The cost of this wage suppression is real. Because wages make up a large share of income for most U.S. working families, lost wage growth meant sluggish income growth. However, there was one group where wage growth, and corresponding income growth, was substantial: the top 1%, whose wages skyrocketed by 182% since 1979. This uneven growth implies that today’s labor market, and the income derived from it, is deeply unbalanced. Rather than workers reaping the rewards of their rising productivity, a growing share of their labor has gone to the top 1%, leading to rising wage and income inequality.  

Decades of sluggish wage growth for typical workers—paired with the message that it was workers’ own fault for not obtaining the necessary skills for today’s economy—have left many pessimistic about whether policy changes can help them earn more. But if we want to achieve broad-based economic security in the U.S. economy, there is no alternative to raising pay for workers up and down the wage distribution. The U.S. economy generates enough income in aggregate to provide decent rates of pay growth for all workers—the challenge is a political one.

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The cost of inequality to middle-class households

The stakes of rising inequality for middle-income households in the United States are enormous. By 2022, steadily rising inequality was costing these households roughly $30,000 per year.

Figure 1 compares actual income growth of the middle fifth of nonelderly households since 1979 with what this income growth could have been had inequality not increased. The graph highlights market-based incomes because rising inequality was driven entirely by this income category—earnings from the labor market and business income like dividends and interest payments. We focus on incomes of nonelderly households because inequality largely stemmed from unbalanced labor market power, and nonelderly income is dominated by labor earnings.

In 2022, the average market income of the middle fifth of households was $96,335. But their income would have been $127,011—roughly 32% (over $30,000) higher—had inequality not increased after 1979. Put another way, if the middle fifth of households had seen market income grow at the overall average rate—an overall average pulled up by stratospheric growth at the very top—their income could have been roughly $30,000 higher by 2022.

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Income inequality is driven by unbalanced power in labor markets

The inequality in market-based incomes highlighted in Figure 1 was overwhelmingly driven by unbalanced power in labor markets that prevented typical workers from seeing their paychecks keep up with overall economic growth. Figure 2 shows hourly pay (including benefits) for the roughly 80% of the private-sector workforce who are not managers or supervisors and a measure of economy-wide productivity—defined as the income generated in an average hour of work in the U.S. economy. The rising gap between these lines is how we define wage suppression—keeping typical workers’ wage growth slower than growth in incomes in the rest of the economy.

In the three decades following World War II, hourly compensation for the vast majority of workers rose 2.1% on an annualized basis, roughly in line with productivity growth of 2.5%. But for most of the last five decades (except for a brief period in the late 1990s), pay for the vast majority lagged further behind overall productivity. Over the entire 1979 to 2025 period, hourly pay for a typical worker rose just 0.6% while productivity increased 1.4% on an annualized basis. This means that workers have been producing far more than they receive in their paychecks and benefit packages from their employers, and this wedge has grown substantially over time. Some of those gains in productivity went to greater profits for corporations but an even larger portion went to highly paid managers and professionals, resulting in a vast increase in wage inequality over the last five decades.

Had we pursued policies to support broad-based wage growth—instead of wage suppression—typical workers would have much higher pay today. In fact, if annual pay for production and nonsupervisory workers had instead tracked productivity growth since 1979, their pay would be 45% higher, or $30,000 more than it is today.

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Wage suppression boosted profits

The declining labor share of corporate-sector income—the share of corporate income received by workers in the form of wages and benefits—explains a portion of the wedge between productivity and pay. The labor share of corporate-sector income has not recovered to its pre-pandemic level, and remains well below its 1979 to 2008 average. Figure 3 illustrates the labor share of corporate-sector income since 1979. Typically, the labor share rises during recessions because profits fall much faster than wages during downturns. Then, in the early stages of recovery, the labor share falls significantly as profits increase much more rapidly than wages. Usually, the labor share then rises again late in an expansion as labor markets tighten and workers regain the bargaining power necessary to secure wage increases. Since 2000, no business cycle expansion has gone on long enough with unemployment low enough to put serious upward pressure on the labor share of income. Small upticks were seen sporadically over the last 15 years, but this progress, but this progress has stalled out.

Two things about the shift from labor compensation to profits in recent decades deserve some context. First, even as measured in official data, this shift explains well under half of the overall wedge between productivity and pay—the biggest piece of this gap remains inequality within labor compensation (we return to this point further below). Second, some of the changes in the official data might be more the outcome of accounting decisions than of fundamental changes in the economy.

Since the early 2000s, capital income (dividends, capital gains, and business income) has been taxed at lower rates than labor income. Highly privileged economic actors who have the ability to engage in tax evasion by reclassifying their income have likely done so in this time—relabeling income once classified as wages and salaries as capital income instead to pay lower tax rates. Recent research has estimated that roughly a third of the decline in the labor share of income might be driven by this kind of tax evasion rather than by a genuine change in which factors of production are seeing income gains.

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Highly paid corporate managers and professionals benefited the most from wage suppression

The largest portion of the growing wedge between productivity and pay can be explained by the astronomical wage growth for those at the highest end of the wage distribution. The ability of those at the very top to claim an ever-larger share of overall wages is evident in Figure 4. Annual earnings for the top 1% have grown 182% since 1979, while wages of the bottom 90% have grown just 44%. If the wages of the bottom 90% had grown at the average pace over this period—meaning that wages grew equally across the board—then wages for the bottom 90% would have grown by 65%, far higher and roughly 50% faster than the actual growth experienced. Earnings are so concentrated at the top that average growth is well above the 90th percentile of the earnings distribution. That means workers need to be among the highest 10% of wage earners to even experience average earnings growth. And everyone else—more than 90% of the workforce—saw less than average growth over the last four and a half decades.

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Since 1979, middle-wage workers only saw short-lived real wage growth during tightening labor markets

Between 1979 and 2025, the hourly wages of middle-wage workers (workers earning the median wage) cumulatively grew just 30%—about 0.6% per year. Yet even this disappointing cumulative wage growth occurred only because wages grew in the late 1990s and the late 2010s–2020s. Apart from these two periods, the wages of middle-wage workers were totally flat or in decline since 1979. Figure 5 shows real median wages since 1979. The red portions of the line highlight periods when median wage growth was genuinely stagnant, while the green portions highlight when growth occurred.

In the absence of strong institutions and labor standards like robust unions and high minimum wages, strong wage growth occurs only when labor markets are tight. In tight labor markets, the relative scarcity of workers gives them more power in the workplace to effectively demand decent hourly wage growth across the board.

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Wage suppression was not driven by increased benefits

The suppressed “pay” portion of the pay–productivity chart includes wages and benefits, suggesting that benefits have not offset slow wage growth. In fact, by many measures benefit generosity and availability have deteriorated alongside wage suppression. We explore trends in two key employment benefits in Figure 6: employer-sponsored health insurance and retirement coverage. We define employer-provided health insurance as insurance for which the employer pays some or all of the premium. We define retiree coverage as coverage a worker receives at their firm that offers it. We isolate workers who are strongly attached to their job, working at least 20 hours per week and 26 weeks per year.

For workers, sluggish pay has been compounded by the fact that health insurance and retirement coverage have declined significantly over time. Health insurance fell from 69.0% to 52.2% between 1979 and 2024. At the same time, retiree coverage nearly fell by half from 50.6% down to 29.0%. Furthermore, plan generosity has suffered with the trend away from defined benefit to defined contribution retirement benefits, as well as the shift to high deductible health plans.

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CEO pay grabs a larger share of wages

In a nation of increasing inequality, the most extreme disparities are between the heads of large American corporations and typical workers. Figure 7 tracks the ratio of pay of CEOs at the 350 largest public U.S. firms to the pay of typical workers. In 1965, these CEOs made 21 times what typical workers made. As of 2025, they make 325 times typical workers’ pay. This higher pay for CEOs does not reflect any increased contribution to corporate output or growth in the skills or productivity of CEOs. CEO pay gains help explain the growing divergence between pay and productivity. Further, the pay of CEOs and other highly placed corporate managers sets norms and market benchmarks across a range of elite occupations. The pay of specialty physicians, lawyers, consultants, and even sectors like university and nonprofit administration is likely pulled upward by rising pay for corporate executives.

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Tolerating excess unemployment has been deeply damaging for wage growth

As a rough rule of thumb, real wages for middle-wage workers outright fall when unemployment is greater than 5%.

Prioritizing high-pressure labor markets—those identified by extended periods of low unemployment—is key to providing lower- and middle-wage workers the leverage to bid up their wages. Figure 8 shows that the threshold for achieving any real wage growth at all is around 5% unemployment. In general, real wages grow when unemployment is lower than 5%, but they fall when unemployment is higher. Extended periods of low unemployment can also reduce wage inequality and racial disparities.

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The federal minimum wage no longer lifts wages

Figure 9 shows the decline in the real (inflation-adjusted) value of the federal minimum wage since its high in 1968. The last increase to the minimum wage was enacted in 2009, 17 years ago, which is the longest period without a minimum wage increase since its inception in 1938.

The minimum wage is essential for establishing the wage levels for the bottom fifth of wage earners. Today’s low-wage workers are far more educated, older, and experienced than low-wage workers in 1968. Yet, despite being more skilled and productive, their wages are 43% lower than wages earned in 1968, and 32% lower than the most recent increase in the minimum wage 17 years ago. The failure to raise the federal minimum wage has especially adverse effects on women and Black and Hispanic workers.

Luckily, many states have refused to follow the federal government’s inaction and have passed higher minimum wages at an increasing rate over the past two decades. Seventeen states and the District of Columbia now have minimum wages of at least $15 per hour, and more workers live in states with minimum wages over $15 than in states only bound by the too low federal minimum wage.

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The assault on collective bargaining hurts all workers

One of the main causes of wage suppression and rising wage inequality is the decline of collective bargaining, which lowers the wages of both union and nonunion workers. Collective bargaining not only raises wages for organized workers but also leads other employers to raise the wages and benefits of nonunion workers to come closer to union wage standards.

The erosion of collective bargaining can explain from one-fifth to one-third of the growth of wage inequality between 1973 and 2007; it had a greater impact on men than women. This erosion of unionization occurred despite large numbers of workers indicating they would prefer collective bargaining if they had a choice. But the political power of those with the most income, wealth, and power has prevented the adoption of laws to modernize our labor–management system and enable workers to pursue collective bargaining.

Figure 10 shows how wages could have grown if unionization hadn’t declined since 1973. If union density in 2025 had been the same level as union density levels of 1973 (14 percentage points higher than it is today), median wages would rise by 10.1%.

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A note about terminology

Topics covered in this FAQ often involve specialized uses of language, reflecting both legally defined concepts and/ or “terms of art” typically used by practitioners. For definitions of key terms, check out the glossary at the end of this report.

What is sectoral bargaining?

Sectoral bargaining is a form of collective bargaining in which one or more unions bargains with multiple employers to reach a legally binding agreement on common standards that then apply to all workplaces across a particular industry, sector, or region.

Sectoral bargaining has not traditionally been part of labor law frameworks in the U.S., but it is not a new concept and has historically been an effective model for setting wages and standards in various sectors across many European countries. The sectoral approach to collective bargaining offers a different approach from the traditional U.S. “firm/enterprise level” model of bargaining in which unionized workers in a single workplace bargain with their employer to set wages and working conditions.

What conditions are motivating growing interest in sectoral bargaining in the U.S.?

In recent years, interest has grown in the question of whether sectoral bargaining or sectoral approaches to setting wages and other standards might enable U.S. workers to combat declining union density and rebuild bargaining power necessary to raise wages and improve conditions across what has become a highly unequal economy. Calls for expanding sectoral strategies are typically motivated by recognition of two closely related trends:

• Growing numbers of workers who wish they had a union contract are facing obstacles to forming or joining a union under existing weak and outdated labor laws.
• Growing numbers of workers are experiencing low wages and poor working conditions in industries in which it is especially difficult to unionize—for example because they lack employee status, are highly dispersed and isolated, work for a franchise, are hired via temp or staffing agencies, or perform “gig work” assigned via a digital app.

The National Labor Relations Act (NLRA or Act)—the primary federal law establishing union rights in the private sector—has as its premise a lofty and admirable goal: “encouraging the practice and procedure of collective bargaining” between workers and their employers. Since the Act’s passage in 1935, millions of workers have won higher pay, better health care and retirement benefits, stronger health and safety protections on the job, and other important improvements through forming unions and using their collective strength to bargain with their employers. Historically, strong unions have helped ensure that income growth is distributed broadly and not just to the wealthiest households.

But the NLRA has been significantly weakened since its passage through a series of congressional and court actions, and today’s broken federal labor law is failing to live up to the NLRA’s originally stated goal. For example, data show a growing mismatch between the millions of workers who say they want a union and the relatively small number of workers who actually have one. Union membership in the U.S. ticked up slightly in 2025, breaking a decades-long trend of declining unionization. But today’s unionization rate of 11.2% is less than a third of what it was in the 1950s when union strength delivered broadly shared prosperity and a thriving middle class, and lower than in 1935 when the NLRA was first enacted.

One of the consequences of this decline in union strength in the U.S. is a corresponding decline in the ability of unions in a particular sector or industry to set broad wage and benefit standards covering a large percentage of workers in that sector or industry. When unions were stronger, they were able to align the structure of collective bargaining with the corporate structure in their industry and negotiate agreements with large employers that established wage standards for an entire industry. Union contracts established wages for unionized workers, and nonunion employers raised wages to stay competitive. In this manner, unions helped raise wages for all workers, both union and nonunion.

What does existing U.S. labor law say about sectoral bargaining? What kinds of sectoral bargaining are already possible under current labor laws?

U.S. labor law places some obstacles in front of workers and unions seeking to bargain broadly with multiple employers in their industry. Specifically, the National Labor Relations Act has long been interpreted as establishing a single worksite and a single employer as the default unit for bargaining. Workers and unions can try to win a broader bargaining unit, such as a multifacility bargaining unit of the same employer, but to do so, they need to persuade the National Labor Relations Board (NLRB) of the appropriateness of the larger unit and organize support from a majority of employees in the bigger unit. 

Likewise, under current law workers and unions can propose but cannot insist that employers in their industry bargain together on a multiemployer basis with the union or a group of unions. Basically, workers and unions are limited in taking this multiemployer approach, even though when achievable, it enables coordinated bargaining within a sector or industry and prevents employers from pitting workers and unions at different locations against one another.

Still, even within constraints posed by existing U.S. labor law, there are many examples (both historical and contemporary) of unions using collective power to win and maintain bargaining agreements that cover workers beyond an individual workplace. Unions have achieved this through national agreements, through multiemployer bargaining, and through campaigns that use both policy changes and bargaining power to set standards for workers beyond those directly covered by a contract. Examples of these successes include union contracts that cover grocery workers across all major grocery chains in some regions, and the long-standing practice in the construction trades of multiple unions bargaining national, regional or local multiemployer master agreements with employer associations.

What policy changes would be necessary to achieve wide-scale, comprehensive sectoral bargaining in the U.S.?

Engaging employers and unions in comprehensive sectoral bargaining to set standards covering major industries across the U.S. would require federal legislative reform because the National Labor Relations Act, as currently interpreted, is too narrow and restrictive to facilitate sectoral bargaining. 

More modest changes to federal law could empower workers and unions to designate larger, multiemployer bargaining units for the purposes of collective bargaining, unless the employer can demonstrate a compelling reason why a broader unit is not workable. This would enable larger groups of workers and unions to pursue more sectoral approaches to bargaining in their industries. 

Even without major federal labor law reform, promising intermediate pathways to raising sectoral standards could include union-strategic organizing initiatives to increase union density in key industries and geographies. Many unions—even within the constraints of existing labor laws—have successfully used combinations of collective bargaining, organizing, and policy power to raise standards for groups of workers far beyond those they directly represent (see examples above). Under existing labor laws, unions can build toward forms of sectoral bargaining through organizing critical masses of workers in a particular industry or region, pursuing multiemployer collective bargaining agreements, and/or pursuing policy changes that effectively extend the wages and benefits unionized workers have won to other employers across an industry or region.

In addition, state and local governments have some limited legal authority to enact sectoral bargaining policies for workers who currently lack employee status under the National Labor Relations Act. Examples of such policies include state sectoral bargaining frameworks recently enacted to cover rideshare drivers in Massachusetts (2024) and California (2026) and similar legislation awaiting the governor’s signature in Illinois (see Appendix Table 1 for details on these policies). State and local governments also have broad latitude to pursue sectoral standard setting via wage/standards boards that, if well designed, can engage unions representing workers in key industries in the standard-setting process (see Appendix Table 2 for details on these state and local policies).

Other policy approaches to strengthening sectoral standards include expanding prevailing wage laws that apply to all employers receiving public contracts to perform work in a given industry or enacting sectoral minimum wage policies that raise the wage floor in a given industry.

What’s the difference between sectoral bargaining and a sectoral wage board or standards board?

Sectoral bargaining involves negotiations between one or more unions and a group of employers in a particular sector or industry to establish wages, benefits, and other working standards in the sector or industry. Beyond setting guidelines for the process, the government is typically not involved directly in the bargaining, though government may play a role in approving or implementing resulting agreements. 

In contrast, the government is heavily involved in sectoral wage boards or standards boards. Historically, wage boards in the U.S. context have typically brought together representatives of workers and employers to make recommendations to a government agency or legislative body on wages and other standards for their particular industry. Policymakers then consider the recommendations and potentially adopt them as standards that apply to all employers in the particular sector or industry. In some cases, wage/standards boards have authority to set certain standards more directly.

Unlike sectoral bargaining, wage boards have an established federal policy history in the U.S. For example, following the passage of the Fair Labor Standards Act (FLSA) in 1938, the federal government established several “industry committees,” focused primarily on low-wage sectors like garment and textile manufacturing. For a short period these industry committees helped raise wage floors in many low-wage sectors (thereby improving conditions for union organizing among some groups of workers), until they were disbanded in the late 1940s as part of a political compromise to secure a federal minimum wage increase.

As detailed in Appendix Table 2, examples of new sectoral wage or standards boards created by state or local governments in the past decade reflect highly variable policy designs, but government roles are central in each of them. Because government plays such a key role in the adoption, implementation, and enforcement of sectoral standards developed by wage boards, this process is sometimes referred to as sectoral co-regulation, to more clearly distinguish it from traditional collective bargaining, which is a private negotiation process between employers and unions.

What roles do unions play in sectoral bargaining versus wage boards/standards boards? 

Sectoral bargaining is a form of collective bargaining. In sectoral bargaining, a union (or unions) representing workers from a given sector is at the bargaining table negotiating directly with a group of employers, and agreements reached by the parties cover all employers in the sector or industry. The sectoral agreement sets a uniform “floor” for standards across the industry, and the union then supplements these sectoral agreements via negotiations at the local workplace level in locations where workers are unionized. Unionized workers are directly represented in the bargaining process (at the sectoral and the local levels) and have the opportunity to shape bargaining priorities and outcomes via participation in the union’s internal democratic decision-making processes.

Union roles in sectoral co-regulation (by means of participation in a wage or workforce standards board) can vary, depending on how a particular board is designed, the political context in which a board operates, and the degree to which particular unions take initiative to engage with the board process and/or engage members in providing input to any union representatives serving on the board.

For example, one version of this process might be that a union representative appointed to a wage board (alongside other board members representing employers and government) takes part in the process of analyzing and recommending wage standards that the board then submits to a government agency for final review, approval, and implementation. Unlike the process of collective bargaining, union members are typically not directly involved in deciding who represents workers on a wage board or in approving the standards a wage board recommends.

Union representation on a wage board may be required as a matter of policy or left to the discretion of those with authority to appoint board members. In most cases, wage board members are appointed by a government official—typically a governor, a legislative leader, or labor agency leader—meaning the appointments are part of a political process and can change based on changes in elected or agency leadership. Wage boards generally specify a certain number of seats for worker and/or union representatives, and in most cases, some but not all unions in a sector or industry are represented on a given board. See Appendix Table 2 for recent examples of how state or local sectoral standards boards have been structured.

Does sectoral bargaining lead to increased union membership and more worker power? 

Where achievable, strong sectoral bargaining systems have some clear advantages over enterprise-level bargaining in rebalancing labor market power and potentially creating more favorable economic conditions for worker organizing. Sectoral agreements that set wages and workplace standards across an entire industry can curb the ability of individual employers to pit workers (as well as state and local governments) against each other in a race to the bottom on wages and standards. By removing wages and basic standards from competition, sectoral bargaining can in turn reduce anti-union hostility of employers who are otherwise inclined to take extreme steps to prevent workers from unionizing in order to suppress wages and benefits.

On other dimensions of worker power—including the ability of unions to build membership, engage workers in addressing concerns particular to their own workplaces, and maintain strong worker-led organizations capable of enforcing negotiated standards on the ground—firm/enterprise models of bargaining may have distinct advantages. Because negotiated sectoral standards apply whether or not a worker in the sector is a member of a union, under a sectoral agreement, large majorities of workers are likely to gain the financial benefits of coverage without contributing financially to the union and without opportunities to participate in union decision-making or organizing in their own workplace.

Because sectoral and enterprise/workplace approaches to collective bargaining differ in scope and scale and produce different (highly complementary) economic and institutional benefits, an ideal labor-policy framework would include mechanisms to facilitate both.

Significant worker organizing is likely a precondition for large-scale forms of sectoral bargaining to emerge as a successful policy option in the U.S. Sectoral bargaining requires the presence of a representative union to engage in the bargaining process with employers. Successful sectoral bargaining models require that unions possess and maintain some degree of political power, rooted in the ability to organize and represent a significant base of workers. When unions are unable to sustain organizational power and political influence, gains won via sectoral strategies can quickly be lost, and sectoral bargaining systems themselves can become fragile.

Does sectoral standard-setting via wage boards or standards boards lead to increased union membership and more worker power?

There is no inherently direct relationship between wage boards/standards boards and unions or the unionization process. So, the answer to this question depends on many factors, including how boards are designed, how much strength unions already have (or are able to build) in a particular sector or region, and how much capacity unions have to engage with a sectoral board and leverage new standards as part of union organizing initiatives (which are carried out independently outside of the board process). Available examples further illustrate that details of board design are critical to determining outcomes, including the degree to which effective sectoral standard-setting occurs, the degree to which unions are engaged in the standard-setting process, and whether the presence of sectoral standards can help decrease obstacles to union organizing.

While there is no automatic connection between establishment of a standards board and increased unionization, examples also suggest that well-designed standards boards can help create more favorable conditions for union organizing. The process of creating and participating in a wage/standards board can present opportunities for unions to increase communication with and the involvement of both existing members and nonunion workers in the affected sector who may be interested in unionizing. Likewise, in cases in which a board has authority to set and enforce a strong legally binding “floor” for wages and conditions across an industry, these standards can help decrease the incentive for low-road employers to engage in intense anti-union tactics to block worker organizing, since such employers can no longer maintain a competitive advantage based primarily on their ability to suppress wages and benefits. Unions’ roles in winning better wages and standards won via participation in an effective sectoral wage/standards board can in turn be publicized to nonunion workers and leveraged in union-organizing campaigns.

Whether a particular wage/standards board can achieve effective sectoral standard setting and contribute in this way to rebalancing labor market power depends on the details of its design and the engagement of strong unions in the standard-setting process. Newly established state and local boards reflect a wide array of approaches to policy design (see Appendix Table 2 for examples), including variations in how workers or unions are represented on boards and the scope of each board’s authority. For example, early evidence suggests that some new state boards, like Minnesota’s Nursing Home Workforce Standards Board, are achieving greater effectiveness due to certain policy design elements, such as an ability to hire dedicated staff, a clear process for state adoption of new standards, and mechanisms for worker-led enforcement of new standards (such as “know your rights” training).

Based on available state and local examples, factors most associated with a standards board leading to increased union density likely include:

• strong policy design that requires union representation on the board and gives the board clear authority and necessary resources to set, implement, and enforce standards
• presence of already strong unions, capable of effectively representing worker interests on the board and ensuring that the board carries out its intended mission
• the presence of strong unions in the industry with significant organizing capacity and commitment to a strategic organizing program focused on unionizing more workers in the industry

How is sectoral bargaining approached under new state laws covering rideshare drivers?

So far, the only sectoral bargaining policies in place in the U.S. are recently enacted state laws covering rideshare drivers in Massachusetts (2024) and California (2026). A similar law passed by the Illinois legislature is, as of publication, awaiting the governor’s signature. These laws create a state-administered system for facilitating sectoral bargaining between rideshare companies and a designated bargaining representative (union) for a single bargaining unit that includes all rideshare drivers in the state. The three new laws have some variations, but all include the following key features:

• requirements for all rideshare companies (Uber, Lyft, etc.) to regularly submit lists of drivers and their contact information to the state
• process for a certain threshold of rideshare drivers (5%–10%, depending on the policy) to indicate interest (i.e., by signing union cards) in having a particular organization (union) serve as a designated bargaining representative, thereby obligating the state to share driver contact lists with the union
• process for a certain threshold of drivers (25%–50%, depending on the policy) to petition (i.e., by signing union cards) the state for certification of their union, thereby obligating rideshare companies to then collectively bargain with the certified union
• rules and procedures for parties to follow in negotiations, including requirements for parties to submit negotiated agreements to the state for approval; if approved, the terms of the negotiated agreement then apply to all drivers in the state and to any company engaging rideshare drivers in the state

These laws are too new to have been fully tested, and the California and Illinois laws have not yet taken effect. In Massachusetts, the App Drivers Union (SEIU 34BJ/IAM) was certified as the exclusive union for all rideshare drivers in the state in May 2026, obligating rideshare companies to begin bargaining. See Appendix Table 1 for additional details on new state rideshare collective bargaining laws.

Appendix Table 1

What state or local governments maintain wage boards or standards boards, and how are unions involved in these structures?

A few states have maintained laws allowing for industry-specific wage boards since the early 20th century, and these statutes have attracted renewed interest in recent years. For example, in 2015 the New York Labor Commissioner used their authority under the state’s long-standing wage board statute to convene a wage board for the fast food industry, resulting in a new $15 minimum wage covering fast food workers statewide.

The state of California operated a sectoral wage and standards board for decades through its Industrial Welfare Commission (IWC, established in 1913), until the commission was defunded by the legislature in 2004 over concerns that it was being used by employer interests to undermine updated state wage and hour laws. The IWC was briefly revived with a new infusion of state funding in 2024 and issued new wage orders covering several sectors in 2025. When in operation, the IWC consists of a five-member board, including two labor representatives, two employer representatives, and one public representative (all appointed by the governor). The IWC has authority to issue orders governing wages, hours, and working conditions and must prioritize consideration of industries in which more than 10% of the workforce is at or below the federal poverty level.

In the past decade, renewed interest in sectoral standard setting has sparked additional state and local policy experimentation with wage and standards boards. New policies in a dozen state or local jurisdictions present a range of models for board structures that include some form of representation from workers (or unions), employers, and government officials who are tasked with studying, recommending, or in rare cases, directly setting wages and standards that affect conditions of workers in specified low-wage sectors.

Formal roles for unions in recently created state or local standards boards vary, as do the levels of authority each board has to recommend or set standards. Many boards were created with direct input from unions or emerged as legislative proposals in contexts in which unions were already organizing affected workers. New state and local experiments to date suggest that wage and standards boards are most likely to help increase worker power when boards have clear authority to set standards and where unions are actively organizing in the affected sector as new standards are issued. Implementation challenges faced by some new boards, such as California’s fast food council, also illustrate that strong commitment from government leaders is a necessary condition for a wage or standards board to function effectively, especially in the face of heavy industry opposition.

For more details on these policies, see Appendix Table 2. Additionally, legislation has been introduced to create new standards boards for nail salon workers in New York and long-term care workers in Oregon; Oregon also passed legislation in 2025 to study conditions of farmworkers, as a step toward considering a farmworker standards board.

Appendix Table 2

Glossary of key terms

Bargaining unit: The defined group of workers who are included (represented by a single union or bargaining representative) in the collective bargaining process and covered by any resulting contract agreements with an employer. If a union and employer do not agree on who should be included in a particular bargaining unit, the National Labor Relations Board (NLRB) determines the composition of the unit. A bargaining unit may include all or some of the workers in a given workplace; it can be very small and narrowly defined, or very broad, depending on what a group of unionizing workers prefers, what the employer will agree to, and whether workers can persuade the NLRB to recognize a “community of interest” among workers in the proposed bargaining unit. When workers attempt to form a new union, employers often file legal objections to workers’ preferred bargaining unit and use such disputes to delay the union representation and first-contract bargaining process.

Collective bargaining and collective bargaining agreement: Collective bargaining is a process by which a group of workers, through a designated bargaining representative(s), such as a union, negotiates with their employer(s) over wages, hours, and terms and conditions of employment. Though not required under U.S. labor law, collective bargaining can involve more than one union, and it can involve more than one employer, if the parties involved agree to this arrangement. Collective bargaining is a private process between the parties (although sometimes a federal or private mediator will be involved in assisting the parties in reaching an agreement). Agreements reached by the parties through their negotiations are memorialized in a “collective bargaining agreement,” which is a formal, legally binding contract between the parties.

Enterprise bargaining: Collective bargaining between workers, through their designated representative (union) and their employer, covering workers at a single facility. Enterprise bargaining is the default approach to bargaining under the National Labor Relations Act.

Multiemployer bargaining: Collective bargaining between one or more unions and a group of employers (typically operating through an employer association for their industry or a designated employer representative). Agreements reached by the parties in bargaining apply to all employers who have agreed to the multiemployer arrangement, but not to other employers (although they can agree later to be added to the agreement). Multiemployer bargaining is a voluntary arrangement—workers and unions cannot force an employer to bargain in this manner, as the NLRA does not legally require it. Multiemployer bargaining is, however, possible under current labor law and already commonplace in industries like construction, entertainment, and professional sports. Multiemployer bargaining can take place at the national, regional, or local level, depending on the structure of a particular industry and the preferences of the parties.

National agreement or master agreement: Unions and larger employers sometimes bargain a national agreement (sometimes referred to as a “master agreement”) that covers all unionized facilities of the employer, resulting in a collective bargaining agreement broader than the typical enterprise-level agreement. National agreements are effective at establishing uniform wage and benefit standards across an employer’s operations. These agreements are often supplemented at the local level by local agreements addressing particular issues at that location. Examples would include contracts negotiated between the United Auto Workers union and each of the “Big Three” automakers (Ford, GM, and Stellantis), between the Teamsters union and UPS, or between postal unions and the U.S. Postal Service.

Prevailing wage laws: Prevailing wage laws set a uniform minimum wage that employers must pay to workers on a project. Typically, prevailing wage laws apply to employers on government-funded projects to ensure that public investments support the creation of good jobs and do not drive down wages in the industry. Prevailing wage laws exist at the federal, state, and local levels and are a well-established means of setting strong wage standards across an industry that cover both unionized and nonunion workers.

Sectoral bargaining: Collective bargaining between one or more unions and a representative group of employers in a sector or industry to set wage and benefit standards for the sector or industry. Agreements reached by the parties apply to all employers in the sector or industry. There is currently no mechanism for sectoral bargaining in the National Labor Relations Act, but it is common in many European countries.

Sectoral co-regulation: Regulatory systems, such as wage boards or workforce standards boards, designed to facilitate setting of labor standards at the sectoral level with the participation of worker representatives and employers alongside public officials.

Tripartite: Tripartite refers to a process through which representatives of three parties— workers, employers, and the government—work to address an issue. Tripartite processes are a common feature of labor relations in many European countries. With the exception of a few state and local wage or standards boards, tripartite processes are rare in the U.S., and there is no formal mechanism for them to operate in the labor relations system under U.S. labor law. 

Wage board or standards board: Wage boards (sometimes also called worker(s) boards, labor standards boards, industry standards boards, industry councils, or workforce standards boards) are established by legislative or executive branch action in order to study, recommend, and/or set minimum standards for wages (and sometimes other working conditions) in a particular industry. Typically, such boards have a “tripartite” structure, meaning they include representatives of workers, employers, and government agencies as participating members. The structural design and effectiveness of such boards, including the degree of authority they have to set or implement standards, can vary widely (see Appendix Table 2 above for examples). Standard setting via a wage board process differs from traditional collective bargaining in that the government is involved in appointing members of the board and in approving and implementing any board recommendations on standards (unlike collective bargaining, which is a private process between unions and employers). Any standards resulting from a wage board process apply to all employers in the industry, whereas agreements reached through traditional collective bargaining apply only to the employer(s) involved in and are covered by the collective bargaining agreement. Because wage boards are essentially a government process with participation by workers and employers, they are sometimes referred to as “sectoral co-regulation.”

Works council: A works council is a committee of elected worker representatives that advocates for workers’ interests with their employer at the workplace level. Works councils are common in the labor relations systems of many European countries as an enterprise-level complement to industry or sectoral bargaining conducted by labor unions. This labor relations structure differs from the U.S. system, and works councils are generally not allowed under U.S. labor law, which prohibits employer domination, interference, or support of labor organizations (including works councils).

Key takeaways:

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

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

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

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

Why do prices dominate today’s affordability debates?

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

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

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

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

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

Policy can target incomes more effectively and precisely than prices

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

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

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

Boosting public benefits is affordability policy

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

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

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

Policy can boost affordability through higher wages as well

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

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

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

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

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

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

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

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

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

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

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

Figure A

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

Figure B

Reducing inequality is the key to improving affordability

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

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

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

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

Key takeaways:

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

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

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

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

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

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

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

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

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

Figure D

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

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

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

Related: Why the U.S. needs a $17 minimum wage • Why eliminate the tipped minimum wage

Interactive

Key takeaways

• EPI’s updated Family Budget Calculator shows how much income it takes to afford basic expenses in every metro area and county across the United States in 2025.
• The Family Budget Calculator can be used to assess a living-wage level and shows that states like Oklahoma need a higher minimum wage. The state’s minimum wage falls short by over $12 an hour in meeting a one-person budget in the state’s lowest cost county.
• Voters in Oklahoma will have the chance to raise their state’s minimum wage this summer, which will help low-wage workers better achieve a decent standard of living.
• As of 2025, there is no county or metro area in the country where a minimum-wage worker is paid enough to meet the requirements of their local family budget on their wages alone.

Now updated with 2025 data, EPI’s widely cited Family Budget Calculator (FBC) shows what it takes to make ends meet for different family types in all counties and metro areas in the United States. For more than 20 years, we have calculated family budgets for basic expenses like housing, food, health care, child care, transportation, other necessities, and taxes. In doing so, we create a more location-specific and realistic assessment of cost of living than traditional poverty thresholds.

We use government-provided data where possible and stay up to date with changes in policy and data availability. Because of this, and due to related changes in methodology, we don’t recommend comparing budgets over time. For more details on the construction of EPI’s family budgets and all of the datasets we use, see the full methodology. For a video tutorial on how to use the FBC, see here. The full dataset is downloadable here.

Example case: Most and least expensive metro areas in Oklahoma

Using family budgets in Oklahoma as an example, Figure A compares each budget component for one-parent, one-child and two-parent, two-child families in the state’s least expensive (Fort Smith) and most expensive (Tulsa) metro areas. Technically, the city of Fort Smith is located in Arkansas, but the metro area crosses into Oklahoma.

Costs for a one-parent, one-child family budget vary from $61,928 in Fort Smith to $73,678 in Tulsa, with housing and transportation being two of the largest costs. In areas with limited access to public transit, the costs of buying, maintaining, and driving a car can be a large burden.

Food, health care, and child care are considerably more expensive for larger families. For a two-parent, two-child family, the total cost of affording a basic standard of living ranges from $87,994 in Fort Smith to $103,642 in Tulsa. The largest difference between Fort Smith and Tulsa is the cost of child care, which is 50% more expensive in Tulsa.

Figure A

The Family Budget Calculator can be used to calculate living wages

The FBC has been cited by living-wage advocates, private employers, academics, and policymakers who are looking for comprehensive measures of economic security. EPI’s family budget tool is also frequently used to gauge the adequacy of labor earnings, and we are often asked how to construct a living-wage standard from our family budget numbers. Doing so requires making choices and assumptions about how a family’s needs could or should be met that will result in different “living wage” values. For instance, health care expenses could be covered primarily by families, employers, or public programs (such as Medicare or through premium subsidies in the health insurance marketplace). We provide a user’s guide to translate our FBC data into living wages.

The FBC can be used to roughly calculate the hourly wage necessary to meet a family budget through labor market income alone. For a full-time, year-round worker providing for themselves and their family, we simply divide the required budget by 2,080 (40 hours a week multiplied by 52 weeks a year) to get an hourly wage equivalent. The full dataset of living-wage options is downloadable here.

Example case: McIntosh County

McIntosh County—located in Muscogee (Creek) Tribal Jurisdiction—is the lowest cost county in Oklahoma for single adult households. Figure B shows that a full-time, year-round adult worker without children would need to be paid $19.99 per hour to meet the requirements of their $41,577 budget to attain a modest yet adequate standard of living. The current minimum wage in Oklahoma—$7.25 an hour—falls short by $12.74 per hour, or $26,500 annually. In other words, minimum wage workers are paid less than 40% of what they need to afford to live, even in the least expensive county in Oklahoma.

One common benchmark for setting living wages is that an adult working full time should be able to support themselves and one child. In McIntosh County, a worker with one child would need to be paid $30.99 per hour to afford an annual budget of $64,456. This means that Oklahoma’s current minimum wage is $23.74 per hour lower than a living wage, or almost $49,400 annually.

These basic calculations assume that all income comes from wages, but wages are not the only resource available to families. If an employer offers health insurance or the state subsidizes child care, the wage needed to meet a basic family budget would be reduced, as shown in Figure B. Conversely, if reasonable savings for retirement, college, or emergencies are considered critical budget items, then the living wage required would be even greater.

Figure B

Oklahoma needs a higher minimum wage

Our Family Budget Calculator highlights the need for a higher minimum wage in Oklahoma. The state still follows the dismally low federal minimum wage, which Congress has not updated since 2009 despite 44.1% cumulative inflation since then. At $7.25 per hour, the federal minimum wage is not high enough to keep workers out of poverty, much less provide a modest yet adequate standard of living.

It’s time for Oklahoma to pass a minimum wage increase that can support workers and their families across the state, and residents are ready for the change. In 2024, more than 157,000 Oklahomans signed a petition to request a statewide election to vote on whether to raise the state’s minimum wage. Although organizers collected enough signatures well before the deadline to be placed on the November 2024 ballot, a lengthy certification process delayed State Question (SQ) 832’s approval. In September 2024, Oklahoma Governor Kevin Stitt delayed the vote by nearly two years and scheduled it for June 2026.

If voters pass the measure this summer, SQ 832 will increase the minimum wage to $15 per hour by 2029, starting with an increase to $12 per hour in 2027. The legislation also mandates annual inflation adjustments starting in 2030 and extends the wage floor to historically excluded categories of workers such as tipped workers, farmworkers, part-time employees, domestic workers, and feed store employees.

According to EPI’s 2024 estimates, this higher minimum wage would benefit 320,000 Oklahoman workers (directly benefiting the more than 200,000 Oklahomans who are paid less than $15 per hour and indirectly boosting wages for another 119,000 workers.) Low-wage workers are not just teenagers working fast-food jobs on the weekends; nearly 82.0% of affected workers are age 20 or older and more than half (51.3%) are working full time. Women in particular are more likely to work at or near the minimum wage, making up almost two-thirds (62.9%) of affected workers.

Workers of color are also disproportionately more likely than white workers to work low-wage jobs: while they make up about one-third (34.8%) of the Oklahoma workforce, they are nearly half of the affected workforce (48.7%). This disparity is the outcome of decades of violence and discrimination. For example, the destruction of Tulsa’s Black Wall Street brought an end to a vital center for Black economic advancement. Higher wages, alongside strong nondiscrimination laws, are necessary to rectify this inequality.

Oklahoma is one of the country’s poorest states, with one in seven residents (14.9%) living in poverty and nearly one in five (18.9%) children living at or below the federal poverty line. Passing SQ 832 and raising the minimum wage would alleviate poverty, help workers and their families, and boost Oklahoma’s economy. Without it, many Oklahomans will continue to struggle to afford basic necessities as costs of living grow.

But it’s not just Oklahoma—the Family Budget Calculator shows that nowhere in the country can a minimum-wage worker meet the requirements of their local family budget on their wages alone. Raising wages is a critical, but often overlooked, component of solving the affordability crisis. EPI’s Family Budget Calculator is a vital tool for understanding the wages and resources that are needed for families to afford the true cost of living across the United States.

President Donald Trump has said some strikingly out-of-touch things about affordability: that it’s a “hoax,” he’s “solved it” and he’s “won affordability.” In his State of the Union address, he even said “prices are plummeting downward.” U.S. families know this is nonsense. But to see how much Trump’s policies will erode affordability in the coming years, you must understand that affordability isn’t just about prices. 

Affordability is the outcome of a race between incomes and prices. And for typical families, the Trump agenda is near-guaranteed to harm their incomes far more than it can possibly reduce their prices. 

Even judged by the movement of prices alone, Trump’s record on affordability is poor. Inflation fell from 8.0% to 3.0% in the final two years of the Biden administration. This rapid downward movement slowed to a crawl in the first year of Trump’s second term, with inflation falling from 3.0% to just over 2.6%.

There are clear policy reasons why progress in reducing inflation has slowed. Electricity prices have surged as the Trump administration has ended subsidies for renewable generation passed during the Biden administration. The Trump tax cuts passed in the president’s first term were part of a law that gouged loopholes in the tax code, including inviting pharmaceutical companies to offshore their production and import back into the United States. Last year the Trump administration put tariffs on these offshored pharmaceuticals, pushing up their costs. When the administration failed to extend Obamacare subsidies for people buying health insurance through the exchanges, healthier enrollees who could afford to began opting out, driving up prices for everybody left in the Affordable Care Act marketplace.  

And these are not the only ways that Trump administration policies have intensified affordability issues for ordinary Americans.

Read the full piece here. 

Key takeaways

The Trump administration’s unwise policy agenda has the potential to do great damage to U.S. families—and this is true even if it does not lead to recession or spiking inflation in the near term. While this agenda has heightened the risk of recession in coming years, the greatest future damage will come from slowing growth in the economy’s supply side and raising inequality. Trump’s economic policies will cause incomes and wages for typical families to grow more slowly, and this will lead to a less affordable life for many.  

How will Trump administration policies harm income growth for typical families? 

• The Trump administration inherited a fundamentally strong economy from the Biden administration. Yet the Trump administration’s policy agenda has raised the risk of a near-term recession by slowing growth in spending by households, businesses, and governments (aggregate demand).  

• • Federal workforce cuts, deportations and a slowdown in immigration, and chaos in trade policy and the administration’s approach to the Federal Reserve have all weighed on demand growth. 

• • The deportation agenda and cutbacks to the federal workforce will deeply damage the economy’s supply side as well. Further, deficit-financed tax cuts will also put headwinds in front of growth in the economy’s supply side in coming years. These growth reductions will be small in any given year but will accumulate quickly and lead to future incomes being significantly lower than they would have been under a different policy regime.  

• Finally, the 2025 Republican-led tax cuts favor the rich, while the spending cuts included in the same Republican megabill will sharply lower incomes for the bottom half of U.S. households (ranked by income) in coming years. This combination will lead to a very large spike in inequality.  

• • The Trump administration’s assaults on typical workers’ bargaining power and leverage, and its support for corporations with significant market power, will increase pre-tax inequality.  

Policy choices that fostered excess unemployment, slow growth of the economy’s supply side, and rising inequality have all contributed to making recent decades extremely difficult for typical families. The policies of the Trump administration double down on the worst policy decisions of this period and will make typical families reliably poorer in the future, even if an outright recession or spiking inflation does not happen.  

In the first months of the second Trump administration, the question that popped up frequently about its economic policy agenda was, “Will it cause a recession?” After a year and no clear signs of a recession (at least not yet), many looking to formulate an organized critique of the Trump agenda argue that it is making affordability for American families worse.

Both the concerns of heightened recession risks and deteriorating affordability are valid. Trump policies really are making a recession more likely and even if a recession does not occur, these policies will harm typical families’ ability to afford what they need. This affordability crunch will happen for two reasons: Trump policies will hamstring the economy’s ability to supply goods and services, and these policies aim to increase inequality by transferring income from the bottom and middle toward the top. Sometimes this affordability crunch will manifest as higher prices or faster inflation, but it is more likely to appear as slower wage growth and the rollback of public supports for households. But its root is always and everywhere poor economic choices, including prioritizing the interests of the rich and corporations over the concerns of typical American families.

This report provides an explanation and overview of how Trump policies will impact overall U.S. economic performance and the living standards and economic security of typical families.

• In the short run, Trump policies raise the risk of recession.
  • The U.S. economy might avoid a recession over the next year, but the Trump agenda has made a recession far more likely than it would have been without these policy choices.
    • The short-run danger from Trump policies stems from the chaotic implementation of tariff policies, the administration’s cuts to social spending in the 2025 Republican budget megabill, their rapid and random downsizing of the federal workforce, and the chilling effects their mass deportation aspirations have on spending.
• In the long run, the Trump policy agenda will significantly reduce the U.S. economy’s ability to supply goods and services without high and rising inflation.
  • The administration’s deportation agenda is slowing the size of the future U.S. labor force and has maybe even shrunk it.
  • Trump has backed mostly deficit-financed tax cuts for the rich, which will slow the size of the future U.S. capital stock.
  • His administration is attacking key federal agencies and has shown a lack of strategy in tariff policies, which are slowing the size of the future U.S. technology stock.
• In both the short and the long run, the Trump policy agenda is guaranteed to cause greater inequality.
  • In the short run, the huge tax cuts tilted mostly toward the rich and the spending cuts falling mostly on the bottom 40% will lead to an enormous rise in inequality.
  • A possible recession will damage the labor market and likely lead to rising inequality over any subsequent recovery as unemployment remains elevated.
  • Further, the Trump administration’s attacks on the leverage and bargaining power of typical workers and the administration’s toleration of monopolization and abusive financial practices will see income in the business sector reliably funneled away from typical workers and toward the already-rich owners and managers of large companies.
  • The Trump administration has hamstrung or downsized the key functions of the federal civilian workforce that work to level playing fields between the rich and corporations on one hand and typical workers and consumers on the other.
• Finally, many of the Trump administration’s policy choices will inflict significant damage on U.S. families that is not reflected in contemporaneous measures of GDP or income. Just because this damage is not reflected in real-time GDP or income data does not mean it is unimportant or cannot be measured well.
  • For example, regulations enforced by the federal government lead to greater air and water quality, and voluminous research indicates these save lives and many Americans highly value them. If the attack on the federal workforce and the Trump administration’s generally anti-regulatory stance lead to rollbacks in air and water quality, people will suffer, even as most of this suffering is not well captured in GDP.

In what follows, we provide the economic basis for these conclusions, focusing on Trump policy effects on aggregate demand, potential output (supply), and income distribution and how these drive real-world outcomes for typical families. Families will feel the bad outcomes from all three dimensions of macroeconomic performance as a deterioration in affordability.

Three key dimensions of macroeconomic performance: Demand, supply, and distribution

A quick overview of some important macroeconomic concepts can help organize thoughts about how the Trump policy agenda will tangibly affect U.S. families. The most important tasks policymakers must get right to offer typical families’ economic security are as follows: managing aggregate demand, fostering potential output (supply) growth, and ensuring equitable distribution of income.

Managing aggregate demand just means making sure unemployment and inflation stay low most of the time and are quickly returned to low levels when shocks push them higher for some stretch of time. The key to successful aggregate demand management is ensuring that spending by households, governments, and businesses is high enough to fully employ all resources in the economy—especially labor, but not so high as to generate ongoing inflation. This means ensuring that aggregate demand matches potential output.

Fostering growth in potential output (supply) involves making sure the economy’s productive capacity grows rapidly over the long run. Key elements include fostering growth in the labor force and productivity (a measure of how much output and income is generated in an average hour of work in the economy). Growth in productivity depends on the educational attainment and quality of the labor force, the size of the capital stock that workers can use to aid production, and the state of technology in the economy.

Ensuring an equitable distribution of growth means making sure the overall income growth generated in the economy is shared at least proportionally throughout the income distribution. Even better would be growth biased more toward households in the bottom half of the income distribution. This would help reverse some of the large increases in inequality that occurred over the past few generations of economic life in the U.S. Fostering an equitable distribution of growth matters for typical families for an obvious reason: If average living standards rise rapidly, but living standards for the large majority lag far behind as households at the very top see extreme above-average gains, it is hard to declare this an economic success for broad-based economic security. Without an equitable distribution of growth, too many people would be unable to afford daily life.

Trump policies will drag on aggregate demand and raise recession risks

Recessions happen and unemployment rises when spending by households, businesses, and governments (demand) lags behind potential output (supply). Because supply tends to change slowly and predictably, it is sharp cutbacks in demand that lead to recessions and rising unemployment.[1]

When demand falls short of supply, this means that there is more capacity in the economy to produce goods and services than demand to buy them. To illustrate, let’s take the example of a restaurant. It will not hire staff to cover every table and cook meals for a full house, unless there are paying customers at each table. If demand (or the number of customers) falls, then the restaurant will cut back staff and food purchases by roughly the same amount.

Figure A shows estimates of potential output and actual gross domestic product (GDP) over time. When actual GDP falls short of potential output, it can be inferred that GDP is demand-constrained (more could be produced if economic actors simply spent more). The shortfalls of actual GDP relative to potential may look small on the graph, but they correspond to significant economic distress. The growing gap between 2007 to 2009 was associated with the unemployment rate rising from 4.4% to just under 10%—meaning that roughly 9 million people lost their jobs during this time period. Others dropped out of the labor force, and wage growth even for those workers who kept their jobs was significantly damaged as well, as their main source of leverage to gain wage increases (the threat of—or ability to—leave their current job to find a higher-paying one) lost power in a labor market with huge pools of unemployed workers. Over the 2007–2017 period, excess unemployment translated into roughly 47 million years of avoidable unemployment for U.S. workers, and this period of soft labor markets kept wage growth firmly suppressed.[2]

Figure A

Throughout 2025, many have raised concerns that Trump administration policies could lead to a recession. It should be noted how surprising this development would be, considering the context. The economy handed over by the outgoing Biden administration in January 2025 was extremely strong, and there were no obvious macroeconomic threats moving forward that would have led one to forecast a recession in the next few years.[3]

For a recession to happen in the next year or two, there would need to be some short-run shock or drag on aggregate demand that forces it below the economy’s potential output. Despite the strength of the economy the Trump administration inherited, their subsequent policy agenda since his inauguration in 2025 contains plenty of reasons to worry about such drags.

For one, the Trump administration’s assault on the federal workforce directly destroys employment and incomes. Between January and December 2025, 290,000 federal workers have lost their jobs. While this is not enough by itself to drag an otherwise healthy national economy into recession (as it constitutes less than 0.2% of total employment), it certainly puts downward pressure on aggregate demand.

On top of this, the spending cuts in the 2025 Republican budget megabill (which the White House has referred to as the OBBB) will reduce aggregate demand in coming years. [4] For example, the Republican megabill will cut SNAP and Medicaid benefits by a combined $100 billion per year on average over the next decade. Households receiving Medicaid and SNAP benefits will cut back spending sharply when these benefits are reduced. Further, the megabill rolled back a set of Biden administration policies that sharply reduced student loan payments. In coming years, households will have to pay substantially higher student loan payments to the federal government.

Finally, another fiscal change that was not an explicit part of the megabill but was notable in its absence is the expiration of enhanced subsidies to buy health insurance in the marketplace exchanges established by the Affordable Care Act (ACA). The rollback of these enhanced subsidies—also passed during the Biden administration—will double out-of-pocket payments for the premiums of the 20 million Americans enrolled in these exchanges, increasing costs by more than $30 billion annually in coming years.[5]

The tax cuts in the Republican megabill are unlikely to do much to spur demand for two reasons. First, they are tilted toward high-income households whose spending is not constrained by their current incomes. Second, the tax cuts are small relative to a “current policy” baseline, meaning that they leave tax burdens unchanged, not appreciably lower, relative to 2025.[6]

The mass deportation agenda of the Trump administration will have its most predictably negative effects on the economy’s supply side, as millions of immigrant workers are forced out of the country.[7] But immigrants are not just workers; they are consumers as well. Further, immigrant workers are key complements to U.S.-born workers in many industries. Deporting these consumers and complementary workers and making it harder and more dangerous for those who remain to conduct the normal business of their lives will clearly have depressing effects on aggregate demand as well.

Most importantly, the radical uncertainty and chaotic implementation of Trump policies—particularly the trade policies—seem almost designed to freeze new business investment. Who would set up a new manufacturing facility if they had no idea what the competitive landscape of the sector was going to look like in coming years? Will tariffs protect domestic production? Will tariffs make imported inputs into the factory more expensive? Will protective tariffs vanish overnight when a foreign government meets the president’s demands of the day? Will future profits be reduced because the Trump administration arbitrarily demands ownership stakes in companies? Business investment is by far the most volatile component of aggregate demand, and it is the one that generally leads to recessions. It seems highly plausible that the Trump administration’s policies could cause business investment to seize up and slow growth.

Early in Trump’s second term, the administration’s “Liberation Day” tariffs led to most forecasters sharply raising the risk of a recession happening over the next year.[8] The sharp reversal of these historically high and broad tariffs to levels “only” half as high on average led to this risk receding a bit, yet still remaining sharply higher than it was in January 2025. So far, most of the “hard” economic data (that measure actual economic transactions like wages, employment, incomes, or gross domestic product) have yet to signal that a recession is coming.

Part of the relative robustness of macroeconomic measures likely owes to the fortuitous timing of a boom in AI-related spending, which largely began in mid-2023.[9] The valuation of stock markets has reached the second-highest levels in history—trailing only the stock market bubble of 2000–2001 (also driven by a boom in tech stocks). Much of these stock market gains have been driven by AI-related firms. A significant amount of consumption spending out of these wealth gains has likely contributed nontrivially to growth over the past year.

Further, capital expenditures related to the AI-boom have also been contributing to growth. Starting in 2023, year-over-year real growth (adjusted for inflation) in data centers, for example, has consistently exceeded 35%, peaking at just under 77% in late 2024 and remaining above 30% throughout most of 2025. While this AI-related spending has helped keep the U.S. economy well clear from recession through the third quarter of 2025, it is the kind of spending that would likely evaporate relatively quickly if business sentiment about the future use and profitability of AI investments dims.

If this happened, the depressing effect on wider business investment stemming from the uncertainty mentioned above might well dominate and lead to quick decelerations in growth. Evidence of this depressing effect seems already clear, as investment in components not related to the AI boom looks notably weak over the past year.

Figure B

The danger of a slowdown in aggregate demand highlights how much discussions about affordability need to go beyond prices.[10] Much of the discourse about affordability recently was driven by the outbreak of very high inflation in the early 2020s, following the COVID-19 pandemic. But absent very rare and sharp increases in inflation like that (and which tend to be driven by external events like pandemics and wars, not policy missteps), the main damage to affordability over time does not stem from fast inflation, but from slow growth in wages and incomes. A recession would return inflation in the U.S. to very low levels. The recession of 2008–2009, for example, led to inflation averaging below 2% for the following decade. And yet this low inflation provided next to no relief for affordability because the high unemployment of that period—which was the source of disinflation—sapped workers’ leverage and bargaining power in labor markets and led to slow wage growth.[11]

A recession in the next year would solve the price side of affordability in that it would lead to a sharp slowdown in inflation, but it would force wage growth down even faster, and hence, would exacerbate, not help, the ongoing problem of affordability properly defined.

All in all, it seems safe to say that the Trump administration’s policies have significantly elevated the risk of a recession over the next year. Their trade policy retreat has been sharp enough that a recession might well be avoided. But this hinges largely on the administration’s being able to resist whipsawing trade policy chaotically again—and this seems far from certain. But we may well navigate the next year without a recession—largely stemming from the momentum of the strong economy the current administration inherited and the lucky timing of much AI-related spending remaining strong through 2025.

Trump polices will quickly erode the economy’s ability to supply goods and services without inflation—this damages affordability for typical families

However, the avoidance of a recession would not mean the economic policy decisions of this administration were wise. If the only question on the table regarding the impact of Trump policies was “Will there be a recession?” the future of the U.S. economy would be much less bleak. Instead, the more predictable and larger amount of damage that the Trump administration’s policies will inflict will not come through downward pressure on aggregate demand but through the rapid erosion of the economy’s potential output and the upward redistribution of income instead. These influences will be experienced by typical families as wages, incomes, and public supports failing to outpace prices by sufficient margins over time, thereby damaging affordability.

In the previous section, we noted the sharp economic damage done by the aggregate demand shortfall of the early 2010s. The most obvious and acute damage stemming from this shortfall was the elevated unemployment rate of that time, along with the attendant damage to wage growth.

However, the worst lingering damage from that long period of deficient aggregate demand likely came from its spillover effect in destroying potential output. When employers see that customers are scarce and workers are cheap and plentiful, their imperative to invest in worker training or newer capital or innovative technological processes to economize on labor costs and boost productivity is blunted. And when jobless workers see elevated unemployment rates and the low probability of being hired, job seekers can get discouraged, and labor force participation can falter.[12]

Over time these dynamics lead to a lower-quality workforce and smaller capital stock, which reduce productivity growth and potential output. Figure A showed actual GDP and successive estimates of potential output over time. Between 2007 and 2019, these potential output estimates continually fall as the demand shortfall bends down potential output, as productive investment is blunted. By 2019, potential output was $2.2 trillion below where its 2007 trend would have left it in that year. This translates into $6,500 less income for every adult and child in the United States in 2019 (or $26,000 less income for a family of four). In short, over a 5–10-year period, even small bends in the growth of potential output have huge real-world consequences.

Supply destruction leads directly to unaffordability

This discussion of potential output growth likely sounds abstract to noneconomists. But it has profound effects on typical families’ economic security, and the way this slowing down of potential output translates into observable real-world effects is by making affordability worse for these families. For example, in the paragraph above, we said that the slowdown of potential output growth after 2007 translated by 2019 to $6,500 less in inflation-adjusted income for every person in the United States (or $26,000 less income for a family of four). The way this happens is by wages and incomes failing to outpace growth prices by satisfactory amounts—even during times (like the 2010s) when inflation was extremely low.

And, of course, the gap in the race between wages and prices differs depending on the specific goods and services examined. In the 2010s, the output that was produced less and less, relative to historic norms, was housing.[13] This reduced output of housing translated directly into higher relative prices for rents.

While there is a lot about this collapse in housing production and rise in rental prices that is housing-specific, the root of all of this pressure on affordability stems from macroeconomic choices. If potential output growth slows for the overall economy, then the production of something will lag, and its price is likely to rise. If we had somehow kept housing construction constant in the face of a fall in overall potential output, the biggest affordability problem would have shown up someplace else, but one surely would have emerged.

How Trump policies will slow potential output and exacerbate affordability concerns

In the current moment with unemployment that is still relatively low by historical standards and so-far adequate aggregate demand, the imminent threat to the economy’s supply side today is not an extended recession, but simply the direct effect of many Trump policies. When (not if, but when) potential output growth falters in coming years, it will again represent a sharp break from the economy the Trump administration inherited, an economy that saw rapid productivity growth in the years following the pandemic.

Figure C

The potential supply destruction stemming from Trump administration policies comes along many margins.

Loosening immigration restrictions and unleashing mass deportations

The most obvious blow to the economy’s potential output would be Trump’s mass deportation policy. If the U.S. relied solely on growth in U.S.-born workers, labor force growth would shrink rapidly over the next decade (see Bivens 2025c). Successful mass deportations—besides causing great and unnecessary human misery—would actually push labor force growth in the U.S. economy into negative territory in coming years.

Further, immigrant and U.S.-born labor supply are often complementary (Zipperer 2025). One obvious example is that child care centers are disproportionately staffed with foreign-born workers. If mass deportations cause significant closures of these centers, U.S.-born parents will often be forced into stopping work in order to care for children.

Cutting back federal spending and the workforce

We noted the cutbacks to federal workforce and spending previously as short-run threats to aggregate demand. But the federal government is not just a source of short-run demand; it also provides absolutely crucial inputs needed for robust private-sector growth.[14] Recent decades have seen sharp cuts in the size of the federal workforce and the investments in the functions it provides. By January 2025, the size of the federal workforce and the spending to support it were at historically low levels relative to the broader economy. In short, it seems clear that this workforce and the state capacity of the federal government were already significantly degraded even before the Trump administration took power. Since then, the administration has unleashed an unrelenting attack on this state capacity.

Perhaps the clearest way reduced federal spending will translate into slower potential output growth in coming years comes from cutbacks to science and research. Fieldhouse and Mertens (2025), for example, have estimated that nearly a third of total factor productivity (TFP) growth stems from federally financed research and development spending.

Further, the Trump administration has significantly cut back federal spending on universities. A key driver of productivity growth over time is a more educated and skilled workforce. Today’s higher education cuts are guaranteed to slow the growth of labor quality in the U.S. workforce in coming decades.

Other federal agencies collect, analyze, clean, and provide access to free, publicly available, high-quality data on the nation’s economy and demographics. These services provide enormous monetary value to private-sector actors (see Hughes-Cromwick and Coronado 2019).

Other agencies provide crucial monitoring services that help the nation avoid financial, epidemiological, or weather disasters. These investments provide a huge rate of return relative to the (likely too small) federal spending done on them. Even monitoring and surveillance that directly aim to constrain and manage private-sector decision-making can often actually lead to better private-sector outcomes. Hirtle, Kovner, and Plosser (2019), for example, examine the outcome of banks when they receive more or less regulatory scrutiny from federal banking supervisors. The authors find that “…banks that receive more supervisory attention hold less risky loan portfolios, are less volatile, and are less sensitive to industry downturns, but do not have slower growth or profitability.”

By far the biggest long-run threat to the U.S. and global economies’ ability to produce goods and services without inflation is the effect of climate change. Climate change can be thought of as an ongoing erosion of the economy’s productive capacity. For example, key swathes of land will become less valuable as flooding and disaster exposure rise, buildings and factories will be threatened by extreme weather, and the productivity of work that must be performed outside will suffer due to either extreme weather or needed spending to mitigate the effects of it on workers. Investments that mitigate greenhouse gas emissions (GHG) and reduce the effects of climate change are incredibly valuable in the long run for maintaining the economy’s supply side. By far the biggest and most effective investments in this type of mitigation ever made by the United States were the subsidies for clean energy and its adoption in the Inflation Reduction Act (IRA) of 2022. The Republican budget megabill, however, rolled back the majority of these IRA subsidies and will hence lead to far fewer reductions in GHG emissions in coming years. Essentially these rollbacks will accelerate the destruction to the economy’s supply side that is ongoing due to climate change.

Many federal agencies are responsible for providing and enforcing transparent rules for markets that channel economic competition into productivity improvements, instead of zero-sum opportunism. For example, the Securities and Exchange Commission and the Consumer Financial Protection Bureau provide protection to investors by enforcing rules against fraud or misappropriation of their funds from companies they invest in. This promotes trust and allows more liquid capital markets that are able to provide finance for more prospective and ongoing businesses. The Federal Trade Commission and the Antitrust Division at the Department of Justice aim to keep firms’ monopoly power from distorting markets. The Occupational Health and Safety Administration and the Wage and Hour Division at the Department of Labor protect employees from abusive workplaces, allowing them to choose among prospective employers without having to factor in whether there will be unsafe or exploitative working conditions with these employers.

Another key federal agency priority that has had profoundly beneficial effects on the U.S. economy’s supply side in recent decades is enforcement of anti-discrimination laws. The Equal Employment Opportunity Commission, for example, was established in 1965. Hsieh et al. (2019) have noted that since then, there has been an enormous increase in the share of high-wage, high-skill occupational employment that is accounted for by women and Black men. In turn, the authors estimate that this more efficient allocation of workers to occupations based on talent and merit accounted for up to 40% of all growth in the U.S. economy since 1960. Much of this better allocation of talent has stemmed directly from enforcement of anti-discrimination laws. Going forward from today, there is ample scope for ongoing and/or improved enforcement of anti-discrimination laws to support future growth. If instead, the enforcement of these laws withers, and there is a reduction in the efficient allocation of talent to occupation, this could be an outright headwind to growth going forward.

Haphazardly implementing poorly designed and chaotic tariff policy

The chaotic implementation of the administration’s tariff policy is surely a short-run drag on aggregate demand. But, if the end result of the policy is to leave the United States with historically high and broad tariff rates (which is where the tariff policy has landed as of December 2025, even with the sharp reversal of many of the highest tariffs), without any obvious corresponding benefit from well-designed industrial policy considerations, then this will also slow potential output growth.[15]

Tariffs are essentially a way to block the lowest-cost method of delivering goods to U.S. households and businesses, if this lowest-cost method involves imports. Sometimes this kind of blockage is fully justified by other policy concerns besides what is the cheapest production at the moment. For example, if foreign governments subsidize their producers in a specific sector, and if the U.S. deems it imperative to have productive capacity in that sector, then tariffs can help keep domestic producers from being forced out of business by the decisions of foreign governments.

Further, if the sectors that domestic producers are being forced out of looked poised to drive productivity gains in coming decades, there might be a strategic benefit to using tariffs to protect domestic production. The case of electric vehicles (EVs) is one potential example. There is clearly going to be a large global shift toward EVs in the coming decades. EV manufacturing will scale rapidly, and often this kind of scale produces huge leaps in productivity. If today’s constellation of EV production facilities and foreign countries’ subsidies of their own EV makers threaten to shove U.S. producers entirely out of the race for EV market share, it seems like industrial policy efforts to support domestic production of EVs would make a lot of sense—and this was indeed a priority of the Biden administration.

Similarly, if some or all of the cost advantage of imports in a sector stems from objectionable practices of producers in other countries—say, blatant disregard of fundamental labor rights—tariffs can protect U.S. producers from being forced out of business by these objectionable practices.

But the historically broad and high tariffs of the Trump administration are not being calibrated in any kind of strategic or careful way. Instead, they are blocking the lowest-cost means of delivering goods to U.S. households and businesses randomly. This essentially is the equivalent of a negative technology shock. Businesses (both foreign and domestic in the U.S.) that supply goods have been forced out of the most efficient way to produce goods, and without any countervailing benefit from smartly designed industrial policy considerations.

Finally, the chaotic implementation does not only affect aggregate demand. If ever-shifting tariff levels change the patterns of production that lead to the lowest-cost ways of producing goods in random ways, this makes it impossible to set up efficient supply chains, hence stunting potential output growth.

Financing tax cuts for the rich and corporations with higher debt

In 2000, the ratio of U.S. public debt to gross domestic product (GDP) stood at less than 35%. In 2024, the debt ratio nearly tripled, rising to almost 96%.[16] A large part of this increase was due to the two historically large economic crises experienced in those years: the financial crisis and Great Recession of 2008–2009, and the COVID-19 recession.

More worryingly, even in 2024—a year in which the unemployment rate averaged 4%, the Fed’s short-term interest rates stood at over 5%, and inflation was above the Federal Reserve’s target—the federal budget deficit was 6.2% of GDP. This is too large a deficit for an economy that is at roughly full employment and not in need of fiscal support.[17]

The 2024 deficit can essentially be entirely explained by the successive rounds of tax cuts engineered by Republican administrations since 2000. In 2009, the Congressional Budget Office (CBO) projected what federal revenue as a share of GDP would be if the tax cuts signed into law by George W. Bush in 2001 and 2003 were allowed to lapse (see CBO 2009). They projected that revenue would be 20.2% of GDP by 2019. However, in 2019—after the vast majority of the Bush-era tax cuts were maintained and President Trump signed the 2017 Tax Cuts and Jobs Act (TCJA)—federal revenue came in at just 16.1% of GDP.  If revenue had remained at 2000 levels going forward, even with the extra debt incurred by economic crises, budget deficits by 2024 would’ve been effectively zero.

In the decade after the onset of the Great Recession in 2008 and during the early stages of the 2020–2021 pandemic, large deficits were not harming the economy. In fact, they were usefully propping up aggregate demand even as private sources of demand were plummeting. This chronic shortfall of aggregate demand (sometimes labelled “secular stagnation”) kept spending weak and interest rates and inflation historically low (short-term interest rates stood at essentially zero in all these years).[18] And so long as interest rates were low, no damage was being done by higher deficits.

But in the post-pandemic recovery, aggregate demand (aided by a robust fiscal response to the crisis) has been stronger, and interest rates and inflation have moved decisively off their historic lows. In this environment—when the economy is no longer demand-constrained—further increases in federal debt now compete with private-sector borrowers to find available savings. This, in turn, pushes up interest rates and threatens to crowd out private sector investments in new factories, plants, and equipment. This slowdown in the growth of the nation’s capital stock, in turn, leaves U.S. workers with less capital to aid them in doing their jobs and hence slows the pace of productivity growth.

This potted history of fiscal policy debates in recent decades tells us that after a decade and a half of warnings about the crowding-out effect of higher deficits on investment not ever coming to pass, there is now strong evidence to suggest this might be an important influence on growth going forward. Figure D shows the “real debt service ratio,” a measure of how sharply the government’s borrowing costs are rising. After a long stretch of being under 1%, this measure has recently surpassed its historic high.

Figure D

This historic high was surpassed even before the passage of the 2025 Republican budget megabill—a bill that will add nearly $4 trillion to the federal debt over the next 10 years. Borrowing costs are guaranteed to spike further going forward from now in any time period when the economy sits near full employment.

If the worried-about recession comes to pass in the next year or so, the collapse in private spending will reduce competition for available savings and interest rates will fall and the supply destruction effect of higher interest rates will be muted. But so long as the underlying fiscal structure of the U.S. sees large budget deficits even when the economy is at full employment, this means that interest rates will be high during these full employment periods and investment will be suppressed, leading to slower future productivity growth.

A key aggravating factor of the supply-destroying effects of higher deficits in coming years is what they were used for: simply to give much higher disposable incomes to rich households in the United States.          

One could imagine a counterfactual in which instead of using debt to finance higher disposable incomes for the rich, the federal government used this debt to make significant investments to mitigate emissions of greenhouse gases. This would leave the country with a higher stock of “green” capital (capital used to mitigate greenhouse gas emissions) and a smaller stock of conventional capital. This would be an affirmatively good thing. It would effectively be leaving future generations with slightly lower productivity in producing conventional goods and services, but a more livable and viable climate. Consistent economic growth essentially guarantees that future generations will be significantly richer than the current one in their ability to buy conventional goods and services. Trading off a bit of this advantage for a livable planet would be welcomed by this future generation—and it’s a trade-off they won’t be able to make. Only their ancestors can make it for them.

Alternatively, one could imagine a world in which the federal government took on additional deficits of the size generated by the 2025 Republican megabill to radically increase investments in children: providing federal financing of universal, high-quality pre-kindergarten; boosting aid to K–12 public school systems; and providing a universal Child Allowance to end child poverty. This would not only raise human welfare much more than tax cuts to rich people would; it would also see some of the deficit costs defrayed in coming decades as today’s children grew up healthier and better educated and worked more and earned higher wages in the decades to come. Some of these offsets could be considerable.[19]

There are no such happy offsets that stem from running larger deficits simply to give tax cuts that are radically tilted toward households that don’t need them—the ones at the very top of the income distribution. These deficits are supply destruction for the sake of intentionally increasing inequality.

Threatening a political takeover of Federal Reserve policy decisions

The Trump administration has been far more forceful than previous ones in pressuring the Federal Reserve to fall in line with the administration’s economic goals. They have demanded that the Federal Reserve set interest rate policy to meet the administration’s short-term economic goals and have constantly demanded lower interest rates, even as conditions do not warrant cuts in interest rates (inflation remains above the Fed’s long-run target, and unemployment remains generally low).

If decision-makers throughout the economy—households, businesses, and state and local governments—begin to think that the Federal Reserve’s interest rate decisions will be managed entirely by the executive branch, they might well raise their expectations of inflation in the future. This, in turn, would likely require any future Federal Reserve that committed to reducing inflation (and inflation expectations) to raise interest rates higher than they would otherwise have to be. These higher long-run interest rates would, in turn, reduce investment and slow productivity growth (much like too-large deficits run during times of full employment).

How much will supply destruction slow growth in coming years?

It is very hard to provide any convincingly precise estimates as to how much supply destruction will result from this portfolio of Trump administration policies. What determines the ebb and flow of productivity growth in advanced economies is one of the most debated topics in economics, and one in which no consensus exists. Yet we can give some very rough bounds for how important each element of this potential supply destruction might be over the next decade. The sum of these negative effects would be highly significant for future living standards growth—or affordability.

We start with the Congressional Budget Office’s (2025b) forecasts of potential output growth for the next decade. Currently they forecast that annual growth will average 2.0% between 2025 and 2034.

About 30% of the 2.0% that CBO forecasts (or 0.6% of this growth) stems from their estimate of how much the labor force will grow in those years. However, if one accounts for the Trump administration’s meeting their mass deportation goal of removing 1 million immigrants each year from the United States, this would imply that the labor force will barely grow at all in those years, translating into a 0.4% slowdown of growth in potential output.[20]

More than half of the projected growth in potential output comes from CBO’s forecast of growth in total factor productivity—a measure of how much extra output can be obtained holding inputs constant. TFP growth is often interpreted as a measure of pure technological advance—using new processes and production techniques to get more output out of a given stock of inputs. However, as we noted before, Fieldhouse and Mertens (2025) have estimated that fully one-third of TFP growth in recent decades can be accounted for by direct federal spending on research and development. The Fieldhouse and Mertens (2025) results would imply that a 20% cut in federal research and development spending would reduce projected productivity growth in the U.S. over the next decade by 0.2% annually.[21] This, in turn, would reduce potential output enough by roughly $2,500 for every adult and child in the United States by 2035.[22]

Importantly, their estimates do not include the effect of federal support for institutions of higher education, and this support has been large and critical for these centers of scientific research—likely as important as the direct federal research and development spending. This could easily double the effects from direct federal research and development spending, especially if one accounts for the long-run loss in the labor supply of trained scientists and researchers capable of undertaking research and development that will occur as higher education funding erodes.

CBO (2025b) has estimated that the 2025 Republican megabill will add roughly 7.1 percentage points to the ratio of public debt to GDP by 2034. Using earlier estimates from CBO (2025e) to translate the effect of a higher debt ratio on economic growth, this level of debt increase (assuming no recession intervenes) would slow growth by 0.1%–0.2% by 2034 through its effect on interest rates and investment. Given that Figure D previously showed that higher interest rates really have emerged in recent years, this effect seems possible.[23]

Estimates of the growth effects of the Trump administration’s trade policy are more uncertain. The Yale Budget Lab indicates a long-run effect on the level of GDP of 0.4%. However, it is hard not to make a comparison between the strategy-free actions of the Trump administration and a similar lack of planning that went into the United Kingdom’s exit from the European free trade area (Brexit). Estimates of the effect of Brexit are substantially larger than 0.4%—on the order of 2%–3% of GDP over 10 years (Bloom et al. 2025). If we think that Brexit is a suitable potential model for the fallout from the Trump trade policy—similarly chaotic and unplanned—this would imply a reduction in productivity growth of around 0.25% over the next year.

The long-run growth effect of eroding the federal government’s state capacity through budget cuts and downsizing is harder to estimate. One suggestive paper on this is Klein Martins (2025), who looks at episodes of sharp permanent spending cutbacks in advanced countries over the past 30 years. He estimates highly persistent negative effects on GDP growth of these cutbacks, over timespans well longer (15 years) than could be explained simply by the effect of these spending reductions adding to demand shortfalls. Klein Martins finds that each 1% of GDP in public spending reductions leads to GDP that is 2% smaller 15 years later. Say that half of these effects were driven by the erosion to state capacity stemming from these cuts. The cuts to the federal workforce in 2025 will result in a reduction of federal government spending of roughly 0.1% of U.S. GDP, which would imply (using half of Klein Martins’ estimates) a reduction in GDP of about 0.1%.

Tedeschi (2024) estimates how much higher interest rates driven by political events (like the capture of Fed policymaking by the executive branch) could reduce growth in coming years.[24] He finds that if the political events just moved the “country risk premium” of the United States to look more like the United Kingdom, this could reduce growth by 0.1% annually. If instead, this country risk premium deteriorated enough to look more like other rich, stable economies like Spain, the damage could be closer to 0.3% annually.

Adding up supply destruction from Trump policies

The Trump deportation goals could reduce labor supply growth by 0.4% over the next decade. The cuts to direct public research and development spending and this spending supported by institutions of higher education could each slow productivity growth by 0.2% over this period. Financing the Trump administration’s tax cuts for the rich with debt could reduce capital investment and hence productivity by 0.2%. If Brexit is the best model for the administration’s strategy-free trade policy, this could also reduce productivity growth by 0.2%. If the Trump-led attacks on the Fed led to steep concerns in international financial markets that raise the U.S. country risk premium and other interest rates significantly, this could slow growth by up to 0.3% in coming years. The administration’s attacks on the state capacity of the federal government could reduce growth by 0.1%. Their capture of Federal Reserve policy—leading to rising interest rates—could slow growth by between 0.1%–-0.3%. Adding these up, this means growth could slow by just under 2% on average over the next decade, with productivity growth slowing by well over 1%.

Somewhat ironically, the optimistic projections of how much advances in AI could boost U.S. productivity growth over the next decade tend to cluster around 1% annually.[25] The damage being done by the Trump administration to the economy’s supply side over the next decade is hence potentially as large as the most optimistic projections for how much a new burst of technology could boost it. If this came to pass, it would constitute just the latest episode of poor policy decisions squandering the potential benefits of economic growth and technological advance. The typical U.S. household today is not poorer in absolute terms compared with decades ago. But they are shockingly poorer relative to the potential growth they could have enjoyed with smarter policy that prioritized their economic security over showering the rich with even more perks.

Trump policies will raise inequality—the worst blow to families’ affordability

As we noted before, affordability is determined simply by the race between families’ economic resources (wages, incomes, and publicly provided subsidies and benefits) and prices. When affordability is strained, it is overwhelmingly because something—a recession or slowing of potential output growth, for example—has dragged on growth in families’ economic resources. Moreover, even when the aggregate economy seems strong—free of recession or inflation and with adequate growth in potential output—affordability for the vast majority of families can be squeezed if growth in these families’ resources lags far behind average growth. This mismatch between growth in typical families’ resources and average growth is driven by strongly above-average growth at the top of the income scale—the precise problem that has afflicted the U.S. economy in recent decades and the true root of nearly all U.S. families’ concerns about affordability.

Figure E

The Trump policy agenda will push income away from low- and moderate-income families and toward the top along many different margins. Even if (as expected) inflation rates return to normal during the second Trump term, this will be unlikely to boost the inflation-adjusted resources available to most families because the policies of the administration will actively claw resources—or the market power to claim these resources—away from typical families.

In the short run, the Trump budget megabill will cause an enormous jump in inequality

The signature legislative achievement of the second Trump administration is the 2025 Republican megabill, a budget reconciliation package that continues the individual provisions (and some business provisions) of the 2017 Tax Cuts and Jobs Act. The megabill also enacts steep cuts to health care and nutrition programs (Medicaid and the Supplemental Nutrition Assistance Program, abbreviated as SNAP). On top of this, the megabill also failed to either roll back or otherwise modify the corporate income tax cuts of the 2017 TCJA, but also fails to extend the supplements to subsidies for purchasing health insurance in the marketplace exchanges established by the Affordable Care Act that were passed as part of the Biden-era American Rescue Plan.

To give a sense of scale of the bill’s impact, we compare the one-year change that will result directly from the 2025 megabill policy with the entire upward redistribution of income that happened between 1979–2019, a period widely recognized as one during which U.S. inequality exploded. The share of total income claimed by the top 10% of households over that period rose by roughly 10 percentage points over a period of 40 years (or about 0.25 percentage points per year). But the Republican megabill alone will in one year raise the share of income claimed by these top 10% of households by 1 full percentage point. The 40 years between 1979 and 2019 saw the top 10% gain an average of 0.25 percentage points in the share of income they claim. This means the Republican megabill will see the rate of inequality growth quadruple in its first year, and it will essentially accomplish 10% of the entire post-1979 rise in inequality in a single year.

In the longer run, Trump policies empower the rich and disempower everybody else

Besides these large fiscal changes, other policy priorities of the second Trump administration include stripping workers of the effective right to organize unions and bargain collectively, deregulating some of the most abusive parts of the financial sector, and shrinking the federal workforce. All of these will lead to rising inequality.[26]

Trump policies continue the conservative assault on labor and workers’ rights

The Trump administration has continued to move forward with parts of its first-term priorities like the assault on labor and the bargaining power of typical workers. Two obvious high-profile indications of this were the stripping of collective bargaining rights of more than a million federal workers (including terminating the collective bargaining agreement of the Transportation Security Administration and firing National Labor Relations Board (NLRB) Member Gwynne Wilcox for “unduly disfavoring the interests of employers.” Further, the Trump administration nominated a partner at the very law firm that is currently challenging the constitutionality of the NLRB to be the NLRB’s general counsel. [27]

The assaults on labor and the bargaining leverage of typical workers continue a long-term conservative effort that has been highly successful in suppressing wage growth for low- and middle-wage workers and which has been a primary contributor to the long-run rise of inequality in the U.S. economy. [28]

Normalizing the most abusive parts of the financial system

The rise of the financial sector’s power has played a large role in the upward redistribution of income in the U.S. economy in recent decades. Finance is possibly the economic sector that has most benefitted from the federal government’s intentional industrial policy support. Between deposit insurance, the day-to-day liquidity provisions of the Federal Reserve (like the discount window that provides overnight reserves at the Fed), and the regular occurrences of extraordinary support provided in financial crises, the financial sector is obviously far larger in capitalist economies than it would be without this public support.

Significant public support of the financial sector is warranted—finance provides needed services to the rest of the economy, and without public backing, market failures would prevent these necessary services from being continually available. But this public support also justifies a robust regulatory and supervisory framework surrounding the financial sector.

The history of finance in the United States is one of accepting public support (especially during bad times for finance) while constantly trying to escape regulation and supervision that constrain profits during good times. The period from the late 1970s to 2007 saw regulation and supervision atrophy. This resulted in exploding profits and incomes in the financial sector with very little obvious benefit to the rest of the economy and the spectacular crash of 2008 that demanded even more public support for the sector. In short, the industrial policy support that the financial sector has received is a case study for how complementary policies (regulation and supervision in this case) are needed to ensure public support for a specific sector is not siphoned off into the incomes of economic players with substantial market power.[29]

In the financial regulation space, the Trump administration has continued conservative efforts to keep public supports for finance strong while expanding the scope of what the sector can do to seek profits.[30] The administration has directed the Consumer Financial Protection Bureau to shrink its scope and cede regulatory oversight to state agencies and has supported congressional efforts to slash funding for the bureau. The administration has also stopped U.S. movements toward harmonizing regulations with the Basel III recommendations—essentially meaning that large banks are no longer required to hold as large a set of capital buffers to protect against financial market stress. These capital buffers are there to prevent the public sector from having to bail out large parts of the financial sector during these periods.

The administration has also endeavored to bring cryptocurrency into the realm of traditional financial institutions, but under a loose regulatory regime. This approach would essentially allow some parts of the crypto ecosystem to put the public sector on the hook for bailouts needed due to instability in the sector, but would also allow many of the worst abuses of the crypto ecosystem—its use in illegal transactions and its speculative excesses—to continue unregulated. The approach to crypto represents the worst of all possible worlds. It gives the public sector heavier responsibilities to ensure that crypto crashes are managed but robs them of the tools needed to supervise the sector.

Attacks on the federal workforce

Between January and December 2025, federal payroll employment fell by roughly 290,000 due to the cuts started by the so-called Department of Government Efficiency. We noted previously that these cuts would sharply hurt growth in potential output in coming years. They will also lead to a less equal economy.[31]

Besides providing key inputs to public-sector production that markets generally fail to provide, the activities of federal workers often involve providing a countervailing force against unchecked corporate power. The Federal Trade Commission and the Antitrust Division at the Department of Justice ensure that markets remain competitive and block firms from exercising monopoly power. The Centers for Medicaid and Medicare Services must set reimbursement rates for the health care delivered by private-sector providers but paid for by the federal government. Private-sector health providers have seen a wave of consolidation in recent years and often can exercise pricing power against patients and other payers—the price-setting decisions of the federal government are a key bulwark against this pricing power. The Occupational Safety and Health Administration and the Food and Drug Administration have workplace inspectors to ensure that firms do not try to maximize profits by underinvesting in basic protections for worker or consumer safety.

Further, in a country where the federal tax system remains at least moderately progressive (with richer households facing higher tax rates than low- and moderate-income households), effective administration of the nation’s tax laws is equality enhancing. The vast majority of unpaid taxes are owed by the very rich. As such, attacks on the capacity of the Internal Revenue Service to administer this tax law are intentionally designed to lighten the tax burden of the privileged without passing new legislation.

Measures of GDP and income understate harms of Trump policies

Most of the discussion above concerns economic forces that affect measured GDP and incomes. But the economic security and happiness of U.S. families cannot be captured entirely based on these measures. For example, many Americans report feeling overworked and wish they had more leisure time. Increases in leisure time do not show up as greater GDP or incomes, yet clearly are valuable to families.

A number of policy choices made by the Trump administration will have profoundly damaging effects on families’ welfare that are not captured by GDP or data on incomes. For example, much of the damage done by climate change will not be well captured in these statistics. At the starkest level, climate change is forecast to lead to worse health outcomes and more premature deaths. The famous Stern review of climate change (2021) noted that accounting for these non-GDP influences likely at least doubles the true economic cost of climate change.

Similarly, the cutbacks to health insurance coverage signed into law by the Trump administration will cause poorer health and excess deaths in the coming decade if they stand. These deaths will not directly affect GDP, but obviously they need to be accounted for when assessing the impact of these policy changes.

Some of the outcomes of public policy raise GDP but actually reduce welfare. As climate change makes people spend more money on air conditioning, for example, this shows up as an increase in GDP yet makes peoples’ lives worse. Similarly, an increase in health spending driven by maladies related to climate change will raise GDP yet reduce welfare.

Further, some government spending provides outputs that GDP does not measure well at all. The value of less air and water pollution, for example, is immense but not captured in contemporaneous GDP. Much of its value will implicitly show up in future GDP numbers, as less pollution will lead to a healthier and more productive workforce in the future, but in real time, the benefits are not precisely measured. A similar finding concerns investments in children generally. Some of the benefits might occur in the moment (say, child care subsidies that allow parents to work more and earn higher incomes), but most accrue over time as children grow up healthier and become more productive and higher-earning adults.

Just because the benefits of much public spending do not mechanically show up in contemporaneous GDP measures do not mean they cannot be measured. When they are measured, there is ample evidence that families value this spending and the output it produces immensely. Often the estimated value of such spending is on the order of $1.50 for each $1.00 spent, with most of the benefit coming from welfare gains not captured in GDP. Welfare gains this large from public spending are strong suggestive evidence that public spending is already extremely under-provided, and further cuts will make it far worse.

Conclusion

It is essentially a guarantee that the policy path charted by the second Trump administration will leave the U.S. economy poorer and less equal. But much of this damage will be subtle and hard to see in month-to-month or even year-to-year changes in economic statistics. The Trump administration’s inability to implement a policy agenda without rank chaos might lead to a short-run recession that will temporarily expose much of the damage being done. But even if the recession does not come and even when it passes, there will be a steady hollowing out of the U.S. economy’s simple ability to produce the goods and services families need, and the inadequate growth that does get generated will flow disproportionately to the richest households.

In short, the macroeconomic consequences of the second Trump administration are profound. They will leave the vast majority of American families poorer over the next decade, and if Trump’s successors continue in this vein, they will leave the current generation’s children far poorer.

Notes

[1] The obvious historical counterexample to the rule that supply tends to grow slowly and predictably occurred during and immediately after the COVID-19 pandemic and Russian invasion of Ukraine, when these shocks broke global supply chains and led to sharp supply disruptions that restored themselves only with lots of volatility. This was, however, an unprecedented behavior of supply in advanced economies over the past century and is highly unlikely to repeat in the future.

[2] For this calculation, assume a counterfactual in which the unemployment rate stood at 4.0% over the 2007–2017 period and multiply by the size of the labor force in each year. Then, subtract this level of unemployment from the actual rate and sum over the years. For evidence of the damage this excess unemployment did to wage growth, particularly for lower-wage workers, see Gould et al. 2025.

[3] For details on the strength of the economy the Trump administration inherited, see Bivens 2025a.

[4] Numbers in this paragraph about cuts in the 2025 Republican budget megabill are taken from CBO 2025b, c.

[5] See Lo et al. 2025.

[6] This current policy baseline is a wrong and dishonest one to use when grading a law’s fiscal impact in coming years, but it’s the right one to use when figuring out whether growth will accelerate or decelerate in coming years due to policy changes.

[7] See Zipperer 2025 for estimates of the employment impact of the Trump administration’s mass deportation goals.

[8] For a wide range of views on the “Liberation Day” tariffs, resulting pullback and recession risks, see Nathan, Grimberg, and Rhodes 2025.

[9] Numbers in this paragraph can largely be found in Bivens (forthcoming).

[10] See Shierholz 2025 for this broader argument.

[11] Stark evidence that it is the race between wages and prices (and not just prices) that determines affordability can be found in Gould et al. 2025. They show that inflation-adjusted wage growth for low- and middle-wage workers was extremely strong from 2019 to 2024 but was actually negative over the five years following the previous business peak (from 2007 to 2012), even as this 2007–2012 period saw much lower rates of inflation. The strength of the labor market dwarfed changes in inflation in these periods, for good and bad.

[12] See Bivens 2017 for evidence that healthy labor markets support faster productivity growth.

[13] For example, according to the National Income and Product Accounts (NIPA) Table 1.1.10, between 1979 and 2007 residential investment was about 4.7% of overall GDP, whereas between 2007 and 2019 it was just 3.3%.

[14] See Bivens 2025b for an overview of the short- and long-run effects of steep cutbacks in the federal workforce.

[15] See the Yale Budget Lab’s State of U.S. Tariffs feature for a real-time assessment of trade policy under the second Trump administration.

[16] Numbers in this section are taken from CBO 2025b.

[17] Bivens 2019 estimates that a budget deficit of 2.5% or lower is likely consistent with a roughly stable debt ratio when the economy is near full employment.

[18] See Banerjee and Bivens 2022 for an overview of secular stagnation and how it intersects with fiscal policy debates.

[19] See Lynch and Vaygul 2015 for an accounting of the costs and benefits of investments in early childhood education.

[20] Bivens 2025c looks at a scenario in which net immigration between 2025–2034 was halved relative to CBO projections made in January 2025. The goal of deporting 1 million immigrants would yield reductions in immigrant labor supply very close to that “halving net immigration scenario” in that report.

[21] Marr and Cureton 2025 note that the administration’s proposed budget calls for cuts larger than 20% in federal research and development spending.

[22] For this calculation, we compare a scenario in which the $204 billion spent on government research and development in 2024 is cut by 20% going forward and compare it with a scenario in which (as has been largely the norm) this spending was instead held constant as a share of GDP. By 2035 this implies a funding shortfall of nearly $80 billion. We multiply this funding shortfall by the high end of estimated returns to this kind of spending from Fieldhouse and Mertens to ascertain the total cumulative reduction in GDP by 2035, which is 2% of projected GDP in that year. We then divide this by 10 to get the average effect on productivity growth over that time.

[23] In CBO 2025e, they present the effect of GDP on two different scenarios regarding growth in the debt ratio over time. Using this, one could back out the implicit effect on GDP of a given increment of increase in the debt ratio. If this incremental effect holds for the increase in the debt ratio caused by the 2025 Republican budget megabill, one can hence get an estimate of its growth effects.

[24] While Tedeschi 2024 is not just writing about the takeover of the Fed, he absolutely mentions this as one thing that could threaten the very low current “country risk premium” enjoyed by the U.S. The country risk premium is essentially how much lower a return that international investors are willing to take on investments in the U.S. due to the perceived safety and stability of U.S. investments from political manipulation.

[25] See Bivens (forthcoming) for a quick discussion of these estimates.

[26] For a comprehensive assessment of policies undertaken by the Trump administration and their likely effect on typical working families, see Economic Policy Institute 2025–2026.

[27] For a comprehensive overview of actions taken by the Trump administration (including those mentioned in this paragraph) that harm workers’ leverage in labor markets, see McNicholas, Poydock, and Bivens 2026.

[28] See Farber et al. 2021 for the link between unionization and inequality throughout U.S. history.

[29] See Epstein 2018 for a good overview on how powerful economic actors in finance are able to claim a larger share of society’s incomes and resources than their economic contribution justifies.

[30] Much of this section relies on Gensler et al. 2025.

[31] Much of this discussion relies on Bivens 2025b.

References

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Bivens, Josh. 2017. A ‘High-Pressure’ Economy Can Help Boost Productivity and Provide Even More ‘Room to Run’ for the Recovery. Economic Policy Institute, March 2017.

Bivens, Josh. 2019. Thinking Seriously About What ‘Fiscal Responsibility’ Should Mean: Full Employment and Reduced Inequality Are the Most Important Targets of Fiscal Policy. Economic Policy Institute, September 2019.

Bivens, Josh. 2025a. “President-Elect Trump Is Inheriting a Historically Strong Economy.” Working Economics Blog (Economic Policy Institute), January 17, 2025.

Bivens, Josh. 2025b. “The Economic Effects of Rapid Federal Downsizing” in Gensler, Gary, Simon Johnson, Ugo Panizza, and Beatrice Weder di Mauro (eds), The Economic Consequences of the Second Trump Administration: A Preliminary Assessment. Centre for Economic Policy Research Press, December 2025.

Bivens, Josh. 2025c. The U.S.-Born Labor Force Will Shrink over the Next Decade: Achieving Historically ‘Normal’ GDP Growth Rates Will Be Impossible, Unless Immigration Flows Are Sustained. Economic Policy Institute, October 2025.

Bivens, Josh. Forthcoming. “How Are AI Investments Affecting the U.S. Economy?” Working Economics Blog (Economic Policy Institute).

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Affordability—or the lack of it—is dominating the public discourse. “Affordability, affordability, affordability: Democrats’ new winning formula,” proclaims Politico. “Trump tries to seize ‘affordability’ message,” reports The New York Times. Election results in New Jersey, Virginia, New York and elsewhere showed that voters are responding to candidates who speak directly to the cost of living.

Today’s affordability debate, however, focuses almost entirely on prices, as if the only way to make life affordable is to make things cheaper. But that approach misses the bigger picture. Affordability depends on both prices and wages. The roots of today’s affordability crisis actually lie not in recent price spikes, but in the long-term suppression of workers’ pay. 

For more than four decades, employers have been actively suppressing the wages of working people, so that corporate managers and owners can claim an ever-larger share of the income generated by what workers produce. Government policies facilitated these efforts. 

Read the full piece here.