest job growth in construction, leisure and hospitality, and manufacturing. After a bounce back in August, state and local government recorded losses for September.

[image or embed]

— Elise Gould (@elisegould.bsky.social) 9:00 AM · Oct 2, 2026

Manufacturing employment grew modestly in September, a gain of 9,000 jobs. But the fact remains that manufacturing employment is still down 21,000 jobs since January 2025. It’s hardly a manufacturing boon.

[image or embed]

— Elise Gould (@elisegould.bsky.social) 9:00 AM · Oct 2, 2026

Federal employment lost 1,000 jobs in September, but the deficit in the federal workforce remains stark: there are 328,000 fewer federal jobs since January 2025. The vital services federal employees provide cannot be done without these essential workers.
#EconSky

[image or embed]

— Elise Gould (@elisegould.bsky.social) 9:02 AM · Oct 2, 2026

Nominal wage growth continued to decelerate in Sept, rising just 3.0% over the year. Slowing nominal wage growth suggests workers don’t have the leverage to bid up their wages. Even with low unemployment, the depressed hires rate means workers aren’t finding new jobs to raise their wages.
#EconSky

[image or embed]

— Elise Gould (@elisegould.bsky.social) 9:05 AM · Oct 2, 2026

Slower wage growth means that with higher prices, workers and their families continue to find it difficult to make ends meet. Year-over-year real wages fell for five months in a row. When the latest price data is out on October 14, we’ll learn if real wages have fallen for six months straight.

[image or embed]

— Elise Gould (@elisegould.bsky.social) 9:10 AM · Oct 2, 2026

Today, despite the ongoing economic and social toll of Trump’s draconian mass deportation policy, prime-age Latina workers continue to drive much of the strength in the employment rates of Hispanic workers. But we also see signs of weakness for younger workers between the ages of 16 and 24. New data released this year also show that Hispanic adults and their families share growing concerns about their employment security. We highlight each of these dynamics below.

Prime-age Latina workers are writing much of the employment story for Hispanic workers in 2026  

To trace the performance of Hispanic workers since last year, we examine 12-month moving averages of the employment-to-population ratio for prime-age Hispanic workers (ages 25–54) available in the EPI Data Library. There are a few reasons for this that are important to highlight. First, our 12-month moving average smooths much of the month-to-month noise due to sampling size limitations. We also focus exclusively on employment rates because it is not influenced by changes in labor force participation in the way that the unemployment rate is. Lastly, by focusing on prime-age workers—who are less likely to be out of the labor force due to schooling or retirement—our analysis is less influenced by changes in college attendance and the aging of the population.  

As seen in Figure A, the average employment rate for prime-age Hispanic workers stands at a historic high as of August 2026. These workers have managed to make inroads in employment despite a sluggish labor market experiencing weak-to-modest job growth.  

This story of resilience amid uncertainty continues to be largely attributed to prime-age Latina workers, who have managed to not just maintain their employment rate from 2025, but to build on last year’s gains. 70.7% of prime-age Latina workers had a job between September 2025 and August 2026—a new record high. While a significantly larger share of prime-age Latinos work relative to Latinas, their employment rate remains largely unchanged and below previous peaks.

Figure A

Prime-age Latinas are even outpacing their peers, who have historically enjoyed higher employment rates but have been more adversely impacted by the weaker labor market. Figure B shows that the average employment rate of prime-age Latinas continued to rise through August 2026, while that of their Black and white peers declined or flattened. This is because Latinas are more heavily concentrated in some of the economic sectors leading the charts in job growth, such as leisure and hospitality. Despite these gains, Latinas continue to be disproportionately affected by the gender pay gap due to the compounding effects of discrimination and occupational segregation. 

Figure B

Young Hispanic workers have not seen their employment situation improve over the last year 

Not all Hispanic workers have avoided a worsening employment situation in the last year. For example, the employment rates of young Hispanic workers between the ages of 16 and 24 have struggled to maintain consistent gains in the last year. While the average employment rate for young Latinos is now improving after a sharp drop last year, employment among young Latinas is falling along with that of other young workers and recent graduates.  

More broadly, this uneven progress may help us understand why more than half of Hispanic adults expressed concerns about finding or keeping a job last year. These growing employment fears remind us how difficult it is to achieve broad-based employment gains in a labor market struggling to regain its footing amid a mass deportation policy that will cost millions of jobs and an uncertain macroeconomic environment that continues to reproduce inequality. 

Key takeaways

• The Child Care and Development Fund (CCDF) was created to provide child care for low-income families while parents work or obtain education and training. But the program is so underfunded that it provides subsidies to just 16% of eligible children. 
• Child care is so costly that a full-time minimum-wage worker in Alabama would need to work 29 weeks, from January to July, and use every penny of their earnings to cover the cost of unsubsidized child care for one infant. 
• The Trump administration is proposing a new plan to divert CCDF funds from current recipients and give the resources to married couples with a stay-at-home parent. This will result in low-income working families losing CCDF funds, leading to increased child care costs for everyone and possibly resulting in the closure of some child care providers. 

Reporting in The New York Times describes an upcoming proposal from the Trump administration to use funds from the Child Care and Development Fund to provide “parent-based child care” in which a married parent could receive financial assistance to stay home to care for their children, while the other parent works. Providing additional income to support economically struggling families, including support for family members who want to be full-time caregivers for children, is a great idea. Pulling the funds to do so from the Child Care and Development Fund is not. 

The CCDF was created in the 1990s to provide child care subsidies for low-income families, so parents, primarily mothers, could work or go to school. The program is severely underfunded, however. It serves just 16% of all eligible children and just 17% of eligible children, age 5 and younger. That leaves hundreds of thousands of eligible children sitting on waitlists. Worse, some states don’t maintain a waitlist or have simply implemented an “enrollment freeze,” turning eligible applicants away rather than adding them to a waitlist. 

Who are the families that rely on subsidized childcare? 

Not adequately funding the CCDF hits low-income families, families with infants and toddlers, and families headed by single parents the hardest. To even be eligible for the program, federal criteria require families to earn less than 85% of the state median income. And states can make the income requirement even more stringent. For example, in seven states, a family with an income above 150% of the poverty line—just 47% of the state median income in Florida or 41% in Ohio—would not qualify for child care assistance. In 20 states, a family with an income above 200% of the poverty line would not qualify. This is just 55% of the state median wage in Michigan. 

The most recent data on the characteristics of families served by CCDF show that in 2023, 82% were headed by a single parent. In many states, an even larger share of families participating in the CCDF program are headed by single parents: 95% in Alabama, 93% in Illinois, North Carolina, and Ohio, and 92% in Pennsylvania. These are families with little choice but for the head of household—mothers in 75% of cases—to engage in formal employment if the family is to survive.

Then there are parents of infants and toddlers, pre-school-age children for whom child care is the most costly. The program provides subsidies for children up to age 13, but younger children are more likely than older children to receive subsidies. This reflects the fact that infants and toddlers have the greatest need for care, but parents often face a shortage of affordable qualified providers. This is in part due to younger children requiring more qualified providers than older children require and smaller child-to-staff ratios. In a Pulse Household Survey, 15% of all parents reported not working because they were caring for children, but for parents of the youngest children aged 0 to 4, it was 35%. 

Consequences of moving forward with the Trump–Vance plan

If married couple families are added to the list of eligible families without substantially increasing funding to provide subsidies to all eligible families, as is reportedly proposed, it will do significant harm to families of all types, whether they are married or not and whether they rely on subsidies or not.

With the new strain on available funds, families currently relying on the CCDF could lose the subsidies that allow them to provide even a modest living for themselves and their children. Without the subsidized care provided by the CCDF, these families could work full-time for most of the year just to pay for child care. In Alabama, for example, a minimum-wage worker working full-time would have to work 29 weeks—the equivalent of working from January to July—and use every cent of those wages to be able to cover unsubsidized child care for one infant. In North Carolina and Ohio, these workers would need to work from January to October. 

These are parents who want to work to support their families but cannot afford unsubsidized child care. They also cannot afford not to work.

Reducing the availability of child care funding for working mothers and fathers will not only hurt families who rely on child care subsidies, it will hurt all families who rely on child care. Siphoning these funds away from working families—disproportionately Black single mothers—will also deprive child care providers of a key source of revenue, potentially leading them to charge other families more for care, be forced to shed staff, or even close down. With families in so many communities across the nation already experiencing a child care crisis, this would exacerbate the shortage issue. 

We should fully fund the CCDF and provide needed support to all families

So many American families are already struggling to pay for the basic necessities, including rent, food, and gas. In an economy that requires dual-earner households where possible, child care subsidies provide struggling families with some basic support at a time when prices continue to rise, and safety nets, including health care subsidies, food assistance, and even heating assistance, continue to be cut. It’s notable that instead of providing real solutions to the affordability pressures many Americans face, Vice President Vance—who has championed this policy—and Trump’s Department of Health and Human Services are proposing what is effectively an attack on single parents, working parents, and working women in an effort to center married households and to push a political and cultural agenda about supporting supposedly “traditional” values. We must invest in families, regardless of their composition—married couples, single mothers, or grandparents caring for their grandchildren. We should fully fund the CCDF to ensure all eligible families are supported. 

Outside of a crisis or recession, Americans’ perceptions of how the country and economy are being managed have never been so negative. Many have attributed this voter unhappiness to a crisis of “affordability.”

It is objectively true that it is too hard for most American families to afford a secure and dignified life. But the word “affordability” leads too many people—including policymakers—to fixate on prices. Affordability is not just about prices; instead, it’s the outcome of a race between incomes and prices.

This is not just economists quibbling. Focusing on prices will lead policymakers to ignore far too much of the useful playing field when thinking about what changes could make life better for working families.

In this article, we make the following arguments:

• Far too many families are unable to afford a decent economic life.
• The primary cause is a large increase in income and wage inequality, with incomes and wages for the vast majority of families lagging far behind what they could and should be.
• This rise in inequality was caused by increasingly unequal “market” incomes (e.g., wages and salaries, returns on investments), while changes in taxes or transfers (e.g., Social Security, Medicare, unemployment insurance) slightly dampened the rise of income inequality.
• The large rise in income inequality was driven by intentional policy changes that affected typical workers’ leverage and bargaining power in the labor market—and that means they can be reversed.
• In capitalist economies (like ours), labor markets are inherently tilted toward employers—but historically and globally, broadly shared prosperity has only been achieved when policies that intentionally support workers (like strong unions, adequate minimum wages, and full employment mandates) have provided a countervailing force against employers’ power in labor markets. 
• Much of the post-1979 period in the United States saw an assault on worker-friendly policies, and this led directly to the rise in inequality and to weak income growth for working families.

Americans’ economic dissatisfaction has real roots

The U.S. economy is the richest in the world, yet the gap between what it could deliver to working families versus what it actually delivers is maddening. This gap can be measured with some precision. Figure A shows inflation-adjusted household income for the middle-fifth of U.S. families between 1979 and 2022, as well as what this growth could have been had it simply grown as fast as average incomes did in this period. 

This gap is driven by inequality. Average incomes can only rise faster than incomes at the middle if some groups—the ultra-rich in this case—see strongly above-average growth. This gap between average growth and growth experienced by the middle reached staggering levels by 2022 (the most recent data from the Congressional Budget Office). In that year, inequality’s rise since 1979 deprived middle-income families of an average of $28,100. Life for these families would be far more affordable today if they had this money coming in each year. And that’s well within our grasp. Average income growth is by definition attainable. All that’s needed are policies that ensure income growth is broadly shared, instead of policies that cause staggeringly fast income growth among the top 1% and much slower income growth for working people. 

Figure B shows this inequality another way—charting average annual growth rates for the 1979–2022 period for a number of groups ranked by their position in the income distribution. The strikingly bad news from this figure is that only household groups above the 90th percentile saw income growth that matched or exceeded average income growth. How can more than 90% of households be below average when it comes to income growth? This is possible because the top 5%—and especially the top 1%—saw astoundingly fast growth over this period. 

For any given average growth rate, faster growth at the top of the scale must be matched by slower growth at the middle and/or bottom. It is this zero-sum dynamic of inequality, not anything to do with prices, that has been the crushing drag on regular Americans trying to afford a better life over time.

Staggering inequality is a choice

This growth in inequality has been driven by the rules governing markets—rules our elected leaders determine—not by taxes or transfers. Figure A showed the staggering $28,100 gap in market (pre-tax and transfer) income between what families in the middle-fifth actually made in 2022 versus what they could have made had inequality not risen. Figure C shows how large this gap is after the federal government gets involved on the tax and transfer side of the equation. 

Taxes obviously reduce incomes, but transfers (social insurance like Social Security and income support payments like unemployment insurance) raise incomes. For the middle-fifth of US households, this effect is largely a wash—their current income levels in Figures A and C are very similar. But because the United States still has a progressive federal tax system (though not as progressive as we would like), the rise of inequality in this post-tax and transfer data is slightly muted—i.e., federal taxes and transfers shrink the gap somewhat. By 2022, the annual gap after accounting for federal taxes and transfers is $17,698—still a sum of money that would be transformative for American families.

Essentially, federal taxes and transfers undid roughly one-third of the rise in income inequality, allowing rich households to pocket roughly two-thirds of their gains.*

This rise in inequality was overwhelmingly driven by an intentional, multipronged policy campaign to suppress wages that was undertaken by shareholders, other capital owners, and corporate executives, with policymakers greasing the skids along the way.4 The primacy of wage suppression can be seen in Figure D, which compares the economy’s potential to pay higher wages and incomes with the actual hourly pay of typical workers in the United States. 

We measure the economy’s potential to pay higher wages by productivity, which is the output and income generated in the economy in an hour of work on average. And we define typical workers’ pay as the wages and benefits of workers in production and nonsupervisory positions, a group that constitutes over 80% of the economy’s private-sector workforce, excluding higher-wage managers and executives. As you see in the figure, in the three decades after World War II, productivity and pay mostly moved roughly in tandem, with typical workers’ pay rising 83% as fast as productivity. After 1979, these lines diverge sharply, with workers’ pay rising only about 43% as fast as productivity. 

If typical workers’ pay had risen in line with productivity growth in the years since 1979, their hourly pay would be 43% higher today. For a full-time, full-year worker making the median wage, this would constitute annual wages that are almost $23,000 higher.5 Where did that $23,000 go? Instead of paying workers more as their productivity rose, corporate executives, other already highly paid professionals, and shareholders captured those gains for themselves.

This growing gap between what shows up in typical workers’ paychecks and benefits versus the overall income being generated in the economy is the root story of American inequality and of today’s affordability crisis.

This pay-productivity gap can be decomposed into two parts: the portion driven by rising inequality in “labor” income (income earned from work), and the portion driven by a shift from labor income to “capital” income (income from investments, like when a stock increases in value). Growing inequality within labor incomes—earnings growing much faster among high-paying jobs than among middle- and low-paying jobs—accounts for almost 80% of the gap. The remaining 20% is accounted for by a shift from labor income to capital income.6 Below we say a bit more about each of these.

Rising inequality of labor incomes

The larger factor in the rise of overall income inequality is the growing inequality within labor incomes. This often surprises people, who assume the story of rising inequality is mostly one of the profits of rich corporations rising while most of their workers are left behind. It’s true that most workers in these corporations do not benefit, but the powerful employees who do prosper—CEOs and other executives—receive astronomical salaries that are classified as labor income in economic data, and these inflated executive salaries do cut into corporate profits. 

In addition, below the stratospheric level of corporate managers at large companies, there is a stratum of workers in medicine, legal services, and finance who command huge salaries. It’s not a large group of people, but the rise in their pay has been extreme. Figure E highlights this radical inequality within labor incomes, showing annual earnings of various wage groupings. (To keep the figure legible, pre-1979 data are not shown.) Prior to 1979, wage growth among very high wage workers—those in the top 10%, the top 1%, and the top 0.1%—was roughly in line with wage growth for the vast majority (i.e., for the bottom 90%). But between 1979 and 2023, cumulative growth in average annual earnings for the bottom 90% of workers was 44%, compared with 133% for the top 1%. For the top 0.1%, this growth was 354%—so high it doesn’t fit in the figure.

Given that labor income remains the large majority of all income generated in the economy, this huge rise in inequality within labor incomes is a key driver of the economy-wide march to greater inequality. Workers at the top of the wage scale were largely able to insulate themselves from the campaign of wage suppression launched by corporate owners. Of course, some of them were active participants in this campaign and got a significant cut of its benefits (think CEOs and lawyers for union-busting law firms). But the vast majority of workers (roughly 90%, as we see in Figure B) were on the losing side of this wage suppression campaign and found their wages falling far behind the economy’s potential to deliver strong and sustained wage growth. 

In some ways, the influence of rising inequality within labor incomes might be underestimated. For decades, U.S. tax policy has levied lower tax rates on capital income than labor income, and a great deal of capital gains escapes taxation entirely due to loopholes. 

Many of the same people who have been privileged enough to insulate themselves from wage suppression are also privileged enough to have excellent accountants who can make their incomes appear in whatever form results in the lowest taxes.7 For example, CEOs are overwhelmingly paid with “performance-based” measures, which means measures tied to the value of their companies’ stock prices. Twenty years ago, the large majority of this stock-based pay for CEOs came in the form of stock options, which are contracts that give the CEO the right (but not the obligation) to buy shares of stock at a set price. If the market price went above this set price, CEOs could exercise these options and pocket the difference as pay. The gains from exercised stock options are recognized by the IRS as labor income, taxed accordingly, and classified in data as labor income. But over the past two decades, there has been a pronounced shift in the stock-based pay of CEOs away from stock options and toward the outright granting of stock. In this case, CEOs are not given a right to buy shares at a preferential price; they are simply given shares.8 What’s important for the split between capital and labor incomes is that these non-option forms of stock-based compensation are far less likely to be captured in measures of wage incomes. So this tax evasion strategy artificially depresses estimates of labor income in the economy.

The shift from labor to capital incomes

While most of the pay-productivity gap stemmed from the rising inequality within labor earnings discussed above, a nontrivial portion of this gap stemmed from a shift in overall income from labor to capital. This goes far beyond the tax avoidance trick described above for CEO compensation—including paying regular working people less so that shareholders get more. If, for example, a corporation were able to suppress its workers’ pay while raising customers’ prices and/or cutting what it paid suppliers (which generally means those suppliers paying their workers less), it would earn higher profits. By successfully suppressing wages to boost profits, American corporations have made their stock more valuable. Imagine an investor buys $100 in company stock with the expectation of an annual return of $5. If the company undertakes a successful campaign of wage suppression that boosts annual returns to $10, many other investors will buy company stock—bidding up share prices.

So even though this labor-to-capital shift in overall income is the smaller player in generating overall income inequality, it still had profound effects on American economic life. Estimates indicate that anywhere from 40% to nearly 100% of the entire nominal gains in the U.S. stock market since 1989 can be attributed to this shift of income from workers to capital owners.9

The rise in US stock prices in recent decades is a key driver of another kind of economic inequality: inequality of wealth.^† One of the primary sources of wealth, the ownership of corporate equities (e.g., shares of stocks), is incredibly concentrated; the top 10% of households own about 85% of all corporate equities, and the top 1% own nearly 40%.10

The concentration of corporate equities combined with the role of wage suppression in making these equities far more valuable leads to a clear implication: The wage suppression of recent decades is not just by far the biggest driver of the rise in income inequality; it is also by far the biggest driver of the rise in wealth inequality. Most of the rise in wealth inequality in recent decades has been the outcome of an intentional transfer away from workers to the top. 

Labor markets are not fair

This rise in inequality in recent decades has attracted much attention from researchers—along with everybody else struggling to pay for groceries and keep the lights on. For a long time, economists’ role in the debate over inequality was to look for reasons why well-functioning, competitive markets could generate lots of inequality. This often led to explanations that essentially blamed workers for the outcomes. The argument was that the fair and competitive labor market had spoken and that these workers were falling behind because their skills and efforts had been found wanting. The precise failure identified was often workers’ alleged inability to adapt to the quickening pace of technological change in the economy. 

But the evidence supporting this view of inequality driven by apolitical forces working through fair and competitive markets was incredibly thin.11 That led many researchers to examine whether labor markets are by their very nature tilted against workers, making it very difficult to secure regular raises that match overall economic growth. 

There is ample evidence for this view—that excess employer-side power makes labor markets generally unfair and inefficient, and that truly fair, competitive labor markets are the exception, not the rule. For example, many employers, and particularly those of low- and moderate-wage workers, rarely if ever negotiate pay; instead, they post take-it-or-leave-it wage offers.12 And when a given employer lets its wages lag behind those of potential competitors, workers’ exit from the lower-wage firm is far less common than would be predicted under truly competitive labor markets (where employers robustly compete for workers).13

This employer-side power is rooted in many obvious factors in real-world labor markets that make it hard for workers to effectively search for better jobs and, therefore, force employers to compete over them. These include things like lack of information about wages and benefits offered by other employers, transportation restrictions that require workers to look for jobs only in places near their homes or public transit nodes, and child care considerations that require a job’s location be compatible with picking up kids at a regular time, along with many other factors. 

Another barrier to competition is the obvious fact that in the short run, most employers need the income a new worker would generate for their business far less than most workers need the income from a job. In a jobsite of 100 workers, having a month go by understaffed by a single worker reduces business income by roughly 1%. In a household with a single worker, having a month go by without a job reduces income by essentially 100%. 

Employers exploit these barriers to employees finding better options by “marking down” wages below what would be necessary for employers to attract and retain workers in competitive labor markets. These markdowns can be large enough to push workers’ pay well below the value they produce for the employer (i.e., below the “market clearing” wage). This makes them not just unfair, but inefficient—a drag on economic growth. 

Key policy choices that led to rising inequality 

Having realized the role of employers’ power in determining labor market outcomes, the importance of specific policies is magnified. For example, before the 1990s, many economists were extremely skeptical that minimum wages could do much good in raising wages without steep downsides like job loss. Why? Because they erroneously used models of competitive labor markets. 

But more accurate models that include employers’ power reveal significant room to raise minimum wages without generating job losses. The evidence over the past 30 years has been highly persuasive that minimum wages could be much higher than they were in the 1980s and 1990s without causing job losses and that the benefits for low-wage workers would be large.14

The period of rising inequality since 1979 was one of profound institutional change in labor markets. The federal minimum wage, for example, lost 35% of its value between 1979 and 2025 as legislative inaction (i.e., not raising it) allowed it to be battered into irrelevance by inflation.15 This was also a period that saw a pronounced acceleration in the decline of unionization rates of American workers.16 It was a time when high levels of unemployment were tolerated by policymakers for extended periods in the name of fighting inflation.17 And it was a time when increasing integration between the rich United States and a poorer global economy was done on terms that were written by and for corporate interests.^‡

Several years ago, researchers at our organization, the Economic Policy Institute, reviewed the research on how much specific policy choices likely contributed to growing inequality. Adding together the impacts of the changes like those listed above could easily explain the lion’s share of the rise in inequality since 1979.18

For example, one key policy change was the practical abandonment of the Federal Reserve’s full employment mandate. By law, the Fed is supposed to pursue both stable inflation and full employment (which means trying to keep unemployment as low as is consistent with stable inflation). But between 1979 and 2007 (right before the Great Recession), the Fed largely acted as if it did have a mandate to pursue stable inflation but did not have one to pursue full employment. 

After the Great Recession, the Fed admirably reversed course and tried to push the economy back to full employment, but its tools proved too weak given the magnitude of the shock. In such situations, fiscal policy—taxes and spending—should be used aggressively to restore full employment. But in the 2010s, political gridlock and excess caution kept policymakers from doing this, and much of that decade was plagued by excess unemployment. 

Excess unemployment does not just leave willing workers locked out of jobs. It also saps the ability of still-employed workers to demand raises. For nonunion workers, their chief leverage for getting wage increases is threatening to quit. This threat is only credible when unemployment is low. Consequently, the too-high unemployment rates for most of the period from 1979 to 2019 were a drag on wage growth. In our estimates, too-high unemployment may well have explained nearly a third of the entire pay-productivity gap over that period19—not to mention the devastation it wrought for millions of families.

Another key policy change was the failure to keep the playing field level between workers looking to organize and join unions and the employers who wanted to stop them. The National Labor Relations Board is supposed to safeguard this right, but its tools have proved too weak in the face of fierce employer opposition to unions, and policy changes to strengthen these tools have consistently been blocked. The results of throttling the growth of new unions have been profound; our estimates are that declining unionization likely explains a quarter of the pay-productivity gap since 1979.20 Crucially, the decline in unionization did not just hurt workers who otherwise would have been unionized. By far the biggest of the wage-suppressing effects of deunionization has been on the broad pool of nonunion workers. As unions lose strength, they stop being able to set industry-wide pay standards that even nonunion employers feel like they have to meet to avoid hemorrhaging employees. 

The wage-depressing effect of trade flows from poorer nations—flows encouraged by the corporate-led trade agreements the United States has signed in recent decades—can likely explain another 10 to 15% of the pay-productivity divergence since 1979.21

The wrong incentives

Tolerating excess unemployment, throttling workers’ ability to join unions, failing to update the minimum wage as costs rise, and signing corporate-friendly trade agreements were some of the many instruments of wage suppression undertaken and abetted by policymakers in recent decades. At the same time, choices legislators made on tax policy boosted the incentive for capital owners and corporate managers to aggressively use these instruments to increase their wealth. 

When ultra-high incomes and corporate profits are taxed at high (i.e., appropriate) rates, the incentives for powerful individuals to rig the rules of markets to suppress regular workers’ wages are much smaller. Key research shows that this incentive effect is real and powerful. For example, across countries, the larger the tax cuts on the rich enacted in recent decades, the greater the increase in pre-tax inequality.22 And, the lower the top tax rates for individuals, the higher the levels of pre-tax CEO pay.23 High taxes reduce the benefits of rule-rigging, so cutting taxes increases rule-rigging. This means that raising taxes on the richest households and corporations results in new revenue and more equal pre-tax incomes. But from the mid-1970s, tax rates for high-income households and corporations have been cut steadily and deeply in the United States, reducing both tax revenues and wages for working people.

Income inequality, not high prices, is behind the affordability crisis

We opened this article with a claim that affordability is the outcome of a race between income and prices. Our long walk through the economics and history of recent American inequality highlights that intentional policy choices have deprived typical households of income they could have otherwise claimed. Without this inequality, a middle-income household today would have tens of thousands of dollars more per year—and this would obviously make affording a decent life much easier. 

But some might wonder if we have still given prices short shrift in how much they contribute to affordability challenges. We don’t think so, for a number of reasons. We sketch three of them here.

First, all of the income, wage, and productivity statistics we have included in this article have been real (i.e., they have been adjusted for the impact of inflation). And it is unambiguously true that real (inflation-adjusted) incomes are the proper way to measure living standards and economic possibilities for households. 

Getting distracted by price growth while missing what’s happening with income will lead to wrong conclusions about economic performance over even relatively recent periods of time. Figure F compares two periods, both starting one year before a deep recession struck and then running five years: 2007–2012 and 2019–2024. In the first period, inflation averaged 1.8%, while in the second it ran more than twice as fast at 4.2%. Yet real (inflation-adjusted) wage growth for low- and middle-wage workers was far faster in the second period. For the lowest-wage workers, real wages fell by 2.1% in the first period but rose by 15.3% in the second. For workers in the middle of the wage scale, real wages fell by 1.5% in the first period but rose by 5.8% in the second. 

Over very short periods of time (one to two years), it is true that a rapid spike in prices tends to drive down real incomes and wages. But over any longer period (even as short as three to five years), assessing how the economy is doing for typical families rarely bears much relationship to price growth.

Second, even when researchers adjust for inflation differently at different parts of the wage and income distribution, the impact is modest. Such measures account for things like lower-income families spending a higher share of their income on rent and groceries and a lower share on vacations. But there are surprisingly small differences in overall price growth faced by families at different income levels. For example, from 2019 to 2025, when the price of housing and groceries was on peoples’ minds for good reasons, the inflation rate faced by the bottom 40% of households was just 0.2% higher than for the top 20% of households.24 In short, the growth in prices faced by different groups varies far less than the growth of their incomes and wages. 

Third, a key insight in assessing affordability debates is that one person’s cost is another person’s income. If the cost of a pound of coffee doubles from $10 to $20, this constitutes $10 of additional income that somebody is getting. Perhaps the coffee grower or the shipper or the grocery store shareholders or the CEO or the cashiers or some other link in the supply chain is getting an extra $10 (or several of them are getting some slice of it). This means that rapidly rising prices cannot result in less income overall, so they are highly unlikely to actually make an entire economy poorer. Instead, the groups that face only the price increase lose out while groups receiving the extra income win. 

This fact that every price is an amalgamation of various income streams also means policymakers can more usefully target wage and income policies rather than price policies. Again, my bill at the grocery store pays for the wages of cashiers, the pay of the company CEO, the dividends to shareholders, the payments to suppliers, and more. Even if we’re unhappy about this grocery bill, we likely don’t want all of those price components to get squeezed. We probably want the wages of cashiers to rise while hoping to rein in CEO pay and shareholder dividends. Policies that only look to restrain prices—price controls, for example—make no such distinction, so we don’t know who in the grocery supply chain will bear their burden (though we can guess it’s more likely to be the cashiers than the CEO). But if we raise minimum wages, change labor law to allow more widespread unionization, and raise taxes on the ultra-rich and on corporate profits, we have a very good idea of which incomes will be boosted and which will get squeezed.

Creating a fairer economy

It is deeply depressing that intentional policy acts led to the enormous rise in inequality that is making life so much harder for so many people. If tens of millions of American households had tens of thousands of extra dollars in their bank accounts each year while billionaires had significantly less money, the country would be a much better and happier place.

What brings us hope is the knowledge that because the rise in inequality was not the inevitable outcome of a modern economy, it can be halted and reversed. Today’s workers have the skills and abilities needed to support much higher incomes with no loss in efficiency or employment—if we change policy to give them these higher wages. This is excellent news. Of course, many of today’s elected leaders—and their donors—have little interest in reducing inequality, so the road ahead is long. But the foundational ingredients for a fairer and more efficient economy are clear: 

• Keep unemployment rates low for long periods of time and fight recessions fiercely when they inevitably occur. 
• Restore the right to organize new unions and bargain collectively. 
• Raise minimum wages, including the federal minimum wage. 
• Enact rules for the global economy that support healthy wage growth, not just healthy corporate profits. 
• Crush the incentive to rig the rules of the economy by raising taxes significantly on ultra-rich households and corporations. 

The details on how we create a fairer economy are more complex—and they do matter! But understanding that the affordability crisis facing American families is overwhelmingly an inequality crisis is a necessary and useful place to start.

*Since this analysis goes through 2022, it does not include the tax or benefits cuts (including to Medicaid and the Supplemental Nutrition Assistance Program) in the One Big Beautiful Bill Act that President Trump signed into law in July 2025. These will further increase inequality.

^†Wealth is the value of a person’s assets (e.g., the equity in their home, stocks and bonds in their retirement accounts, or their baseball card collections) minus the value of their debts.

^‡For details, see “A Trade Policy That Puts Working Families First.” 

Footnotes

1. Congressional Budget Office, The Distribution of Household Income, 2022 (January 2026), cbo.gov/publication/61911.

2. Congressional Budget Office, The Distribution.

3. Congressional Budget Office, The Distribution.

4. For a much deeper dive into the specifics of this policy campaign of wage suppression, along with empirical assessments of how much it cost American families, see L. Mishel and J. Bivens, “Identifying the Policy Levers Generating Wage Suppression and Wage Inequality,” Economic Policy Institute, May 13, 2021, epi.org/unequalpower/publications/wage-suppression-inequality.

5. The median wage for U.S. workers in 2025 was $25.67. This (and a lot more) can be found at data.epi.org. Multiplying this median wage by 0.43 and then by 2,080 (hours worked by a full-time/full-year worker) yields the $23,000 figure.

6. Earlier estimates of how much inequality within wages contributed to the pay-productivity gap can be found here: L. Mishel, “Growing Inequalities, Reflecting Growing Employer Power, Have Generated a Productivity–Pay Gap Since 1979,” Working Economics Blog, September 2, 2021, epi.org/blog/growing-inequalities-reflecting-growing-employer-power-have-generated-a-productivity-pay-gap-since-1979-productivity-has-grown-3-5-times-as-much-as-pay-for-the-typical-worker. The easy way to update this (which we did for this report) is to compare productivity with growth in overall average compensation of American workers since 1979. This overall average compensation rose by roughly 76% since 1979. Given typical workers’ pay growth of just under 30%, this means that 46% (76% minus 30%) of the divergence between typical workers’ pay and productivity is a difference between typical workers’ pay and average pay.

7. See here for an estimate of how much of today’s reported capital incomes would be more properly classified as the returns to work (i.e., labor incomes): A. Eisfeldt, A. Falato, and M. Xiaolan, “Human Capitalists,” NBER Working Paper no. 28815, National Bureau of Economic Research, April 2022, nber.org/papers/w28815.

8. For more on CEO pay levels and their composition, see J. Bivens, E. Gould, and J. Kandra, “CEO Pay Has Skyrocketed Since 1978,” Economic Policy Institute, September 25, 2025, epi.org/publication/ceo-pay.

9. For this estimate, see D. Greenwald, M. Lettau, and S. Ludvigson, “How the Wealth Was Won: Factor Shares as Market Fundamentals,” Journal of Political Economy 133, no. 4 (April 2025): 1083–1132; and A. Atkeson, J. Heathcote, and F. Perri, A Macroeconomic Perspective on Stock Market Valuation Ratios (Federal Reserve Bank of Minneapolis, Research Division, January 2026), minneapolisfed.org/research/sr/sr682.pdf.

10. See Table 10 in: E. Wolff, “Household Wealth Trends in the United States, 1962 to 2019: Median Wealth Rebounds… but Not Enough,” NBER Working Paper no. 28383, National Bureau of Economic Research, January 2021, nber.org/system/files/working_papers/w28383/w28383.pdf.

11. For a much deeper dive into the weakness of claims that inequality was driven by technology rewarding skilled workers and penalizing less-skilled workers, see J. Schmitt, H. Shierholz, and L. Mishel, Don’t Blame the Robots: Assessing the Job Polarization Explanation of Growing Wage Inequality (Economic Policy Institute, November 19, 2013), epi.org/publication/technology-inequality-dont-blame-the-robots.

12. One study found that roughly 75% of low-wage jobs were ones where employers made take-it-or-leave-it posted offers: R. Hall and A. Krueger, “Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search,” American Economic Journal: Macroeconomics 4, no. 4 (October 2012): 56–67; and R. Hall and A. Krueger, “Evidence on the Determinants of the Choice Between Wage Posting and Wage Bargaining,” NBER Working Paper no. 16033, National Bureau of Economic Research, May 2010, nber.org/system/files/working_papers/w16033/w16033.pdf.

13. For evidence on how nonresponsive worker quits are to wage cuts relative to predictions of competitive markets, see A. Dube, L. Giuliano, and J. Leonard, “Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior,” American Economic Review 109, no. 2 (February 2019): 620–63.

14. For a comprehensive review of this evidence, see D. Cengiz et al., “The Effect of Minimum Wages on Low-Wage Jobs,” Quarterly Journal of Economics 134, no. 3 (August 2019): 1405–54.

15. Economic Policy Institute, “Minimum Wages: Real Minimum Wage (2025$),” 2026, data.epi.org/minimum_wage/minimum_wage_levels/line/year/national/real_minimum_wage_2025/overall?timeStart=1938-01-01&timeEnd=2025-01-01&dateString=1979-01-01&highlightedLines=overall.

16. P. Romero and J. Whittaker, A Brief Examination of Union Membership Data (Library of Congress, June 16, 2023), congress.gov/crs-product/R47596; and H. Meyerson, “Economic Inequality Is Undermining America: Worker Solidarity Will Build a Better Future,” AFT Health Care 3, no. 2 (Fall 2022): 33–36.

17. S. Galan, “Monthly Federal Funds Effective Rate, Unemployment Rate and Inflation Rate in the U.S. During Paul Volcker’s Terms as Federal Reserve Chairperson from 1979 to 1987,” Statista, October 2022, statista.com/statistics/1338105/volcker-shock-interest-rates-unemployment-inflation/?srsltid=AfmBOoqoXQ4yTpqiSJMevwNFbnNGEETrwhlltEeVrJuA1rThyYCBBkFl.

18. Mishel and Bivens, “Identifying the Policy Levers.”

19. J. Bivens, “Focus on the Boom, Not the Slump—the Fed’s New Policy Framework Needs to Stop Cutting Recoveries Short,” Working Economics Blog, Economic Policy Institute, June 18, 2019, epi.org/blog/focus-on-the-boom-not-the-slump-the-feds-new-policy-framework-needs-to-stop-cutting-recoveries-short-epi-macroeconomics-newsletter.

20. Mishel and Bivens, “Identifying the Policy Levers.”

21. Mishel and Bivens, “Identifying the Policy Levers.”

22. A. Fieldhouse, Rising Income Inequality and the Role of Shifting Market-Income Distribution, Tax Burdens, and Tax Rates (Economic Policy Institute, June 14, 2013), epi.org/publication/rising-income-inequality-role-shifting-market.

23. J. Bivens, “Using Tax Policy to Restrain CEO Pay: Best Practices and Smart Alternatives,” Economic Policy Institute, December 13, 2023, epi.org/publication/using-tax-policy-to-restrain-ceo-pay-best-practices-and-smart-alternatives.

24. Authors’ analysis of data obtained from: Federal Reserve Bank of New York, “Economic Heterogeneity Indicators (EHIs),” 2026, newyorkfed.org/research/economic-heterogeneity-indicators.

Key takeaways

• Years of government funding cuts are undermining the U.S.’s position as a global leader in providing the reliable statistical information that businesses and policymakers need for sound decision-making.
• The Trump administration has accelerated the funding cuts and worked to degrade the effectiveness and independence of data-collecting agencies.
• The Bureau of Labor Statistics (BLS) is a prime example of an agency whose data collection in areas like employment and wages is integral to our understanding of the economy’s health and whether it is heading into a recession.
• A decline in response rates to one of the BLS’s key surveys was already underway but, absent funding increases and survey modifications, it will be harder for economists and policymakers to make timely sense of changes in the labor market.

Historically, the U.S. has been a leader in providing reliable and timely statistical information to support business strategy and policymaking. The value of information provided publicly and free of charge to businesses, households, and governments is immense. Yet underinvestment over the past 15 years is a key reason why the U.S. lost its position on the cutting-edge of public statistical services worldwide.

Since the beginning of the second Trump administration, this underinvestment has accelerated, and the administration has made intentional efforts to degrade the effectiveness and independence of the federal statistical agencies (FSAs). This accumulation of threats to the effectiveness of the FSAs will rapidly degrade the value of the key public good they provide, unless policy changes course sharply.

This blog post provides just one example of how cumulative underinvestment has blocked the ability of a key FSA to respond to developments, making its data less reliable over time. The Bureau of Labor Statistics collects a range of necessary data tracking the performance of the U.S. labor market. This BLS data are a key input into high-stakes decisions across the U.S. economy—including for both public and private actors. For example, the Federal Reserve relies on BLS data about unemployment rates, payroll job growth, wage growth, and price indexes to set monetary policy. The more volatile the BLS data are from month to month, the worse the information that guides Federal Reserve decisions.

Private industry also relies heavily on these statistics. A 2018 survey conducted by the National Association for Business Economists found that 95% of businesses responded “yes” to the question: “Are government data important for analyses and forecasting that drive business decisions?” Employment and unemployment data produced by the BLS were rated as the most important data source for informing business decisions.

Yet over the past 15 years, the BLS has gradually lost personnel and funding, which has been undermining their mandate of producing timely, accurate statistics on wages, prices, and the labor market. More recently, the Trump administration’s choices to freeze BLS hiring has further strained Census field staff charged with collecting household survey data. Worst of all, the Trump administration took the unprecedented step of firing the commissioner of the BLS simply because the agency accurately reported data that the administration happened to find politically inconvenient.

Even without further blatant political pressure on the BLS’s independence, the agency will encounter growing difficulty in doing its job effectively in coming years. One of their most important efforts is the fielding of the Current Population Survey (CPS), a survey of thousands of households across the U.S. taken every month, which provides detailed employment and wage information. The CPS is the source data for the monthly estimate of the nation’s unemployment rate, for example. This is in turn a key criterion for assessing whether the economy is heading into recession. In recent years—after the COVID-19 pandemic—the response rates for the CPS have sharply declined. These declines, if not countered with greater investment in response rates, may make it harder for economists and policymakers to make timely sense of changes in labor market, particularly for populations that already have small sample sizes, such as rural areas or detailed demographic groups.

The rest of this blog post highlights the problem of falling response rates, demonstrates that they have made some labor market measures more volatile month to month, and shows that these falling response rates have occurred over the same period as the retrenchment in resources for the BLS.

Nonresponse reduces sample size in the Current Population Survey

The Current Population Survey asks questions about employment and other labor market characteristics to 60,0000 households or about 110,000 individuals every month. Between 2005–2016, the Current Population Survey household survey was able to steadily receive responses from around 107,000 people, ages 16 and older. However, as noted by others and shown in Figure A, the number of households responding to the survey has declined since the mid-2010s and then fell precipitously after the COVID-19 pandemic. In the first few months of 2026, just over 75,000 individuals, ages 16 and older, had responded to the monthly CPS.

Figure A

The decline in response rate has likely occurred for a few reasons. The Bureau of Labor Statistics notes that the rate of refusals had been increasing as early as the 1990s, likely as the world became more connected with computers and the internet, leading to less reliance on in-person interactions to conduct business. Social trust has also gone down over the past few decades, and the share of adults who agree that “most people can be trusted” has decreased by more than 15% since 1984.

More recently, the COVID-19 pandemic, coupled with concerns for privacy and distrust in the government, may be the reason that the rate of decline grew in recent years. The COVID-19 pandemic forced many workers to transition to remote work, and concerns about contagion limited overall social interactions, making response collection increasingly difficult. Additionally, concerns about privacy or retribution from the state felt by groups like immigrants may make some people more reluctant to answer questions for fear of deportation. 

Finally, distrust in the federal government, fueled by recent overtly political activity, could be behind some of the reduction in response rates. For example, when the Bureau of Labor Statistics published two consecutive months of large negative revisions to the number of payroll jobs in mid-2025, the Trump administration leveled charges—which were baseless and never backed up by any evidence—that the BLS had manipulated the data for political purposes and fired then Commissioner Erika McEntarfer. People are less likely to trust government if they think publicized information and facts are politically motivated. 

Smaller sample sizes are linked to less precision in key labor-market estimates

If the size of sampled households is large enough, declining participation does not have to significantly affect the reliability of statistics produced from the survey. However, if declines in participation reduce usable sample sizes too much, this can lead to estimates with less precision, which can reduce researchers’ ability to parse a signal from statistical noise in a timely manner, especially for economically vulnerable groups.

For example, because the unemployment rate for Black workers is volatile, it can be difficult to accurately diagnose labor market softness for this group. If the sample size is too small to generate statistical precision in each month, researchers will require increasingly more months of data to be able to diagnose labor market softness, which could jeopardize the timeliness of proper policy responses to support the labor market.

Every month, the Bureau of Labor Statistics publishes statistical significance summary tables, identifying whether changes in labor force indicators are statistically significant at the 90% level. BLS publishes these statistical significance tests for dozens of indicators across several demographic groups, including for Black workers. We collected these tables over time and documented the margin of error needed in order to claim a 1-month change in unemployment was statistically significant, shown in Figure B.

While the margin of error that is needed to claim a change is statistically significant varies with the level of unemployment rate, the reduction in precision from lower response rates is evident when we hold the unemployment rate constant. The two red lines in Figure B identify the effect size needed to claim statistical significance for a change from a starting unemployment rate of 7.3%. In November 2017, when the sample size of the labor force was 63,346, a 0.66 percentage point change in unemployment would have been considered a statistically significant change. In April 2026, when sample size of the labor force decreased to 45,416 respondents, a 0.84 percentage point change in unemployment is required to claim statistical significance.

If the declines in survey participation are not random across the U.S. population, estimates may also be biased, which runs the risk of conveying inaccurate information about the state of the economy. For example, if nonresponse is more likely to occur among unemployed respondents compared with employed respondents, the statistics derived from these samples may suggest labor market softness when there is none. These concerns are already materializing: The Census reported that nonresponse had biased income statistics from the CPS Annual Social and Economic Supplement upward by 2%–3% since 2020.

Researchers and field staff at Census and the BLS are aware of potential concerns of bias in their estimates and do their best to weight estimates using population counts from administrative data and other sources so that these issues don’t happen. However, if sample size declines continue on this trajectory, the BLS will need to create new methodologies and sampling strategies, all of which will require funding.

Steady throttling of BLS funding makes all decision-makers—public and private—less well informed

The declining precision of estimates in the Black unemployment rate is just one of the key indicators affected by a BLS that lacks resources to respond effectively to growing data collection challenges. Achieving a larger sample size for key surveys requires a well-functioning and well-funded BLS with personnel who can take on the challenges of administering surveys in the 21st century. Yet this is the exact opposite of what is happening. Figure C shows that from 2005 to the present, the staffing at the BLS went from roughly 2,500 employees to just over 2,150, a drop of about 15%.

Figure C

Funding has followed a similar trajectory. Since its high-water mark in 2010, the BLS budget has declined from $810 million to $636 million in inflation-adjusted terms, a decrease of 20%. These cuts don’t hurt just the estimates generated by the Current Population Survey. In the past couple of years, the BLS has been forced to reduce data collection for the Consumer Price Index and to discontinue certain Producer Price Indexes in an effort to cut costs. At a time when affordability and price changes are top of mind for U.S households and businesses, depriving public and private decision-makers of accurate and timely information about prices makes little sense.

Increased funding would allow the BLS to maintain all their current functions and implement new procedures to address declining sample sizes. In 2023, BLS began to modernize the collection process of the CPS to improve response rates by allowing online self-completion of the survey and other collection process improvements for certain data products. This BLS initiative is happening in parallel to similar initiatives in several other countries undertaking modernization efforts. The United Kingdom, the Netherlands, Australia, and Canada have all received funding to launch similar modernization efforts for their own household surveys to address declining response rates. However, the BLS requests for increased funding for the modernization efforts have not been fully granted.

The decision to steadily defund the BLS is especially striking when weighed against the large economic benefits provided by the agency and other federal statistical agencies. The BLS provides up-to-date precise estimates of economic indicators that policymakers and business leaders alike rely on. Previous research finds that increased economic uncertainty can have negative effects on the economy, proving the important role that the BLS plays. Moreover, some economists have estimated in 2025 that the BLS generates economics benefits of about $25 for every $1 spent on the agency’s budgets. The 2025 FY BLS budget was approximately $636 million, meaning the BLS currently generates about $15.9 billion in economic benefit. Across all agencies, in FY 2022, the combined budget request for statistical agencies was $7.1 billion or 0.3% GDP, yet the benefits have been measured to be around $770 billion.

Conclusion

At a time when more information on the economic and social well-being of people and communities is needed, not less, funding the BLS should be a top priority. Addressing nonresponse will require substantial effort and creativity to counteract declining levels of social trust and anti-government sentiment. It will, for example, require public campaigns to convey that information provided to the BLS is confidential and safe, and changes in methodology to render the correct statistical adjustments, such that the statistics generated are unbiased. 

Rather than tackle these challenges head on however, the Trump administration put forward a proposal that would reduce the number of statistics about rural and less populous substate areas that could be published without running the risk of disclosing personally identifiable information. These proposals are a lazy solution to the real but solvable problem of making public data widely available and fully confidential. They would provide less information on the economic and social well-being of citizens, likely leading to delays in accurately diagnosing economic and social problems.

When agencies like the BLS are underfunded and understaffed, they aren’t able to conduct the critical functions of their agency or serve the public to the degree their mission entails. Funding for these organizations shouldn’t be up for debate, given how strong of an economic benefit they deliver.