Proponents of the Southern economic development model argue that it will create good jobs (Danney 2021; Ivey 2024). They claim that adopting most or all components of the model creates a business-friendly environment with low taxes, which will attract businesses (including major corporations) that will in turn provide an abundance of jobs. In theory, if jobs were abundant and/or growing faster than the population, competition among employers to attract and retain workers would lead them to raise pay, improve benefits (including health insurance and pensions), and find other ways to make these jobs more attractive.

However, Childers (2023; 2024b) finds that job growth across the South has not kept pace with growth in the working-age population. Further, she finds that the share of the prime-working-age population that was employed—the prime-age employment-to-population ratio—was lower across the South than in any other region of the country (Childers 2024b). This reflects many factors, including a lack of access to affordable childcare and reliable public transportation that helps workers get and keep jobs. It also reflects the fact that Southern states incarcerate their residents at very high rates, which translate into large numbers of Southerners with criminal histories. Finally, many available jobs are unattractive and do not provide workers with the income and benefits needed to support themselves or their families.

In this report we explicitly examine the argument that the Southern economic development model produces good jobs for workers across the region.1 The data show that wages and access to benefits such as health insurance and pensions in Southern states that embrace the Southern model lag those of workers in other regions that do not adopt any or most of the model’s components. The Southern economic development model does not—and cannot—lift all Southerners to economic security or prosperity.

Southern states consistently have the lowest wages of any region

Southern states have lower median wages than other regions

For over 40 years, the typical worker in the South has been paid less than their counterparts in every other region of the country. Figure A shows the median hourly wage for workers by region since 1979 in constant 2021 dollars. The median wage is the wage of the worker in the exact middle of the wage distribution: This worker is paid more than half the workforce and less than the other half.

In 1979, the median Southern worker was paid the equivalent of $16.42 per hour in 2021 dollars. This is 16.4% less per hour than their counterparts in the West, the region with the highest median wages in 1979. It was also 12.6% and 10.2% lower than the wages of workers in the Midwest and Northeast, respectively. Median wages have risen nationwide since 1979, with growth ranging from 12.1% in the Midwest, 12.4% in the West, 22% in the South, and 30.2% in the Northeast by 2021, as shown in Figure A.

Since the early 1980s, the Midwest has consistently had the second-lowest wages, but over time the gap between the South and the Midwest has somewhat closed; wages in the South were only 4.8% lower than Midwest wages in 2021. However, wages in the South have never been as high as those in other regions. They remained substantially lower in 2021, when they were 9.3% lower than wages in the West and 15.9% lower than wages in the Northeast—regions where most state governments have rejected the Southern economic development model. In fact, the gap between typical wages in the South and the Northeast in 2021 is roughly the same as the gap between the South and West in 1979—meaning that the Southern model has not afforded any advantage in pay to workers in the South relative to workers in other regions over the last 40 years. Instead, the Southern model has ensured that eight of the 10 lowest-wage states in 2021 were in the South: Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and West Virginia.2

Figure A

Low-wage workers make up a larger share of the workforce across the South

While the median wage is an important indicator of the economic well-being of workers overall, it does not tell us how particular groups of workers are faring, such as the low-wage workforce. The low-wage workforce here is defined as workers that are paid less than $15 per hour. Figure B shows the share of workers that are paid less than $15 per hour in each region.

Figure B

The share of the workforce made up of low-wage workers has fallen nationwide since the COVID-19 recession. In 2019, before the pandemic, the share of workers in the South that were paid less than $15 per hour was 26%—more than one in four workers. This is a much higher share than other regions; in the Midwest, 22.2% of workers were part of the low-wage workforce, and fewer than one in five workers in the Northeast and West made up that share.

After the pandemic, a period when strong labor market conditions gave workers leverage to command a higher wage and many states were raising their minimum wages, the share of workers that were paid less than $15 per hour fell in all regions (Gould and deCourcy 2023). However, the smallest decline was in the South. The share of workers paid less than $15 per hour fell from 26% of workers to 22%, a decline of just four percentage points. There were much larger declines in the share of workers that were paid low wages in the Midwest (5.6 percentage points), the Northeast (5.9), and the West (7.8).

Figure C

Figure C shows the share of workers that are part of the low-wage workforce in each state (see also EPI 2024a). These data show that the differences between regions are not driven by a few outlier states. In several Southern states—Mississippi (29%), Louisiana (27%), Oklahoma (24%), Arkansas (23%), West Virginia (23%), and Alabama (22%)—the share of the workforce that is low wage is higher than that of the region as a whole (22%). Delaware (13%), Virginia (12%), and Maryland (9%), however, have the smallest low-wage workforces of all states across the South. Notably, although these states are part of the South Census Region, their state economic policies tend to be more in line with those of Northeastern and Western states.

Outside the South, New Mexico (21%) is the only state with more than one in five workers paid less than $15 per hour. In New Hampshire and North Dakota, just 9% of workers are low-wage workers. Even fewer workers receive such low pay in Alaska (6%), Colorado (7%), Minnesota (7%), and Vermont (7%).

Every state that lacks a state minimum wage is in the South

Many states with smaller low-wage workforces have accomplished this by raising their state minimum wage above the federal minimum wage, which has been stuck at $7.25 per hour since 2009. The value of the federal minimum wage has fallen such that it has less purchasing power today than it has had at any time since 1956 (Cooper, Hickey, and Zipperer 2022).

As federal policymakers have left the federal minimum wage to erode, policymakers in most states have raised their state minimum wages, as have lawmakers in nearly 60 cities and counties—raising pay for their state’s low-wage workers (EPI 2024b; Hickey 2023). The federal minimum wage is a floor for wages; workers generally must be paid at or above this rate.3 For example, in California, Connecticut, D.C., Maryland, Massachusetts, New Jersey, New York, and Washington, the minimum wage is $15 or higher, ensuring workers in these states are paid decent wages.

In Figure D, the data show that across the South, many states have chosen not to raise their state minimum wage above the federal minimum wage. One Southern state—Georgia—has a minimum wage lower than the federal minimum wage, while Kentucky, North Carolina, Oklahoma, and Texas have state minimum wages equal to the federal minimum wage. Five Southern states—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—have no state minimum wage at all. It is important to note that nationally, only these five states completely lack a state minimum wage.

Figure D

In addition to Maryland and D.C. that have minimum wages of $15 or higher, several other Southern states have minimum wages above the federal level but below $15. Not all were the result of actions by policymakers. The District of Columbia ($17), Maryland ($15), Delaware ($13.25), Virginia ($12), and West Virginia ($8.75) all have higher minimum wages as the result of legislation or a city council ordinance. In Florida ($12) and Arkansas ($11), higher minimum wages were the result of a ballot measure (EPI 2024b; FPI 2024; Hickey 2023).

It is also important to note that 19 states across the country have indexed their minimum wages for inflation, so that the minimum wages are adjusted each year to account for rises in inflation. Of these 19 states, only Florida, Virginia, and the District of Columbia are in the South (EPI 2024b).

These data illustrate the importance of state policies for the economic well-being of workers and their families. They also show the failure of the policies that make up the Southern economic development model. This model has failed to ensure that workers are paid enough to lift a family out of poverty, and has certainly failed to ensure workers’ economic security, especially in states with more than one in five workers paid less than $15 per hour. Even workers in the middle of the earnings distribution have been paid less than their counterparts in other regions over the last four decades.

Adjusting wages for differences in the cost of living still leaves workers across the South with lower earnings

The wage data presented thus far show that the Southern economic development model has not provided any real regional advantage to workers, with unremarkable growth in typical wages and a larger share of the workforce paid particularly low wages. Yet proponents of the Southern model argue that a lower cost of living in the South means that lower nominal wages still afford a higher quality of life. Alternatively, they argue that an abundance of jobs means there is more work to be had, and lower hourly wages might be offset by greater hours of work annually. Neither of these arguments has merit.

Figure E shows a map with the nominal median annual earnings and the median annual earnings adjusted for differences in the cost of living for all 50 states. Median 2022 earnings are adjusted using the regional purchasing power parity index from the Bureau of Economic Analysis (2023). This allows us to compare the real purchasing power of a typical workers’ annual pay across states, as if the overall cost of living (i.e., prices) were the same across the country.

Figure E

Figure E shows that adjusting for state-level differences in the cost of living has a substantial impact on our understanding of the purchasing power of workers in different states. States with extremely high costs of living such as New York, California, and Hawaii have lower relative earnings—i.e., the purchasing power of each of their dollars is lower—when we take the higher cost of living into account. The high costs of living in these states are typically driven by an inadequate housing supply, a problem less acute in Southern states, where an abundance of land and limited regulation of housing development has resulted in sprawling growth in and around many Southern cities. Thus, it is true that despite lower relative earnings in many Southern states, their dollars provide them with greater purchasing power than the nominal value of those dollars would suggest. Median annual earnings of $44,499 in Mississippi have about the same purchasing power as $54,040 in Maine or $53,811 in Arizona.

Even when state-level differences in the cost of living are considered, Southern states continue to have some of the lowest wages in the country. Only two Southern states—Maryland and Virginia—are among the 10 highest-earning states.4 And among the 10 states with the lowest cost-of-living-adjusted median earnings, half are Southern states. Of the Southern states with the lowest earnings, Florida has the lowest of all states, followed by Mississippi, Arkansas, South Carolina, and Oklahoma.

As for the arguments that the Southern economic development model will generate more jobs or that workers can work more hours to increase their earnings, neither of these claims are reflected in the data. Childers (2023; 2024b) showed that job growth across the South has not been able to keep up with growth in the working-age population since the early 2000s and only moved in tandem with population growth before the 2000s. This indicates that the Southern economic development model has failed to outperform other regions that did not adopt this model. Further, the share of the prime-age population (ages 25–54) that is employed is lower across the South than in other regions. For example, of the 10 states with the lowest prime-age employment-to-population ratio (EPOP), seven—Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, and West Virginia—are Southern states (Childers 2024b). Finally, analysis of Current Population Survey data on the average number of family hours of work across states shows that Southern states tend to have fewer hours of work per family relative to states in other regions. In 2019, before the pandemic, six of the 10 states with the fewest numbers of work hours were in the South: Alabama, Arkansas, Louisiana, Mississippi, South Carolina, and West Virginia. Of the 10 states with the highest number of work hours, only Maryland is in the South (Appendix Table 2).

These data show that the Southern economic development model is not providing the promised benefits to workers and families across the South. What the model has done is to ensure lower wages for workers across the region. 

Employer-provided benefits

Although probably the most salient for most workers, earnings are just one component of job quality. Other crucial aspects of job quality are also influenced by, if not directly shaped by, the state and local political environment and policy choices. These include workers’ access to an employer-provided pension, coverage by employer-provided health insurance, access to paid leave, and ability to form unions.

Fewer and fewer workers have been covered by employer-provided health insurance over the last 30 years

The primary way that most working-age adults and their families receive health insurance is through employer-provided coverage (Keisler-Starkey and Bunch 2023). Figure F shows trends in the share of private-sector workers working at least 20 hours per week and 26 weeks per year who have employer-provided health insurance, starting in 1981. The dramatic decline in health insurance coverage across regions is quite striking, illustrating a decline in this measure of job quality overall.

Figure F

In 1981, 68.7% of working Americans had employer-provided health insurance. While rates were higher in the Northeast (71.7%) and Midwest (71.6%), they were slightly lower in the West (68%) and substantially lower in the South (64.5%). Over the following 30 years, however, far fewer workers were covered by employer-provided health insurance across all regions. Coverage nationally fell to 52.6% in 2019, but coverage rates in the West (52.5%) and the South (50.7%) remained lower than the national rate, and the rates in the Midwest (55%) and the Northeast (53.9%) remained higher. As Figure F shows, the differences among regions have declined, but workers in Southern states are consistently the least likely to have employer-provided health insurance coverage.

The share of workers with a pension is declining across regions, but workers across the South remain the least likely to have one

Historically, many jobs that were considered good jobs provided workers with a traditional pension. A traditional pension is often referred to as a defined benefit plan, because the benefit that the worker will receive is defined upon hire. Because pensions offer a guaranteed, stable income—unaffected by swings in the stock market—these plans provide workers with economic security after they retire. Pensions have long been considered one leg of the three-legged stool that is supposed to support workers in retirement. The remaining two legs are personal savings and social security (DeWitt 1996). Unfortunately, large segments of the working population are paid such low wages that they are unable to save any significant amount of money for retirement. Figure G shows that access to an employer-provided pension has also declined precipitously across all regions, but workers across the South have consistently been less likely than their counterparts in the Midwest and Northeast to receive a pension over the last 40 years, beginning in the early 1980s, when they were the absolute least likely of workers in any region.

In 1981, almost half of private-sector workers—48.9%—had a pension. The rates were higher in the Midwest (53.6%) and the Northeast (53.6%). They were lower in the West (45.5%) and the South (43.7%). By 2019 there had been a precipitous decline in the share of workers covered by a pension, leaving just 32.5% of workers in the country with a pension. There was a decline across all regions, resulting in 38.4% of workers in the Midwest, 33.8% in the Northeast, 31.1% in the West, and 29.4% in the South having a pension.

Figure G

These declines in pension coverage are occurring at a time when the share of the population 65 and older has been increasing. The South has the largest number of people aged 65 or older—21.1 million—compared with 12.6 million in the West, 11.9 million in the Midwest, and 10.2 million in the Northeast. The South (42%) and the West (46.9%) are also experiencing the fastest growth in their 65-and-older population, with somewhat slower growth in the Midwest (31.8%) and Northeast (30.7%) (Caplan and Rabe 2023). The growth of the 65-and-older population includes retirees who relocate to the South from other regions. Of the three states with an increase of over one million in the 65-and-older population between 2010 and 2020, two—Florida and Texas—are in the South (Caplan and Rabe 2023).5

While many of these workers may have access to a 401(k) plan, also known as a defined contribution plan, these plans are a far less reliable income source than the defined benefit pension. These plans are called defined contribution plans because it is the employer’s contribution to the plan that is determined at the beginning of the employment relationship—and the employer’s contribution can be $0—rather than defining the benefit the employee will receive, as with the defined benefit pension (Morrissey 2016). When employers do contribute to the plan, they will often only match the amount the employee contributes up to a specific percentage of the employee’s salary. According to National Association of Plan Advisors (2017), it is most common for employers to contribute up to 6% of an employee’s salary to their 401(k). If the employee’s earnings are too low to participate, the employer typically does not contribute. Also, unlike pensions, where the employer is responsible for ensuring workers receive a predictable stream of income in retirement, the 401(k) shifts responsibility for the investment decisions and the associated risks onto the worker. This shift ultimately means less economic security in retirement for many of today’s workers.

Workers across the South have less access to paid leave than their peers in other regions

Paid sick leave

Access to paid sick leave and paid family and medical leave are crucial indicators of job quality. Paid sick leave ensures that workers can take time off from work if they or a family member are sick, have an injury, or need to seek medical treatment. Because there are no federal laws guaranteeing paid sick leave, in states and localities that do not have laws requiring paid leave, employers decide whether workers will be paid. Unfortunately, low-wage workers are much less likely to be offered paid time off than workers in better-paying jobs (Gould and Wething 2023). Low-wage workers are also often the least likely to be able to afford to lose their wages. This means that many go to work when they are sick or send their children to school sick, endangering public health. For example, one survey found that seven in 10 women working in the fast-food industry had gone to work when they were sick—coughing, sneezing, with a fever, or vomiting­—because they did not have paid leave (National Partnership 2016). Thus, paid sick leave not only protects workers but it also protects the public by ensuring workers are not coming to work sick.6

Table 1

As of January 1, 2024, 15 states and the District of Columbia have passed paid sick leave laws (KFF 2023). Three states—Illinois, Maine, and Nevada—have more general paid leave laws that workers can use to take time off for illness or injury, but they are not limited to using them for these purposes (Illinois DOL n.d.; Williamson 2023). Across all these states, only Maryland and the District of Columbia are in the South.7 Table 1 shows data from one study of access to paid sick leave for states across the South.

The authors found that in all but three states that had a state paid sick leave law, more than 90% of workers had access to paid sick days. In contrast, in states that did not have a state paid sick leave law, access levels ranged from as low as 64.6% to 75.9%, with most state rates below 70%. Seven of the 10 states with the least access—Florida (34.9%), Oklahoma (33.6%), Tennessee (32.9%), Louisiana (32.8%), Arkansas (32.7%), South Carolina (32.7%), and Texas (32.6%)—were in the South (Mehta and Milli 2023). This amounts to millions of workers in states like Florida (3.4 million), Tennessee (1.1 million), and Texas (4.4 million) lacking access to a basic benefit (Mehta and Milli 2023).

In contrast to most Southern states, more than 90% of workers in the District of Columbia (94%) and Maryland (90.8%) had access to paid sick leave—they both have paid sick leave laws­. 

Paid family and medical leave

In addition to needing time off when they are sick, workers also often need extended time off to care for and bond with a new baby or when they or someone in their family have more serious medical needs. Good jobs ensure that workers can take the time they need. Unfortunately, the U.S. does not have a federal guarantee of paid family and medical leave for workers. What the U.S. does have is the Family and Medical Leave Act (FMLA), which provides unpaid, job-protected leave to “eligible” workers to care for a newborn or newly adopted child; a sick or injured child, spouse, or parent; or their own serious health issue. Unpaid, job-protected leave is also provided to family members of a spouse, parent, or child that is on “covered active duty” (DOL 2023).

The FMLA, signed into law in 1993, provides 12 weeks of leave in any 12-month period or 26 weeks for a spouse, child, parent, or next of kin caring for an injured servicemember (Gould 2019; Shabo 2024a).8 While this law is important, it has serious shortcomings. First, it is unpaid, which puts many low-wage workers in economic peril if they must take leave. If they simply cannot afford the lost income, they will not be able to properly care for themselves or their families.

The FMLA also excludes large swathes of workers; it just covers 56% of workers (Brown, Herr, Roy, and Klerman 2020; Gould 2019; Shabo 2024a). Workers can be found to be ineligible for FMLA coverage because they haven’t worked for the employer for at least 12 months; because they didn’t work 1,250 hours in the last 12 months for their current employer; or because they work at a location where the employer does not have at least 50 employees within 75 miles of the workplace (Brown, Herr, Roy, and Klerman 2020; DOL 2023). These exclusions create inequities in whose jobs are protect along the lines of income, race, ethnicity, and education (Brown, Herr, Roy, and Klerman 2020).

Increasingly, however, some states are stepping in to address some of the inadequacies of the FMLA. Nine states—California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington—and the District of Columbia currently provide workers with state paid family leave benefits (Shabo 2024a; Shabo 2024b). Of these, only the District of Columbia is in the South. An additional four states—Maryland, Delaware, Maine, and Minnesota—have enacted state paid family and medical leave laws that will provide benefits starting in 2026 (Shabo 2024b). Just two of these are in the South, and none of the Southern states with leave adopt the Southern economic development model.

Most state plans take a progressive approach, which replaces a larger share of low-wage worker’s wages than they do of high earner’s wages. For example, in California, low-wage workers will receive 90% of their typical earnings beginning in 2025 (Shabo 2024b). Today it is a 70% wage replacement rate for low-wage workers and 60% for other workers. This is not limited to California, however. Only Massachusetts (80%) and New Jersey (85%) have a wage replacement rate below 90% (Shabo 2024b).

Most state paid family and medical leave programs are also funded in a sustainable way with a small tax paid by the employer, employee, or a combination of both. This money goes into a public fund, which pays out the benefit to workers (Shabo 2024b; Williamson 2023). State paid family leave policies also embrace a broader definition of family that tends to include domestic partners (Shabo 2024b).

As noted, only three Southern states—Delaware, D.C., and Maryland—have or will have a state paid family and medical leave program by 2026. Six Southern states have taken a very different approach to providing paid family leave. Alabama (2023), Arkansas (2023), Florida (2023), Tennessee (2023), Texas (2023), and Virginia (2022) have adopted private insurance models of paid leave that allow private insurance companies to sell insurance policies to employers and/or to workers themselves to provide benefits while they are on leave (Shabo 2024b; Widiss 2023).9

This approach has been embraced by the insurance industry. The National Conference of Insurance Legislators adopted a paid family leave model law at their 2022 annual meeting. A press release touts the model law as providing “a framework for states to create a new line of insurance in which any insurer licensed to transact life insurance or disability income insurance will also be able to provide coverage for paid family leave” (Insurance News Net 2022).

Because these models have been enacted so recently, there is not much data on what they look like or how they will perform. Despite this, Shabo (2024b) found that the estimated costs in New Hampshire of using a similar model was overall more expensive than state paid family leave programs. Widiss (2023) highlights that this approach resembles the short-term disability model, a benefit that just 40% of all workers in the United States and 22% of low-wage workers in the country receive from their employers. Across the South, just 32% of workers receive this benefit (Widiss 2023). Further, Widiss points to the short-term disability policies replacing just 50%–60% of workers’ regular wages, a much lower replacement rate than state paid leave plans. The private insurance models for paid leave will therefore almost certainly provide less coverage, cover fewer workers, increase already large disparities in access, and will likely be more expensive (Widiss 2023).

Being able to take time off work for the birth of a new child, to provide care for a sick parent, or to support a disabled spouse without fearing job loss is crucial for all families. Knowing that you and your family will be protected from having an economic emergency on top of a physical illness or injury is just one of the most basic rights that all workers should have access to—independent of their race, education, income, region, or size of employer.

Southern state lawmakers have also disempowered local communities

Unionization rates are a key predictor of job quality and the overall economic well-being of Southerners

Finally, we examine union coverage rates across the South. A key component of the Southern economic development model is a zealous opposition to unionization or collective bargaining. The model’s proponents have sought to ensure as much as possible that workers are not empowered, which allows them to advertise their states as “business friendly.” Business friendly, in their minds, means low wages and few (if any) benefits for workers, and low taxes and few regulations for businesses.

When workers are able to join together in a union, they are empowered to improve their own economic status, even when politicians refuse to raise their state minimum wage or to ensure access to pensions or paid leave. Research has repeatedly shown that higher rates of unionization and union coverage are associated with higher wages; increased access to employer-provided health care, paid sick leave, and paid family and medical leave; smaller wage gaps by race and sex; better working conditions; and lower economic inequality, among other benefits (Banerjee et al. 2021; Freeman, Han, Madland, and Duke 2015; Frymer and Grumbach 2020; Mishel 2021; Mishel, Rhinehart, and Windham 2020).

Figure H shows union coverage rates by region. Union coverage rates are much lower across the South than in other regions of the country. While union coverage rates have generally declined across regions, rates across the South in 2021 (6%) are less than half that of the Midwest (12.6%), the region with the next-lowest rate. They are highest in the Northeast (17.9%) and the West (15%), regions that have higher median wages and a smaller share of workers being paid less than $15 per hour. States in the Northeast and West are also more likely to have paid sick leave laws and state paid family and medical leave programs. Union coverage rates across states are a clear indicator of job quality and of worker-friendly state-level policies.

Figure H

Figure I shows union coverage rates for individual states across the South in 2019 and 2023. As with the indicators above, in 2019 before the pandemic, Maryland (12.7%), Delaware (9.9%), and D.C. (10.2%) fared better than most Southern states in terms of having a larger share of their workers covered by a union. West Virginia (11.1%), however, has the second-highest union coverage rate. The lowest union coverage states are South Carolina (2.7%), North Carolina (3.4%), and Georgia (5%), with Virginia and Texas tied at 5.2%—compared with a national rate of 11.2% in 2023 (BLS 2024).

Figure I

Half of states across the South (seven of the 14 shown in Figure I) experienced a decline in union coverage following the pandemic. The largest declines were in Florida (-1.4 percentage points), Alabama (-1.2), and West Virginia (-1). These declines are not because workers do not favor unions; we have seen increased demands for unions from public school teachers and workers at Starbucks, Amazon, Google, Trader Joe’s, and many other private companies across the nation (De Vynck and Gurley 2022; Durbin 2023; Hsu 2022; Greenhouse 2023; Ingram 2023; Scheiber 2023). In fact, in the first half of 2022 alone, unions won 662 elections (Chernikoff 2023). In the first eight months of 2023, 323,000 workers walked off the job to demand improvements in pay, benefits, or working conditions (Chernikoff 2023). While nationally there has been little change in union coverage rates, there has been an increase in absolute numbers of workers joining unions (Shierholz, McNicholas, Poydock, and Sherer 2024). Notably, Figure I shows that since 2019, there were small increases in union coverage rates in several Southern states, with the largest increases in Kentucky (1.8 percentage points), Tennessee (1.4), and Mississippi (1.4).

Across the South, most states have passed so-called right-to-work laws, with the exceptions of Delaware, Maryland, and the District of Columbia. Right-to-work laws do not, in any way, guarantee workers will have access to a job if they want one. They simply make it harder for unions to be financially sustainable. Unions are legally required to protect and advocate on behalf of all workers at a company, not just union members. Because contract negotiations and legally representing workers—whether they are union members or not—can be expensive, in some states, private-sector unions can charge nonmembers a small agency fee to cover the costs of negotiating for them. In right-to-work states, unions are not allowed to collect this fee, effectively starving unions of resources (NCSL 2023).

And it is not only through right-to-work laws that politicians across the South and beyond oppose unions. Senator Mike Hodges introduced Senate Bill 362 in Georgia, a bill that would bar new businesses in Georgia from receiving state incentives if they voluntarily recognized a union based on a card check rather than a more costly election (R. Williams 2024; D. Williams 2024). Card checks are among the traditional and legal ways unions are recognized; when a majority of workers agree to sign authorization cards, they recognize the union as their bargaining representative (Eisenbrey 2009; 2012). Senator Jack Johnson sponsored a similar bill in Tennessee (Johnson 2023). Essentially, these bills attempt to penalize employers who want to respect workers’ right to join with their coworkers to collectively bargain for fair wages, good benefits, and safe working conditions.

Efforts to organize workers across the South have seen real pushback from governors—from Kay Ivey in Alabama referring to efforts to organize workers as an “attack” to Governor Kemp in Georgia putting his full support behind Senator Hodges’s bill and Governor McMaster of South Carolina vowing to “fight [unions] all the way to the gates of hell” to defeat “pro-union policies” in his state (Harris 2024; Ivey 2024; Kemp 2024).

In addition to right-to-work laws and the overall opposition from political leaders across the region, workers seeking to organize a union typically face intense opposition from employers. Companies spend $340 million dollars per year on consultants to help them prevent unionization among workers, and one in five unionization campaigns results in a charge that a worker was fired for trying to unionize (McNicholas et al. 2019). Further, because of the political opposition to unions, when workers try to organize, employers know that they can illegally intimidate them, refuse to recognize the union, or negotiate a contract in bad faith—with little to no fear of being held accountable by political leaders.

The fierceness of the opposition to unions, however, is perhaps one of the best indicators of the power of workers joining together to demand fair pay and fair treatment.

Preemption prevents local lawmakers from improving economic conditions for their constituents

In this report, we examined the evidence on job quality across the South and across the states within the South. We showed that workers in Southern states have worse job quality and are less likely to experience true economic security. While political leaders in many states across the South oppose policies that would empower workers, within these states, there are city and county officials who support higher minimum wages and access to pensions and paid leave for workers. A primary reason that many local jurisdictions across the South do not have these policies that support and empower workers in place is state-level preemption. Preemption is when state policymakers either block a local ordinance or dismantle an existing ordinance. States across the South with majority-white state legislatures have used preemption laws more than policymakers in states outside the South. They use preemption to block ordinances that would increase the economic security of people in localities where a majority of residents are people of color (Blair, Cooper, Wolfe, and Worker 2020).

Figure J shows a map of U.S. states and the number of policies that have been preempted at the state level. Across the South, local jurisdictions have been preempted from raising the minimum wage, providing paid leave, ensuring workers are given fair work schedules, or requiring contractors to pay workers the prevailing wage. Localities are not allowed to require project labor agreements, contracts that are unique to the construction industry and negotiated between labor unions and contractors laying out the terms and conditions of employment for construction projects. They also preempt the regulation of gig economy work­, such as driving for Uber or Lyft. These laws often prevent regulation that would treat these workers as employees and entitle them to all the accompanying rights and protections. Instead, localities require they be treated as independent contractors who are not entitled to the same protections.

Figure J

While the Southern economic development model emerged out of efforts of powerful interests—including politicians, plantation owners, and other employers—to continue extracting undervalued labor from Black men and women following the Civil War, the use of preemption across the South is a continuation of that process. All the data presented in Figure J show the efforts of state officials across the South to ensure wages are low and workers are economically insecure, and to ignore the needs of workers to care for their families. The harms caused by these policies are not limited to Black and brown Southerners; they hurt all workers and families across the region, although the greatest negative impacts continue to be on Black and brown Southerners.

Conclusion

To begin to work toward changing the Southern economic development model, it will be important for Southerners from all backgrounds—across race, ethnicity, gender, immigrant statuses, and income levels—to stand together and build the coalitions needed to demand policymakers create a new economic development model. Workers and families across the South deserve an economic model that centers and empowers workers and families, providing all workers with the wages and benefits that would ensure their economic security and allow them to sustain their families. This includes:

• raising the minimum wage to a living wage
• ensuring all workers have health insurance
• providing workers with a pension
• giving all workers access to paid leave, including paid sick days and paid family and medical leave

Finally, and perhaps most important, workers must be able to come together in a union to demand fair wages and benefits, a safe working environment, and the ability to have a say about their workplace—even when politicians are intransigent. This is a model that would serve the interests of all Southerners.

Notes

1. In this report, we use the U.S. Census Bureau’s definition of the South Census Region, which includes: Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia, and the District of Columbia. We note when analyses focus on a subset of these states.

2. For the median hourly wage for all states ranked from highest to lowest, see Appendix Table 1.

3. There are exceptions that allow some workers to be paid less than the $7.25 federal minimum wage. Some groups covered by these exceptions include tipped workers, workers with disabilities, some youth workers, and seasonal or agricultural workers. However, when a state law requires a higher minimum wage than federal law, the state law would apply (U.S. Department of Labor n.d.).

4. Data for the District of Columbia is not included in the ranking of states here because it is a city-state and the seat of the federal government, which artificially raises wages. If D.C. had been included, it would have been among the 10 highest-earning states.

5. The third state is California.

6. Typically, paid sick leave laws are structured so that workers earn time off based on how much they work. For example, a worker may earn one hour of paid sick leave for every 30 hours they work, up to a maximum number of earned hours (Mehta and Milli 2023).

7. States that have paid sick leave laws are: Arizona, California, Colorado, Connecticut, the District of Columbia, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington (National Partnership 2023). Some cities and counties have also passed paid sick leave laws, but only one—Montgomery County, Maryland—is in the South. This reflects the fact that state lawmakers across the South have used preemption to block city and county laws that would protect workers but that state lawmakers oppose (EPI 2024).

8. Military Caregiving Leave was not part of the original FMLA, but the FMLA was amended to add these provisions.

9. New Hampshire also provides paid family and medical leave through an insurance program that is required for public employers but is voluntary for private employers, who may purchase a plan for their employees, share the costs with employees, or require employees to purchase the plan to participate (Landroche n.d.; Shabo 2024a).

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Appendix

Appendix Table A

Appendix Table B

• Boost wages and salaries by allowing employers to redirect money they are spending on health care costs to their workers’ wages.
• Increase job quality by ensuring that every job now comes bundled with a guarantee of health care—with the boost to job quality even greater among women workers, who are less likely to have employer-sponsored health care.
• Lessen the stress and economic shock of losing a job or moving between jobs by eliminating the loss of health care that now accompanies job losses and transitions.
• Support self-employment and small business development—which is currently super low in the U.S. relative to other rich countries—by eliminating the daunting loss of/cost of health care from startup costs.
• Inject new dynamism and adaptability into the overall economy by reducing “job lock”—with workers going where their skills and preferences best fit the job, not just to workplaces (usually large ones) that have affordable health plans.
• Produce a net increase in jobs as public spending boosts aggregate demand, with job losses in health insurance and billing administration being outweighed by job gains in provision of health care, including the expansion of long-term care.

While the overall effect of fundamental health reform on the labor market would be unambiguously positive, this does not mean policymakers should ignore the distress caused by job transitions forced by this reform. Specifically, policy support should be provided to help displaced health insurance and billing administration workers move into new positions. But we should not let critics of Medicare for All inflate the scale of this transition challenge or falsely present the number of jobs displaced in individual sectors as the net effect of reform on labor markets. The number of health insurance and billing administration workers who would need to transition implies an increase in the rate of overall job market churn that is relatively small: Job losses for these workers would be equivalent to one-twelfth the size of economywide layoffs in 2018.

Background: The need for fundamental health reform

Currently, despite the significant gains in health care coverage spurred by the passage of the Affordable Care Act (ACA) in 2010, roughly 23 million Americans between the ages of 19 and 64 are uninsured, and another 64 million are underinsured (Collins, Bhupal, and Doty 2019).1 In addition to problems with access, the American health care system also suffers from excess costs.2 While excess health care cost growth has slowed notably in the last decade, it would be prudent for policymakers to try to keep this cost growth in check with significant policy reforms rather than simply hoping for the best going forward. Some highly important health-related prices have begun rising rapidly in the very recent past. Insurance premiums, for example, rose 20% in 2019.3 Overall spending on prescription drugs rose more than 9% between the fourth quarter of 2018 and the fourth quarter of 2019—the largest year-over-year change since 2015.4

Bivens 2018b provides data demonstrating that health spending in the U.S. is higher than in advanced peer countries and has risen faster over time—and yet continues to buy worse health outcomes. The higher and faster-growing spending of the United States is driven by faster growth of prices, not by growth in the volume of health care goods and services consumed. Further, international evidence shows that a key component of controlling cost growth is a strong public role in setting and negotiating the prices of health care goods and services.

A fundamental reform like Medicare for All (M4A) would make coverage universal. Further, by providing a counterweight to (or outright eliminating) the substantial market power that keeps prices high and that is currently wielded by many key players in the health care sector (e.g., insurance companies, drug companies, specialty physicians, and device makers), such a reform could also have great success in containing health care cost growth. This could in turn provide relief from many of the ways that rising health costs squeeze family incomes.

An underappreciated benefit of such a reform is that it would also lead to a much better functioning labor market in many areas. Job quality would increase, job switching would become less stressful, better “matches” between workers and employers would boost productivity, and small businesses would be much easier to launch.

Despite the fact that M4A could deliver these large benefits to efficient labor market functioning, the policy often comes under fire from critics making highly exaggerated claims about the potential job loss that could occur under such a reform. The grain of truth in some of the claims is that, like any productivity improvement, the adoption of a reform like M4A would require the redeployment of workers from one sector (the health insurance and medical billing complex) to other sectors (mostly the delivery of health care). But there is little in the M4A-induced redeployment of workers that would greatly stress the American labor market over and above the uncertainty and churn that characterizes this labor market every year. Smart policy could make this redeployment eminently manageable for those workers who would be required to make the transition.

This brief highlights some labor market implications of M4A and critically examines claims that large job losses in the health insurance and billing administration sectors would make M4A an undesirable policy.

Health reform as labor market policy: Key effects for workers

Fundamental reforms like M4A could greatly aid labor market outcomes for U.S. workers. The most obvious benefits would be higher wages and salaries, increased availability of good jobs, reduced stress during spells of job loss, better “matches” between workers and employers, and greater opportunity to start small businesses.

Higher cash wages and salaries

Medicare for All could increase wages and salaries for U.S. workers by reducing employers’ costs for health insurance—freeing up fiscal space to invest in wages instead. The share of total annual compensation paid to American employees in the form of health insurance premiums rather than wages and salaries rose from 1.1% in 1960 to 4.2% in 1979 to 8.4% in 2018.5 If this post-1960 increase had been only half as large—and employers had spent the health cost savings on wages and salaries—the take-home wages of American workers would have been almost $400 billion higher in 2018.6 Given that the share of total compensation spoken for by health insurance premiums is starting from a high base today, any reform that managed to slow the excess growth of health spending going forward would go a long way in making space for faster growth of cash compensation.7

Increased availability of ‘good jobs’

Medicare for All could increase job quality substantially by making all jobs “good” jobs in terms of health insurance coverage and by increasing the potential for higher wages. While the definition of a “good job” is always going to be a bit imprecise, the vast majority of U.S. workers would say that a good job is one that pays decent wages and that also provides the health insurance coverage and retirement income benefits that most of today’s workers can only reliably access through employment. Nearly half of jobs fail this test on account of health care coverage alone: In 2016, 46.9% of workers held jobs in which their employer made no contributions to the workers’ health care; for workers in the middle fifth of the wage distribution, 42.9% held jobs in which the employer made no contribution to their health care (EPI 2017).

By making health coverage universal and delinking from employment, M4A would make it far easier for employers to offer good jobs in this regard, as every job would now be accompanied by guaranteed health care coverage. Further, as noted above, wages and salaries would have substantial room to grow if health care costs were taken off of the backs of employers. Schmitt and Jones (2013) estimate the share of good jobs—jobs that clear a specified wage floor8 and provide health and retirement coverage—in overall employment each year between 1979 and 2011. They then look at various policy changes that would boost this share. They find that providing universal health coverage would boost the probability that any given job in the economy is a good job by almost 20%—and that’s even before any potential boost to the share of jobs that are good jobs coming from cash wage increases provided as employers shed health care costs.9 The boost to job quality from making health coverage universal would be even greater for women workers, as women are currently less likely to receive employer-sponsored health insurance benefits from their own employers.10

Less damaging spells of joblessness

Medicare for All could make job losses and transitions less stressful by delinking employment and access to health insurance, emulating the universal access to health care offered by our rich country peers. The U.S. is unique among the rich countries of the world in how much it ties crucial social benefits—like health insurance and retirement income—to specific jobs. Hacker (2002) has referred to this arrangement as the “divided welfare state,” with some Americans having relatively full access to health and retirement security while others have access to virtually none, all based on the specific jobs they have. This makes some jobs in the U.S. economy especially valuable, and hence especially damaging to lose. Manufacturing workers without a college degree, for example, likely incur enormous income and social benefits losses in the event of job loss stemming from either automation or trade. The ability of universal, public social benefits to make individual job losses less damaging has been long recognized by social scientists (see, for example, Estevez-Abe, Iversen, and Soskice 2001).

Smooth job transitions contribute to economic dynamism by helping ensure that vacancies are filled quickly by appropriate workers and that unemployed workers can quickly find new jobs that make good use of their skills. Smooth job transitions will also be an important components of meeting crucial policy goals such as mitigating greenhouse gas emissions with wholesale changes in how energy is created. Policies that make job transitions easier and inspire less resistance from workers should be encouraged. Fundamental health reform that, like M4A, guarantees access to insurance regardless of one’s current job status is a key part of making such transitions easier.

Better labor market matches between workers and employers

Medicare for All could decrease inefficient “job lock” and boost small business creation and voluntary self-employment. Making health insurance universal and delinked from employment widens the range of economic options for workers and leads to better matches between workers’ skills and interests and their jobs. The boost to small business creation and self-employment would be particularly useful, as the United States is a laggard in both relative to advanced economy peers.

Substantial evidence indicates that our current system of employer-sponsored insurance (ESI) creates significant “job lock”—a condition in which workers who don’t want to lose their current ESI stay in their current jobs rather than make transitions that would better meet their needs. In a comprehensive review of this literature, Baker (2015) finds:

The likely range of a job-lock effect is a reduction in turnover—the rate at which people leave jobs—of 15–25 percent among workers with EPHI [employer-provided health insurance, or ESI]. With normal turnover for prime-age workers (people ages 25–54) in the range of 15–20 percent per year, this job-lock effect implies a reduction in annual turnover of around 4 percentage points among prime-age workers with [employer-provided health insurance, or ESI].

Making employment decisions based on access to ESI rather than on other criteria—such as work–life balance, cash wages, and commuting distance—can lead to employment “matches” that are less productive and that decrease overall worker welfare relative to job choices that are not constrained by the availability of health insurance.

More small-business formation

Despite policymakers’ frequent claims that they seek to support small businesses in the U.S. economy, the United States has a notably small share of small-business employment relative to our rich country peers. In 2018, for example, the U.S. was dead-last among the members of the Organisation for Economic Co-operation and Development (OECD) in its share of self-employment, at just 6.3% of employment. Countries that are frequently portrayed in U.S. business reporting as being choked by regulation—like Spain, France, and Germany—have far higher shares of self-employment, at 16.0%, 11.7%, and 9.9%, respectively (OECD 2020).

Besides a low share of self-employment, the U.S. also had significantly lower shares of overall employment in small businesses, across nearly all industrial sectors. The latest OECD data show that the U.S. share of employment in enterprises with fewer than 50 employees is lower than in any other country except for Russia (OECD 2018, Figure 7). In an earlier overview of trends in employment by firm size, Schmitt and Lane (2009) highlight how health care policy plays two key roles in potentially explaining cross-country trends. First, because health care is nearly universally provided in other rich countries, workers choosing to start their own businesses in those countries do not face a cost confronting would-be entrepreneurs in the U.S.: the loss of ESI. Second, small businesses in the U.S. are at a distinct disadvantage in recruiting employees because the cost of providing health care coverage is significantly higher for small companies.11

Employment effects of fundamental health reform: gains in health care, losses in insurance and billing—with likely economywide net job gains from rising economic demand

Like all positive productivity gains, Medicare for All would be more likely to increase the total number of jobs in the U.S. economy, even as health reform leads to the redeployment of workers from some sectors and into others.

Despite the many labor market benefits of fundamental health reform like M4A, many critics have claimed that such reform would lead to a loss of jobs. This claim is misleading. One small grain of truth to it is that the universal provision of health insurance would allow people who would strongly prefer not to work (or not to work full time), but who have remained in their current jobs in order to retain health insurance, to be free to quit. This type of voluntary reduction in labor supply following a health reform would be strongly welfare-improving. For example, the ACA was clearly associated with a large increase in parents with young children transitioning to part-time work (see Jørgensen and Baker 2014). To the degree this occurred because these parents no longer needed to work full time to obtain ESI, and they preferred spending more time with their children for reasons of work–life balance, it should be seen as a clear win for the policy.

Generally, people expressing concern about job loss stemming from a policy are concerned about involuntary job loss that leads to a higher level of unemployment in the economy. Unemployment is almost entirely a function of the level of aggregate demand: spending by households, businesses, and governments.12 The effect of fundamental health reform on the level of aggregate demand depends in turn on the balance of increased public spending and the means of financing this spending. All else equal, more public spending will boost aggregate demand and create jobs, while higher taxes will reduce aggregate demand and restrain job growth. Further, the progressivity of taxes used to finance fundamental health reform will also condition its effect on aggregate demand. The more progressive the taxes that finance health reform, the less they will drag on job growth. Increased public spending combined with progressive tax increases would almost certainly boost the level of aggregate demand and lead to lower unemployment, all else equal.

While the overall number of jobs and the level of unemployment in the economy is largely a macroeconomic issue determined by aggregate demand, claims that fundamental health reform like M4A will lead to job loss sometimes sound plausible because it is easy to envision the specific jobs that might be displaced: jobs in the health insurance and billing administration sectors. But these job displacements would be balanced by likely job gains in other sectors—most particularly in health care delivery. The health insurance coverage expansions of M4A will boost demand for health care goods and services, and workers will need to be hired to meet this demand.

Job losses in the health insurance and billing administration sectors

A recent analysis of the economic effects of M4A (Pollin et al. 2018) includes the projection that up to 1.8 million jobs in the health insurance and billing administration sector (the divisions of hospitals and doctors’ offices dedicated to administrative processing of bills and payments) could be made redundant. These potential 1.8 million lost jobs are frequently presented as if they constitute the net employment effect of M4A.13 This is a deeply flawed misrepresentation of Pollin and his colleagues’ work. In fact, their estimates are a gross (not net) measure of job displacement or “churn”—the regular process of workers starting and leaving jobs during the course of their work lives. Relative to the scale of other gross measures of job churn, the churn associated with M4A is not large.

It is true that one source of cost savings from the introduction of M4A is the reduced demand for insurance and billing administration. In turn, this reduced demand would shift employment out of these sectors. This could certainly cause challenges and economic distress for the workers within these sectors who are directly affected. But for some perspective, it is worth noting that 21.5 million workers were laid off in 2018 (BLS 2020b). If the 1.8 million workers that Pollin et al. (2018) identify as potentially being displaced by M4A were forced to transition over the four-year phase-in commonly identified with M4A plans, this would increase the national rate of layoffs by about 2%. It is also worth noting that even within just the finance and insurance sectors, there have been 1.7 million layoffs in the past four years (BLS 2020b). And yet it’s safe to say that very few people even in the business press have made any note of this. This is not a shock: Our economy generates a huge amount of job churn every year. This churn is the hallmark of growth in productivity—getting more economic output with fewer inputs. While productivity growth can indeed put downward pressure on jobs in the sector experiencing it directly, Autor and Salomons (2018) demonstrate that productivity gains within a given sector strongly boost job growth in other sectors, as the savings to households and businesses stemming from enhanced productivity increase purchasing power that supports demand for these other sectors’ outputs.

If workers in the insurance or billing administration sectors were particularly hard-pressed for reemployment prospects because of geographic isolation or low average levels of educational credentials, their displacement might pose particular concern to policymakers. But employment in the health insurance and billing administration sectors is not particularly geographically concentrated,14 and Pollin et al. (2018) show that 56.5% of workers in these sectors have a four-year college degree or more education, a far greater share than the overall labor force (in 2018, 37.6% of workers had a four-year degree or more education, according to EPI 2020b).

Substantial likely job gains in the health care sector

While it may seem counterintuitive, fundamental health reform like M4A is almost guaranteed to substantially expand employment in the health care sector overall, even taking reduced billing administration employment into account. Often people hear that fundamental reform is aimed at cost containment and then imagine that part of this cost containment will take the form of fewer jobs providing health care, but this is not necessarily the case. As noted before, the U.S. is an outlier in terms of how much it spends on health care, but its health care workforce as a share of the total workforce is not out of line with shares in other countries. For example, in 2017 the health care workforce in the U.S. was equal to 13.4% of the overall workforce, while the share averaged 12.9% in the 20 other richest OECD countries.15 Additionally, seven of these other countries had health care workforce shares equal to or higher than the U.S.’s 13.4%.16

Pollin et al. (2018) estimate that expanded access to health care could increase demand for health services by up to $300 billion annually. Given the current level of health spending and employment, this would translate into increased demand for 2.3 million full-time-equivalent workers in providing healthcare.17 Obviously all of the workers displaced from the health insurance and billing administration sectors could not necessarily transition into these jobs seamlessly, but well over 10% of workers in the health insurance sector, for example, are actually in health care occupations (e.g., they are doctors or nurses).18

Further, several M4A plans have provisions to pay for long-term care services. Reinhard et al. (2019) have estimated that in 2018, Americans provided roughly 34 billion hours in unpaid long-term care. If this care was divided up among full-time paid workers, it would require 17 million new positions. Of course, not all of this currently unpaid care would be converted into paid positions in the job market. But if even 10% of unpaid care translated into new jobs, it would create enough new demand for workers to essentially offset the displacement of workers in the health insurance and billing administration sectors.

The upshot: M4A creates a small amount of manageable churn but increases the overall demand for labor and boosts job quality

The job challenge relating to a fundamental health reform is managing a relatively small increase in job churn during an initial phase-in period. Most Medicare for All plans explicitly recognize and account for the costs of providing these workers the elements of a just transition. As noted previously, this sort of just transition is far easier when health care is universally provided.

Besides this challenge, the effect of fundamental reform like M4A on the labor market would be nearly uniformly positive. The effect of a fundamental reform like M4A on aggregate demand is almost certainly positive and will therefore boost the demand for labor. The number of jobs spurred by increased demand for new health care spending (including long-term care) will certainly be larger than the number displaced by realizing efficiencies in the health insurance and billing administration sectors.

Finally, the introduction of fundamental health reform like M4A—particularly reform that substantially delinks health care provision from specific jobs—would greatly aid how the labor market functions for typical working Americans. Take-home cash pay would increase, job quality would improve, labor market transitions could be eased for employers and made less damaging to workers, and a greater range of job opportunities could be considered by workers. The increased flexibility to leave jobs should lead to more productive “matches” between workers and employers, and small businesses and self-employment could increase.

Fundamental health reform would benefit typical American families in all sorts of ways. Importantly, contrary to claims that such reform might be bad for jobs, this reform could substantially improve how labor markets function for these families.

About the author

Josh Bivens joined the Economic Policy Institute in 2002 and is currently EPI’s director of research. His primary areas of research include mac­roeconomics, social insurance, and globalization. He has authored or co-authored three books (including The State of Working America, 12th Edition) while working at EPI, has edited another, and has written numerous research papers, including many for academic journals. He appears often in media outlets to offer eco­nomic commentary and has testified several times before the U.S. Congress. He earned his Ph.D. from The New School for Social Research.

Endnotes

1. Underinsurance includes coverage gaps throughout a year.

2. “Excess costs” typically refers to health care costs that are rising faster than other economic benchmarks, such as overall gross domestic product. The Congressional Budget Office, for example, defines excess costs as the percentage change in health care costs per beneficiary minus the percentage change in per capita gross domestic product (Banthin 2017).

3. Author’s analysis of data from BLS 2020a.

4. Author’s analysis of data from BEA 2020, Table 2.4.5U, line 120.

5. Data from BEA NIPA Table 7.8, line 17, divided by data from BEA NIPA Table 2.1, line 2 (BEA 2020).

6. If the share of total compensation directed toward premiums had grown by just 3.65 percentage points rather than the actual increase of 7.3 percentage points between 1960 and 2018, and the difference had all been directed toward increased wages and salaries, then wages and salaries in 2018 would have been higher by an amount equal to 3.65% of total compensation of employees in that year ($10.93 trillion), or $399 billion (BEA 2020).

7. A quick example may help make the point. If health insurance premiums rose by 7% per year, they would double in 10 years. If growth of other forms of compensation remained flat, this would lead to the share of health insurance premiums in total compensation doubling in 10 years. If premiums started from 1% of total compensation in the base year (as in 1960), this doubling would only “crowd out” 1% of total compensation that could be taken in the form of cash wages and salaries. If instead premiums started from a base of 8.4% of total compensation (as in 2018), this doubling would “crowd out” 8.4% of total compensation that could be taken in the form of cash wages and salaries.

8. The wage floor Schmitt and Jones specify for a good job is the median wage of men in 1979, adjusted for inflation. When adjusted for inflation into 2019 dollars using the CPI-U-RS, the 1979 men’s median hourly wage is $21.07 (EPI 2020a).

9. Specifically, in Table 1 Schmitt and Jones report that the share of good jobs would rise from 24.1% to 28.8% with the introduction of universal health coverage. Dividing this 4.7-percentage-point increase by 24.1% yields a 20% increase.

10. See Schmitt and Jones 2013, Table 2.

11. For evidence on the cost of providing health insurance by employer size, see Hertel-Fernandez, Gould, and Bivens 2009, Figure C.

12. For an explanation of how aggregate demand determines the level of unemployment, see Bivens 2018a.

13. See Pradhan 2019 for an example of these numbers being presented as the overall effect of M4A on jobs.

14. For example, if one sums the share of employment in health insurance, hospitals, and medical offices for each U.S. state, this share is essentially perfectly predicted by the state’s population share (correlation coefficient of 1.0). This is notably not true, for example, if one does the same exercise for manufacturing employment and state population shares (correlation coefficient of 0.8). Author’s analysis of data from BLS 2020c.

15. Data are from the OECD Health Statistics program (OECD 2019). The 20 OECD countries compared with the U.S. are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, and the United Kingdom. Data for Canada and Japan are from earlier years (2016 and 2015, respectively) because data for 2017 are unavailable. Without Italy and Spain (both of which have very low health care workforce shares, below 8%), the U.S. would be very slightly below the OECD average for its share of the health care workforce.

16. The seven countries are Denmark, Finland, France, Netherlands, Norway, Sweden, and Switzerland.

17. In 2018, spending on health care services was $2.35 trillion (data from BEA 2020, NIPA Table 2.3.5), while full-time-equivalent employment was 18.25 million (BEA 2020, NIPA Table 6.5D). This translates into $129,000 in health spending per full-time-equivalent job. Dividing $300 billion by $129,000 yields the 2.3 million new full-time-equivalent workers needed to satisfy this new demand.

18. Author’s analysis of BLS 2019.

References

Autor, David, and Anna Salomons. 2018. “Is Automation Labor-Displacing? Productivity Growth, Employment, and the Labor Share.” Brookings Papers on Economic Activity Conference Drafts, March 2018.

Baker, Dean. 2015. Job Lock and Employer-Provided Health Insurance: Evidence from the Literature. AARP Public Policy Institute, March 2015.

Banthin, Jessica. 2017. “Health Care Spending Today and in the Future: Impacts on Federal Deficits and Debt.” Congressional Budget Office briefing, presented to a conference organized by the Center for Sustainable Health Spending, Washington, D.C.

Bivens, Josh. 2018a. Recommendations for Creating Jobs and Economic Security in the U.S.: Making Sense of Debates About Full Employment, Public Investment, and Public Job Creation. Economic Policy Institute, March 2018.

Bivens, Josh. 2018b. The Unfinished Business of Health Reform: Reining in Market Power to Restrain Costs Without Sacrificing Quality or Access. Economic Policy Institute, October 2018.

Bureau of Economic Analysis (BEA). 2020. National Income and Product Accounts, NIPA Tables (online database), Tables 2.1, 2.3.5, 2.4.5U, 6.5D, and 7.8. Accessed February 2020.

Bureau of Labor Statistics (BLS). 2019. “National Industry-Specific Occupational Employment and Wage Estimates.” NAICS 524114 – Direct Health and Medical Insurance Carriers. Last modified April 2, 2019.

Bureau of Labor Statistics (BLS). 2020a. Consumer Price Index program, “Databases, Tables & Calculators by Subject” (interactive data retrieval portal), Series ID CUUR0000SEME. Accessed February 2020.

Bureau of Labor Statistics (BLS). 2020b. Job Openings and Labor Turnover Survey (JOLTS), “Databases, Tables & Calculators by Subject” (interactive data retrieval portal), Series ID JTU00000000LDL and JTU52000000LDL. Accessed February 2020.

Bureau of Labor Statistics (BLS). 2020c. Quarterly Census of Employment and Wages Data (interactive data retrieval portal).

Collins, Sara R., Herman K. Bhupal, and Michelle M. Doty. 2019. Health Insurance Coverage Eight Years After the ACA: Fewer Uninsured Americans and Shorter Coverage Gaps, but More Underinsured. The Commonwealth Fund, February 2019.

Economic Policy Institute (EPI). 2017. State of Working America Data Library, “Health Insurance Coverage.” Last updated February 13, 2017.

Economic Policy Institute (EPI). 2020a. State of Working America Data Library, “Median/Average Hourly Wages.” Last updated February 20, 2020.

Economic Policy Institute (EPI). 2020b. State of Working America Data Library, “Wages by Education.” Last updated February 20, 2020.

Estevez-Abe, Margarita, Torben Iversen, and David Soskice. 2001. “Social Protection and the Formation of Skills: A New Interpretation of the Welfare State.” In Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, edited by Peter A. Hall and David Soskice. New York: Oxford Univ. Press. For a publicly available earlier version of the paper, see the 1999 paper prepared for presentation at the 95th American Political Association Meeting in Atlanta, Georgia: http://www.people.fas.harvard.edu/~iversen/PDFfiles/apsa992.pdf.

Hacker, Jacob. 2002. The Divided Welfare State: The Battle over Public and Private Social Benefits in the United States. Cambridge Univ. Press.

Hertel-Fernandez, Alexander, Elise Gould, and Josh Bivens. 2009. Health Care Reform—Big Benefits for Small Businesses. Economic Policy Institute, July 2009.

Jørgensen, Helene, and Dean Baker. 2014. The Affordable Care Act: A Family-Friendly Policy. Center for Economic and Policy Research, September 2014.

Organisation for Economic Co-operation and Development (OECD). 2018. Entrepreneurship at a Glance: 2018 Highlights. October 2018.

Organisation for Economic Co-operation and Development (OECD). 2019. OECD Health Statistics 2019 (online database). Last updated November 15, 2019 (accessed February 2020).

Organisation for Economic Co-operation and Development (OECD). 2020. “Self-Employment Rate” (interactive online data table). Accessed February 2020.

Pollin, Robert, James Heintz, Peter Arno, Jeannette Wicks-Lim, and Michael Ash. 2018. Economic Analysis of Medicare for All. Political Economy Research Institute, November 2018.

Pradhan, Rachana. 2019. “Medicare for All’s Jobs Problem.” Politico, November 25, 2019.

Reinhard, Susan, Lynn Friss Feinberg, Ari Houser, Rita Choula, and Molly Evans. 2019. Valuing the Invaluable 2019 Update: Charting a Path Forward. AARP Public Policy Institute, November 2019.

Schmitt, John, and Janelle Jones. 2013. Making Jobs Good. Center for Economic and Policy Research, April 2013.

Schmitt, John, and Nathan Lane. 2009. An International Comparison of Small Business Employment. Center for Economic and Policy Research, August 2009.

Poverty

• 15.0%: The share of the population in poverty in 2011
• 21.9%: The percent of children under 18 in poverty
• 46.2 million: The number of people in poverty in 2011
• $22,811: The poverty threshold for a family of four with two children
• 44.0%: The share of the poor population in “deep poverty,” or below half the poverty line
• 2.3 million: The number of people unemployment insurance kept out of poverty in 2011
• 21.4 million: The number of people Social Security kept out of poverty in 2011
• 5.7 million: How many fewer people would be in poverty if the Federal Earned Income Tax Credit was included in the Census definition of money income
• 3.9 million: How many fewer people would be in poverty if food stamps (SNAP) were added to money income

Income

• -1.7%, +5.1%: The change in average household income between 2010 and 2011 for the middle 20 percent, and the top 5 percent, respectively. The disparity means income inequality increased in 2011.
• $7,887, -12.4%: The decline in median working-age household income from 2000 to 2011 in level terms and percentage terms, respectively
• $6,518, -16.8%: The decline in median African-American household income from 2000 to 2011 in level terms and percentage terms, respectively
• $4,695, -10.8%: The decline in median Hispanic household income from 2000 to 2011 in level terms and percentage terms, respectively
• $50,622, $48,202:  Median earnings for a man working fulltime, full year in 1973 and 2011, respectively
• $28,699, $37,118:  Median earnings for a female working fulltime, full year in 1973 and 2011, respectively

Health insurance coverage

• 47.9  million: The number of people under 65 without any health insurance in 2011, down from 49.2 million in 2010
• 14.2 million: The decline in the number of people under 65 with employer-sponsored health insurance from 2000–2011
• 10.8 percentage points: The decline in the share of the under 65 population with employer-sponsored health insurance from 2000–2011
• 25 million: The increase in the number of people under 65 on government insurance (e.g., Medicare, Medicaid) from 2000 to 2011. Government insurance accounts for the increase in overall coverage from 2010 to 2011.
• 2.2 percentage points: The decline in the uninsured rate for persons aged 19–25 from 2010 to 2011, far higher than any other age group, likely due to the ACA provision to allow young adults to secure coverage through their parents’ employer-sponsored insurance policies.

For a comprehensive examination of how we got to where we are today, including additional details on income, poverty, economic mobility, wages, jobs, and wealth, see EPI’s The State of Working America, 12th Edition, released yesterday.

—With research assistance from Nicholas Finio, Natalie Sabadish and Hilary Wething

There are two points they make abundantly clear. First, yes, the excise tax on high cost health plans will generate revenue. Second, it’s not going to do much to contain long term health cost growth.

The first point is indisputable.  The second runs contrary of conventional wisdom about how effective taxing benefits will be in driving consumers to purchase less expensive plans. All else equal (firm size, region, age of workers at firm, etc.), less expensive plans require consumers to pay more when they seek care – higher coinsurance rates, higher deductibles, or the like. When consumers have to pay more, they will consume less. Voila!  Rising health cost growth halted and we are saved.

Holahan and co-authors say it’s not so simple because spending on health care is not evenly spread across the population. And, I quote:

“Those least likely to be involved in the health care system—those with the lowest health care needs—will be most likely to be affected by increased cost-sharing. Given the strongly skewed distribution of health care spending, with 65 percent of total spending accounted for by only 10 percent of the population, significant health savings will not be achieved unless the highest spenders are affected as well.”

It sounds so convincing and reasonable to me, perhaps because I tried to make similar arguments during the health reform debate. It’s not that I had unusual foresight, but it’s just common sense when you look at the data. Back in March 2009 I argued:

“But the potential gains in cost containment from taxing health benefits are wildly overblown. We know that 80% of health costs are borne by 20% of the population. Serious cost containment measures should deal with bringing down the costs of the most expensive cases in our system (e.g., managing chronic diseases) rather than arguing over the much smaller amounts spent by the rest of the population. Policies fixated on reining in the first few hundred dollars of health spending do not effectively or efficiently deal with what is driving the high costs of the U.S. health system.”

However, as the health reform debate progressed, the policy virtues of taxing insurance benefits became exaggerated. And another set of prominent economists even identified the tax on expensive health insurance plans as one of just four critical elements of reform.

To sum up the Urban study’s main points that are consistent with those I raised two years ago:

1. Taxing benefits will have little impact on reining in health care spending because the distribution of health spending is skewed with few spending the vast majority of health dollars.
2. Increased cost sharing could lead to increased costs if patients respond to increased cost-sharing by substituting other services or delaying care until more expensive medical interventions are necessary.
3. Increased cost sharing could have significant negative health outcomes for people who have chronic conditions or are poor.

I might (and did in 2009) make another point: “high-cost” plans aren’t the same thing as “Cadillac” plans. The excise tax was often sold as taxing only those workers lucky enough to have lavish health coverage that demand minimal cost-sharing relative to normal plans (hence they were “Cadillac” plans). But in the market for health insurance, plans are expensive for a number of reasons (firm size, age of workforce, location, etc.) besides how much cost-insulation they provide. Further, as the excise tax threshold rises slower than health care inflation, it can no longer legitimately be called a tax on high-cost plans, unless the definition of what are high-cost plans is altered to mean all plans.

Why is this still a live question?  Various proposals to even further erode the tax-preference for health insurance continue to pop up in the debate over budget deficits. So, it should be pointed out again that the excise tax (or taxing benefits through a tax exclusion cap or the like) is simply “not well targeted” (pg. 10) and does not create the right incentives for the creation of the most efficient insurance policy; in fact, it is a blunt instrument that creates no incentives except to purchase cheaper policies.

In the end, health care cost control should not come about by forcing consumers to figure out what they’re going to sacrifice – our health system just does not provide them the information they need to do this. The rest of the Holahan et al paper describes some better ways to contain costs.

The average family plan now costs over $15,000. Employees kick in just over $4,000 directly, but most economists will tell you that they actually “pay” the remainder in the form of wages that are lower than they would be if this insurance was not provided by their employer. This is, as everybody knows, a staggering cost for most American families. And, while year-to-year changes in premiums may differ from underlying health care costs, the enormous increases in health spending in recent decades can pretty much be explained by these underlying medical costs – so if we want premiums to stop rising so fast, we better do something about these underlying costs.

One would be remiss to not point out that America’s largest single-payer insurance system (Medicare) actually has done a much better job of controlling health care costs than the private system that provides employer-sponsored insurance. Take the most recent estimates comparing per beneficiary costs in Medicare to costs of comparable benefits in private plans (table 13 here). If these private costs had matched the slower growth rate of Medicare over the past three decades, that $15,000 family plan would cost just over $10,000 today. And most experts think that there’s plenty to be done to even restrain Medicare’s costs. In short, there seems to be a lot of room to figure out how to reduce cost-growth – and very good reasons (about $5,000 worth, in the case of family premiums) to do it.

But, since the point of this post is more raw speculation, it’s also useful to think about the role of rising economic inequality in driving up health care costs. A recent paper in Health Affairs (gated, sorry) by Miriam J. Laugesen and Sherry A. Glied demonstrates that physician salaries (particularly specialists – orthopedists, in their study) are significantly higher in the United States than compared to even those in our rich industrial peers. The authors make the smart point that, “One explanation for the higher incomes of U.S. physicians may lie in the broader U.S. income structure. The share of income received by people in the top 1 percent of the U.S. income distribution far exceeds the corresponding share in the comparison countries.”

The intuition is simply that prospective doctors need to earn more as doctors in the United States in order to keep them from pursuing high-salary careers in finance, law, etc. The broader point is that if doctors are going to be in the upper reaches of the income distribution (which seems fine – they are well-trained, accomplished people), and if policies are pursued that drive vastly disproportional growth in these upper reaches, then this means my insurance premiums are going to get expensive; one person’s income is another person’s cost. This point applies to doctors’ salaries as well as to many other aspects of the medical-industrial complex (pharmaceutical companies, device-makers) and it’s one that we should think about right away when we read the Kaiser report.

The top line numbers alone are fairly shocking. Average family health insurance premiums rose from $13,770 in 2010 to $15,073 in 2011, up 9 percent. In 2010, total family premiums had only risen 3 percent, but the leading story then was about how employees were paying an increasing share of the total premium, on average 30 percent for family plans.

To put these numbers in perspective, Kaiser/HRET compares both total health insurance premiums and the portion of premiums paid for by workers to workers’ earnings and overall inflation from 1999 to 2011. Their figure, displayed below, illustrates how premiums have risen over three times faster than workers’ earnings and four times faster than overall inflation.

Click figure to enlarge

Given the high cost of employer-sponsored health insurance, it comes as no surprise that the share of non-elderly Americans with such coverage fell from 2000 to 2010, as shown in the Census data released earlier this month. The combination of a bad economy, general lack of bargaining power among workers, and steeply rising health insurance prices in 2011, as shown in today’s release, will surely lead to lower coverage rates, when the Census data on health insurance coverage comes out next year.

Several folks blogged about this last week, notably Health and Human Services Secretary Kathleen Sebelius, Sara Collins, Tracy Garber, and Karen Davis of the Commonwealth Fund, and writer Jonathan Cohn. They all cited the newly released Census data on health insurance, which detailed how  the uninsured rate for young adults, 18-24, fell between 2009 and 2010 and, in fact, this was the only age group with a statistically significant decline in their uninsurance rate. They argued that the health insurance provision allowing young adults to stay on or join their parents’ employer-sponsored health insurance policy is to credit for this up-tick in coverage.

This week, Kevin Sack of the New York Times, wrote a piece reiterating their points, with more recent data through March 2011 from the National Health Interview Survey. While there’s much hand-waving about how we can credit health reform for the increase in health insurance coverage among young adults, it’s relatively easy to compare health insurance numbers with labor market statistics to find compelling evidence of initial signs of health reform success.

In this figure, I compare changes in the employment rates and the rate of employer-sponsored health insurance for various age groups between 2008 and 2009. As you can see, employment rates fell for each group as did employer-sponsored health insurance.  This is not surprising given the fact that most people find health insurance on their own job.

Click figures to enlarge

Next, I compare these same changes in employment rates and health insurance rates for various age groups between 2009 and 2010. As you can see, the job-market didn’t do young adults any favors. In fact, their employment rate actually fell further than any other age group. Given the close relationship between labor market outcomes and employer-sponsored insurance, we would expect declines in coverage for all groups.  What we see instead is that employer-sponsored health insurance actually rose among young adults, while it fell for all other groups.

So, how many young adults took advantage of this new provision? A back of the envelope estimate of what young adult coverage rates would have been if the 2008-09 relationship between employment and insurance had held for 2009-10 would be a 1.1 percentage point drop in insurance rates for young adults in 2010. Instead, we see here that insurance rates actually rose by 0.6 percentage points instead of falling by 1.1 percentage points — basically, this means that up to 490,000 young adults may have obtained coverage in 2010 because of the health reform provision.

Given the fact that the labor market continued to decline for young adults, my guess is that a closer look at the Census micro-data would confirm the fact that a greater number of young adults are gaining dependent coverage through their parents’ policies.  Even without that added analysis, these figures alone are compelling evidence in support of the argument that health reform is beginning to work.

Health and Human Services Secretary Kathleen Sebelius argued that we did. In her piece, “Affordable Care Act in Action,” published in the White House blog, Secretary Sebelius pointed out the significant increase in coverage rates for young adults, ages 18-24, as a sign that health reform is working. Sara Collins, Tracy Garber, and Karen Davis of the Commonwealth Fund argued as well that young adults are already benefiting from the Affordable Care Act, using as evidence the 2.0 percentage point decline in the uninsured rate for young adults. Writer Jonathan Cohn with the telling title “Gosh, Could Obamacare Be Working” makes a similar argument, using a nice graphic as well.

All three articles rightfully point to the fact that the uninsured rate for young adults, 18-24, fell between 2009 and 2010 and, in fact, this was the only age group with a statistically significant decline in their uninsurance rate. They argue that the provision of health reform allowing young adults up to age 26 to stay on or join their parents’ employer-sponsored health insurance policy, is to credit for this up-tick in coverage.

An alternative explanation for the rise in insurance coverage among young adults could be that they are simply faring better in the labor market than other age groups. This is simply not the case – in fact, their simple employment rates deteriorated more than any other age-group.

In this figure, I compare changes in the employment rates and the rate of employer-sponsored health insurance for various age groups between 2009 and 2010. As you can see, the job-market didn’t do the younger group any favors between 2009 and 2010. Their employment rate actually fell further than any other age group. On the flip side, their rate of employer-sponsored health insurance actually rose.

To me, this is strong evidence in support of the argument that health reform is beginning to work.

Click the figure to enlarge

A round-up of analysis on today’s census data release on income, poverty, and health insurance

According to a report released today by the U.S. Census Bureau, the number of uninsured Americans under age 65 rose from 48.3 million in 2009 to 49.1 million in 2010.  When including those 65 and older, the number reached 49.9 million in 2010.  EPI Director of Health Policy Research Elise Gould analyzes the health insurance data in 2010 marks another year of decline for employer-sponsored health insurance coverage.

EPI experts also posted analysis of the data to Working Economics, the new EPI blog:

Deep poverty at all-time high by Elise Gould

Recession continues to take its toll on America’s children  by Algernon Austin

Already a lost decade: Working-age household income down more than 10% since 2000  by Heidi Shierholz

By the numbers: 2010 income, poverty, and health insurance coverage  by Elise Gould, Heidi Shierholz, Hilary Wething and Nicholas Finio

EPI will publish further analysis of the income and poverty data tomorrow.

From Working Economics, the new EPI blog:

By the numbers: 2010 income, poverty, and health insurance coverage

by Elise Gould, Heidi Shierholz, Hilary Wething and Nicholas Finio

This morning’s release by the U.S. Census Bureau of the 2010 data on income, poverty, and health insurance coverage is yet another reminder of the real and human consequences of the Great Recession and its aftermath.  A first take:

Poverty

15.1%: The share of the population in poverty in 2010
22.0%: The percent of children under 18 in poverty
46.2 million: The number of people in poverty in 2010
$22,113: The poverty threshold for a family of four
3.2 million: The number of people kept out of poverty by unemployment insurance
20.3 million: The number of people kept out of poverty by Social Security

Income

-11.3%, -6.6%, -4.5%: The change in family income between 2007 and 2010 for the bottom 20 percent, middle 20 percent, and the top 20 percent, respectively
$6,298: The decline in median working-age household income from 2000 to 2010
$5,494: The decline in median African-American household income from 2000 to 2010
$4,235: The decline in median Hispanic household income from 2000 to 2010

Health insurance coverage

49.1 million: The number of people under 65 without any health insurance
13.6 million: The decline in the number of people under 65 with employer-sponsored health insurance from 2000-2010
10.5%: The decline in the share of the under 65 population with employer-sponsored health insurance from 2000-2010