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

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

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

In this article, we make the following arguments:

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

Americans’ economic dissatisfaction has real roots

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

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

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

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

Staggering inequality is a choice

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

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

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

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

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

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

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

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

Rising inequality of labor incomes

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

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

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

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

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

The shift from labor to capital incomes

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

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

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

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

Labor markets are not fair

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

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

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

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

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

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

Key policy choices that led to rising inequality 

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

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

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

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

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

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

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

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

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

The wrong incentives

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

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

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

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

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

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

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

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

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

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

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

Creating a fairer economy

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

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

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

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

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

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

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

Footnotes

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

2. Congressional Budget Office, The Distribution.

3. Congressional Budget Office, The Distribution.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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Key findings:

• CEO pay at the top 350 U.S. firms rose 14.0% in 2025 to an average of $27.9 million.
• CEOs made 325 times as much as the typical worker in 2025. It hasn’t always been this way. In 1965, CEOs were paid 21 times as much as a typical worker.
• From 1978–2025, top CEO compensation skyrocketed 1,316% while typical workers’ compensation increased only 28%.
• CEO pay has not climbed so fast because their skills or productivity rose spectacularly. It has risen instead simply because CEOs have gained and used increasing leverage over the corporate boards that set their pay.
• Policymakers can rein in excessive CEO pay through more progressive tax policy, corporate governance reforms, and strengthened labor standards, including laws that make it easier for workers to unionize. One new EPI policy proposal calls for default collective bargaining at firms where the CEO-to-worker pay ratio is especially exorbitant.

Our latest analysis finds that CEO pay rose 14.0% at the top 350 U.S. firms in 2025 as the CEO-to-worker pay ratio hit 325-to-1.

Between 1978 and 2025, CEO pay jumped an astronomical 1,316% while typical workers’ pay only rose 28%. As a result, the CEO-to-worker pay ratio increased more than tenfold since 1978.

Figure A demonstrates the rise in the CEO-to-worker pay ratio using both the realized and granted CEO compensation measures (for more on our methods and additional analysis, see EPI’s CEO pay landing page). The pay ratio increased a modest amount between 1965 and 1978, but then exploded in the late 1990s and has remained extraordinarily high since then, ebbing some during recessions and stock market losses.

CEO Pay

Media reports have called attention to Elon Musk’s Tesla pay package for 2025, which the company reports as $158 billion. We should note that this $158 billion is not in our measure of CEO pay—largely because it was not paid and likely never will be—and therefore cannot explain the uptick in CEO pay in 2025. The $158 billion refers to the potential pay Musk could receive only if Tesla meets a number of performance metrics related to its output and share price in coming years. Most market observers deem it highly unlikely that Tesla will meet these metrics, and a large portion of this $158 billion has already been “lost” since some of the performance metrics were required to be met in 2025 and were not. In some ways, the $158 billion expense reported by Tesla is just an accounting exercise—the amount that other shareholders’ stock would have been diluted had the performance metrics been met.

CEO pay is strongly related to the stock market, though less on stock options

The jump in CEO pay in 2025—though striking—isn’t surprising given how closely CEO pay tends to track gains in the stock market, as the S&P 500 rose a similar 11.8% in 2025.

While salaries were only about 5% of total CEO pay in 2025—which averaged $27.9 million—the vast majority of CEO pay (82%) was in the form of stock options or stock awards. However, there has been a marked shift away from stock options to stock awards over the past two decades. As Figure B shows, the share of compensation in stock options has fallen from 85% in 1992 to 26% in 2025.

CEO Pay

This shift to stock awards has been driven by executives’ search for lower taxes as well as regulatory changes made in the early 2000s. Stock options are more likely to be considered ordinary or W-2 income rather than other stock-based pay, which is taxed at a lower rate. Further, companies used to be able to offer stock options to executives without notifying shareholders of the expense. But a regulatory change after 2006 required the full expensing of stock options in reports to shareholders, making them appear more costly to grant.

While tax incentives and these regulatory changes may have incentivized this shift away from stock options, this shift has also likely led to a slightly better alignment of CEO pay to longer-term company success. Stock options allow executives to benefit from rising stock prices, but do not penalize them for falling prices. Stock awards, conversely, expose executives to the cost of falling stock prices as well as the benefits of rising prices. While an improvement, the shift from stock options to stock awards has obviously not been a transformational win for making CEO pay more generally fair and rational.

This shift from stock options to stock awards also has implications for the measured share of corporate-sector income accruing to capital versus labor. Over a full business cycle, the labor share of income has often reflected the leverage workers have to increase their wages versus capital owners’ ability to keep revenue in the form of profits (see Figure C). For arcane tax and data reasons, income from stock options is more likely to be recorded in economic data as labor earnings than is income from other forms of stock-based pay. Therefore, some of the losses in labor’s share of income in Figure C may be in part due to the changing ways top executives are receiving their compensation rather than simply the unequal balance of power between capital and labor.

CEO Pay

Policymakers can rein in excessive CEO pay

The rapid growth in CEO pay over the last several decades has not been driven by rising CEO productivity. Instead, it has simply been the result of executives’ ability to leverage their political and economic power to increase their own pay. As such, excessive pay can be reined in with policy changes.

Policymakers can alter tax policy to lower incentives for excessive CEO pay and change corporate governance laws to give shareholders greater ability to penalize excessive pay packages. Lawmakers can also strengthen labor standards to give workers more leverage to secure a larger share of the income generated by the firm, leaving less for CEOs (and shareholders) to claim.

Policymakers can further boost leverage for typical workers by strengthening the right to organize and form unions. For starters, Congress can pass the Protecting the Right to Organize (PRO) Act to make it easier to organize for the tens of millions of U.S. workers who want unions at their workplace. Further, policymakers can pass legislation instituting default collective bargaining when CEO-to-worker pay ratios are especially exorbitant.

Key takeaways

• The 2025 Census data on earnings, income, and poverty may reflect how the Trump administration’s policy choices were beginning to impact the economic well-being of workers, families, and children last year.
• Last year’s economy was characterized by slowing job growth, rising wage inequality, and growing policy uncertainty. We expect to see little to no improvements in key economic indicators such as lower-end household income and supplemental poverty rates between 2024 and 2025.
• The 2026 story is still unfolding and is likely to be worse, given these factors: decelerating nominal wage growth, higher inflation, and the 2025 budget reconciliation law that will leave more families and children vulnerable to poverty.

Next week, the Census Bureau will release the latest data on earnings, income, and poverty for 2025. This data could show early signs of how the Trump administration’s policy choices impacted the economic well-being of workers, families, and children across the country. The initial strong recovery from the pandemic recession measurably slowed in 2025 as the labor market softened and the policy climate grew more uncertain. To help place the upcoming data release in context, we highlight key trends that have characterized the economic and policy landscape in 2025. Though the economy continued to soften as inflation worsened in 2026 and the safety net grew increasingly more difficult to access as a result of the Republican Budget Reconciliation Law, the data in the Census will only provide specific insights for living standards in 2025.

In summary, we find:

1. 1. The U.S. economy in 2025 grew more slowly than in 2024, adding fewer than half as many jobs—only 764,000 jobs compared with 1.825 million in 2024. The unemployment rate slowly rose over the course of 2025, and the hires rate was depressed, making it harder for young people in particular to break into the labor market. While the prime-age employment-to-population remained relatively resilient to labor market softening, prime-age Black workers experienced large declines in their employment rate.
   2. With more moderate inflation, strong nominal wage growth translated into decent average hourly wage gains between 2024 and 2025, but gains were not shared equally. Lower-end wage growth stalled in 2025, which could have implications for lower-end incomes and poverty rates.
   3. Because the Republican budget reconciliation law is making basic needs programs like SNAP increasingly more difficult for families to access, we don’t expect to see any significant improvements in supplemental poverty between 2024 and 2025. We expect to the see the full impact of the Republican law in the years ahead.
   4. While the release will only provide data for 2025, our examination of the economic and policy landscape for 2026 suggests that a weaker job market, safety net cuts, and high inflation will worsen outcomes.

The labor market recovery softened in 2025

Because the vast majority of people in the United States rely on labor market income for their economic well-being, the labor market data we already have for 2025 should provide some insights into what the Census data may tell us. Overall, job growth has slowed, and the unemployment rate has ticked up as employment rates softened, particularly for certain demographic groups.

After the tremendous rebound from the pandemic recession, the labor market cooled somewhat. Payroll employment growth went from 3.3 million in 2023 to 1.8 million in 2024 and then 764,000 in 2025. A slowdown would be expected after such a strong recovery, and the number of jobs needed to keep up with population growth declined with lower net immigration in the wake of Trump’s draconian mass deportation policies. Nearly 100,000 federal jobs (96,000) were lost in the massive DOGE cuts (when comparing annual averages, which obscure more massive downward trends later in the year), and even manufacturing employment faltered in Trump’s first year, falling by 156,000 jobs between 2024 and 2025. If not for job growth in health care and social assistance, overall payroll employment would have fallen outright.

This weakening led to a mild increase in the unemployment rate, from 4.0% to 4.3% between 2024 and 2025. Figure A displays the change in some key labor market indicators for certain demographic groups. While the overall unemployment rate rose modestly, the increase was far greater for young workers, ages 16 to 24. It’s likely that the depressed hires rate has made it harder for young workers to break into the labor market. Older workers experienced much milder increases in their respective unemployment rates.

The share of the population with a job—the employment-to-population ratio fell from 60.1% to 59.7%, a drop of 0.4 percentage points. Prime-age workers—those between 25 and 54 years old—were more resilient to the labor market softening. However, prime-age Black workers experienced a tremendous decline of 1.3 percentage points between 2024 and 2025. This weakness may show up in the income and poverty data released next week. At the same time, prime-age Hispanic workers experienced an increase in their employment-to-population ratio.

Figure A

Wage inequality increased in 2025

Employment changes alone have important implications for family and household income, but wages are also an important part of the economic story. Figure B illustrates several key price and wage changes between 2024 and 2025. Though the economy was a bit weaker, the labor market delivered strong nominal wage growth for private-sector workers, measured by the Current Employment Statistics. Nominal average hourly wages increased 4.0% between 2024 and 2025. Inflation moderated—remember this is before the spike in 2026—and therefore, real hourly wages rose a modest 1.5%.

Unfortunately, the gains were not broad based. Unlike the faster wage growth among lower-wage workers through 2024, lower-end wage growth stalled in 2025. While the fall wasn’t large, it reversed the trends experienced between 2019 and 2024. The stair-step increase in wage growth, as shown in the right half of Figure B, suggests a return to a K-shaped recovery, wherein higher-wage workers experienced much faster wage growth than those at the middle or the bottom. While stronger average wage growth and modest median wage growth may suggest modest improvements in median household income—though tempered by slower job growth—weaker low-end wages may translate into losses for lower-income households and possibly rising poverty rates, particularly for groups hit hardest by falling employment.

Figure B

Republicans weakened SNAP last year and any chance at poverty alleviation in the years ahead 

The end of the expanded social safety net in 2022 eroded all of the gains in poverty reduction experienced between 2020 and 2021. Since 2022, poverty has continued to climb. This unfortunate trend in poverty is unlikely to reverse course in the latest Census release for 2025. This is partly because the Republican budget reconciliation bill signed into law by President Trump in July of last year significantly cut and limited access to basic needs programs like SNAP, one of the most successful programs in our country’s fight against poverty and hunger. Because the implementation of these changes and spending cuts is still ongoing, we are unlikely to see the full impact of the Republican law in next week’s data.

In 2024 alone, SNAP lifted more than 3.5 million people out of poverty. Nearly 40% of these individuals were children (see Figure C). In fact, both SNAP and the National School Lunch Program (NSLP), which provides reduced-cost or free lunches to low-income children in public and nonprofit private schools, lifted more than 2 million children out of poverty in 2024. After refundable credits, these programs, along with Social Security, make up the most effective anti-poverty strategies for children in the United States.

Figure C

Instead of strengthening the country’s nutritional assistance programs to improve access and the adequacy of benefits amid growing food insecurity, the Republican reconciliation package cut funding for the U.S. Department of Agriculture (USDA), imposed strict and costly work requirements, and eliminated waivers for areas with chronically high unemployment. The ongoing implementation of some of these changes, including factors associated with staff limitations, has led to a decline in SNAP participation by more than 4.5 million people. This drop will not be entirely reflected in the upcoming poverty statistics since some of this decline occurred in 2026. Yet the cutting back of resources for USDA and SNAP initiated by congressional Republicans and the administration will continue to translate into higher poverty rates and increased food insecurity, as states struggle to implement the costly and harmful changes now required by the new law.

The administration has also taken steps to ensure that we don’t have the data we need to trace the painful impact of these changes on food insecure families. In September 2025, Trump’s USDA canceled the country’s leading survey that documented the magnitude and severity of hunger and food insecurity in the U.S. They claimed that the USDA survey and report  were “redundant” and “politicized.” Soon after this, the administration allowed SNAP benefits to lapse for the first time in the history of the program, while at the helm of the longest full government shutdown in U.S. history, lasting 43 days and creating a chaotic situation for SNAP beneficiaries, many of whom needed to turn to food pantries for help. 

As we will be reminded when the Census releases its poverty statistics for 2025, the impact of all these harmful policies hit Black and brown families with children particularly hard. This is because families of color are disproportionately more likely to rely on SNAP to avoid food insecurity, and children of color are also more likely to be burdened by poverty than their peers.

In 2021, the United States demonstrated to the world that it had the capacity to reduce poverty to historically low levels by expanding access to SNAP and other basic needs programs. In 2025, Trump and congressional Republicans showed the world that they were willing to gut basic needs programs to pay for tax cuts that disproportionately favor the wealthy. We should not be surprised when we fail at poverty reduction in the years ahead.

Next week’s data will be about the economic story of 2025. The 2026 story is still unfolding and is likely to have a worse ending.

As noted earlier, the earnings, income, and poverty statistics the U.S. Census will publish next week are for 2025. While we don’t yet know the full economic story for 2026, it is unlikely to be a more promising one. This is because the slowdown in job growth that began in 2025 has further solidified throughout 2026. This weaker job market continues to be particularly harmful to Black and young workers. The softer labor market in 2026 has also coincided with worsening inflation. Higher inflation is largely due to Trump’s ongoing war in Iran, which has already wiped out 1.5 years of real wage growth in a matter of months.

The policy landscape for 2026 also looks bleaker. The spending cuts to the U.S. social safety net that Trump signed into law in the summer of 2025 will continue to hurt the ability of families to access basic services like Medicaid and SNAP. This will leave increasingly more economically insecure families vulnerable to poverty and unnecessary hardship in the face of a worsening affordability crisis.

Key takeaways

• The label “right to work” is intentionally misleading. RTW laws provide no job protections. What they do is make it harder for workers to form and sustain strong unions.
• RTW laws are intended to weaken unions. They are linked to lower unionization rates, lower wages and benefits, and worse safety outcomes for all workers.
• RTW laws have racist, anti-union origins dating to the 1940s. For decades, big business and white supremacist groups promoted RTW laws to diminish workers’ collective bargaining rights and block multiracial organizing.
• RTW laws don’t boost job growth but do erode job quality and increase inequality.
• Trends on RTW are reversing. No state has adopted a new RTW law since 2017, and multiple states have repealed or rejected RTW.

Imagine union membership tripling in the United States. It may sound radical—if you’ve forgotten history. In fact, more than 1 in 3 private-sector workers belonged to a union in the 1950s. The results? Wages grew in tandem with the economy. The middle class thrived. Black-white wage gaps shrank. Broadly shared economic growth was a reality, not an aspiration. That’s because when workers have bargaining power, they win better wages, benefits, and working conditions. This report shines a light on what we stand to win if we rebuild union power.

Over the last four decades, big corporations and the billionaires who run them have waged a relentless campaign against unions. And they have largely succeeded in reshaping the U.S. economy. By making it harder and harder for workers to organize and bargain collectively, the rich seized more and more income and wealth, destroying the U.S. middle class. Now the wealth of the richest Americans has exploded: The richest 0.1% own more than five times the combined wealth of the entire bottom half of the country.

And yet, workers haven’t given up. In 2025, unionization ticked upward. Public approval of unions has reached some of its highest levels in decades, and more than 50 million nonunion workers say they’d join a union tomorrow if they could. That’s because they know what unions deliver. In an economy that has been rigged against working people for decades, unions serve as a counterweight to corporate power—reducing inequality and building the kind of middle class that underpins a strong and inclusive economy.

It will take serious policy change to reverse nearly 50 years of deliberate attacks on working people and their institutions. It will require that politicians stand up to the superrich and corporate interests. It will require that workers continue to build power. But, as this report shows, we have much to gain from stronger unions. An organized and empowered workforce has powerful and far-reaching economic benefits.

Nearly four decades ago, I helped found the Economic Policy Institute because working people needed a voice in the economic debates that shape their lives. This report is exactly the work we envisioned: rigorous research that puts workers at the center of economic policy, and that arms all of us with the facts to fight for them. At a time when our economy is held in relatively few hands, we need this work—and we need unions—more than ever. 

Robert Reich
Professor, writer, and former Secretary of Labor

Executive summary

Union membership in the U.S. ticked up in 2025, breaking a decades-long trend of declining unionization. But today’s unionization rate doesn’t reflect the tens of millions of workers who want a union but can’t get one. This report examines what we stand to gain if we triple current union membership to 30%—restoring it to 1950s levels, when union strength delivered rising wages, narrowing racial wage gaps, and a thriving middle class.

Tripling union membership would:

• Deliver a 14.5% raise for the median worker—amounting to more than $7,700 annually, or nearly $270,000 over a 35-year career. These life-changing increases would benefit union and nonunion workers alike.
• Shift $1.2 trillion to workers annually. This would reverse a third of the increase in inequality experienced since 1979.
• Significantly narrow racial wage gaps. Because unions tend to boost wages more for Black and Hispanic workers than for white workers, tripling union membership would close racial wage gaps by more than one-third.
• Boost the number of people with health insurance. Since unions increase other forms of compensation, like health insurance benefits, the number of nonelderly people without health insurance would fall by about 25%. Unions further reduce uninsured rates by advocating for increased public benefits like Medicaid.
• Strengthen communities. States with high union density invest more in public education, have higher unemployment insurance recipiency rates, and have all adopted Medicaid expansion.
• Protect democracy. Unions boost voter turnout, equip workers with civic skills, and actively defend voting rights. States with high union density have passed far fewer voter restriction bills than low-density states.

Download the factsheet

Roadmap for tripling union density

Reversing decades of political neglect that has stealthily undermined workers’ rights to unions and collective bargaining will require comprehensive reform that weaves together tested approaches with bold new ideas, at both federal and state levels.

Two bills with bipartisan support could help restore collective bargaining

• The Protecting the Right to Organize Act would restore private-sector workers’ right to organize and bargain collectively. It would streamline the union formation process, establish penalties for labor law violations, override so-called “right-to-work” laws, and ban “captive audience” meetings.
• The Public Service Freedom to Negotiate Act would be the first federal law that guarantees all public-sector workers at the federal, state, and local levels the right to organize and collectively bargain.

Two bold new proposals could expand the benefits of collective bargaining and help tackle the affordability crisis

• Guaranteed annual raises for newly unionized workers. Legislation providing that newly unionized workers can use arbitration to achieve a first contract (if an employer fails to negotiate in good faith) should set a minimum standard that such contracts include a cost-of-living adjustment (COLA). For the typical worker, a 3% COLA means roughly $2,000 extra a year.
• Default collective bargaining when CEO-to-worker pay ratios exceed 100:1. Declining unionization and the stratospheric rise in CEO pay are deeply connected. Strengthening the bargaining power of workers in severely imbalanced companies would enable them to capture a larger share of the wealth their work creates.

States can remove anti-union laws and protect collective bargaining

Removing so-called “right-to-work” laws and restrictions on public-sector bargaining alone would increase union density nationally from 9.9% to 14.4%. Beyond removing those unionization barriers, states can also:

• Extend collective bargaining rights to workers currently excluded from federal law (in-home child care, home health care, agricultural, and gig workers);
• Protect workers’ right to refuse mandatory, anti-union “captive audience” meetings; and
• Extend unemployment insurance eligibility to workers on strike.

Introduction

In 2025, 14.7 million workers—10% of all wage and salary workers—were union members, an increase from 9.9% in 2024.1 Though small, the increase marks a departure from prior years’ downward trend in union density and coincides with record high public favorability of unions.2

This report examines what the U.S. might look like if union membership were to triple to 30%, restoring it to roughly its 1950s peak. We analyze the economic, social, and democratic impacts of this increase; examine the potential impact on state union density rates if all states were to remove anti-union policies; and offer policy recommendations to expand union membership.

While tripling union membership is an ambitious goal, it is fully consistent with workers’ own demand for unions. Recent survey data show that 43% of nonunion workers would vote to unionize if given the opportunity—the equivalent of about 56 million wage and salary workers (Ahlquist, Grumbach, and Kochan 2024; McNicholas, Poydock, and Shierholz 2026). If all these workers unionized, union density would rise from 10% to 48.7%—well above the 30% goal we examine in this paper.

Union decline, wage suppression, and affordability

As union membership has declined, workers’ wages have been suppressed and inequality has skyrocketed. The gap between typical workers’ pay and economy-wide productivity is at a historic high.3 Since 1979, productivity has grown 2.7 times as much as pay for typical workers (Figure A). This divergence reflects both rising wage inequality—high earners experiencing much stronger wage growth than typical workers—and a shrinking share of the economy’s income going to workers overall. Between 1979 and 2023, real (inflation-adjusted) earnings for the top 0.1% grew 354% (from $618,000 to $2.8 million), while earnings for the bottom 90% of households grew just 44% (from $30,000 to $43,000) (EPI 2026a). And workers are now taking home a historically low share of corporate-sector income—meaning shareholders and other capital owners are capturing more than ever before (EPI 2026b).

Figure A

Inequality has grown since 1979 because of intentional policy choices that suppressed wages for typical workers to accelerate income growth at the top. If pay for typical workers had kept pace with productivity over the past nearly five decades, their paychecks today would be more than 40% larger (EPI 2026c). Though affordability pressures are often framed as a problem of high prices, the real problem is this wage shortfall—and reversing that shortfall must be central to any serious affordability agenda. Collective bargaining is the most effective mechanism workers have to raise their wages and secure their fair share of economic growth. Expanding union membership and collective bargaining is central to addressing the affordability squeeze.

Unions raise wages for all workers

One of the most well-studied benefits of unions is the ability of collective bargaining to raise pay—resulting in a “union wage premium.”4 Historically, that premium has fluctuated around 15–20% (EPI 2026d). Unions also reduce inequality by compressing the wage distribution within firms, with the largest benefits going to workers at the bottom and middle. This is one reason the union wage premium is typically larger for those with less education, and for Black and Hispanic workers relative to white workers (Bivens et al. 2023).

Less appreciated is that unions also boost wages for nonunion workers. Higher wages at unionized firms make those jobs more attractive to nonunion workers, indirectly pressuring nonunion firms to raise wages to keep their workers. Nonunion firms may also raise wages to avoid unionization, especially when union density is already high in the relevant sectors and occupations.

Finally, unions also advocate for progressive changes in the tax and benefit system—indirectly raising pre-tax pay for low- and middle-wage workers. This happens in two main ways: First, when taxes on top incomes are higher, corporate executives have less incentive to maximize their own income at the expense of workers’ wages.5 Second, more generous social benefits like SNAP and Medicaid increase the bargaining power of lower-paid workers by making them less economically vulnerable and better able to reject low-quality jobs (Bivens 2026).6

These “spillover” effects of unions on the nonunion sector are significant and increase when union density is high. Rosenfeld, Denice, and Laird (2016) and Farber et al. (2021) find strong evidence that unions raise the wages of nonunion workers. Consistent with this, Fortin, Lemieux, and Lloyd (2021) estimate that between 1979 and 2017, declining unionization was responsible for 37% of the increase in inequality between the 90th and 50th percentiles of male workers—and more than half of that impact occurred because, as unions weakened, nonunion employers faced less pressure to offer higher wages.

Tripling union density would shift $1.2 trillion a year to working people

Our analysis of the relationship between union density and state median wages finds that for every 10 percentage point difference in union density, real median wages are about 7.2% higher.7 If we tripled union density from 10% to 30%, the real median wage for all workers (including both union and nonunion workers) would rise from $25.67 in 2025 to $29.39 per hour—a 14.5% increase.8 A full-time, full-year worker earning that wage would see annual pay rise by more than $7,700.

To put this into perspective, consider the substantial growth in the gap between pay and productivity between 1979 and 2025. A full-time, full-year worker at the 2025 median wage was paid about $53,400 per year—but would have earned about $76,400 had their pay kept pace with productivity growth (EPI 2026e). Through direct wage increases for union members and unionization’s spillover effects on nonunion workers, tripling union density would close roughly one-third of the productivity-pay gap, increasing annual pay to $61,100.

To contextualize the gain in another way, consider that the median annual cost of a mortgage in the U.S. is $18,252. An additional $7,700 per year would cover more than 40% of that cost.9

Perhaps more strikingly, consider that an extra $7,700 a year adds up to nearly $270,000 (in today’s dollars) over the course of a 35-year career—a life-changing increase for a working family. Adjusting the USDA’s latest estimate of the cost of raising a child to 2025 dollars yields a current cost of roughly $317,000 to raise a child from birth through age 17, including food, housing, transportation, health care, clothing, child care, education, and other expenses (USDA 2017). The additional $270,000 in career earnings that a typical worker would receive if union density were tripled would cover 85% of that cost.

Or, according to the College Board, the average annual cost of attending a four-year in-state public college, including room and board, is about $31,000 (Ma, Pender, and Hu 2025). Over four years, that comes to $124,000 per student—so the additional $270,000 in career earnings would more than cover the cost of sending two children to college.

Yet another way to show how transformational these effects would be for the U.S. economy and the economic security of typical families: Assuming the 14.5% wage boost we estimate from a tripling of union density applies to the bottom 80% of the U.S. workforce, this would raise these workers’ combined pay each year by $1.2 trillion.10 

Several useful reference points help illustrate the scale of this $1.2 trillion increase in workers’ annual pay. First, the increase would be nearly three times as large as the $430 billion U.S. families received in “COVID checks”—and unlike those one-time checks, these gains would be permanent and recurring.11 Second, the $1.2 trillion that tripling union density would shift to workers slightly exceeds the Pentagon’s 2025 budget—a redistribution of income on a scale comparable to the entirety of the U.S. military-industrial complex.12 Third and most revealingly, this increase would claw back a full third of the increase in income inequality since 1979. Between 1979 and 2022, the share of market income going to the richest 20% of households rose by 12.0 percentage points (with nearly all of that increase—10.1 percentage points—accruing to the richest 1%). A $1.2 trillion increase in the incomes of the bottom 80% of households would reverse a third of that shift, 4.0 of the 12.0 percentage points.13

Our estimates likely underestimate future gains

It’s worth noting that while our estimates show large wage gains to workers from tripling union density, they are likely being significantly held down by the fact that union density in the U.S. is starting from such a low level (10%). Our estimates therefore likely understate the wage gains workers will experience once the labor market reaches a higher level of union density. Fortin, Lemieux, and Lloyd (2021) find that the wage payoff to union density is much larger where density is already high, and this shows up clearly in our analysis as well: Below 15% union density, a one percentage point increase in density is associated with just a 0.2% increase in the median wage; above 15%, the median wage increases by 0.9%—a wage response more than four times as large (see Figure B).14

The economic intuition behind this 15% threshold is that a minimum scale of unionization is needed for collectively bargained wages to exert a strong influence on pay scales—both union and nonunion—throughout the broader economy. While every additional percentage point of unionization gives another 1% of workers the union pay premium, it has a more limited effect on wage-setting throughout the broader labor market until overall union density reaches around 15%.

Today’s typical state has a union density of about 10%, which means the wage gains from each additional percentage point of unionization—while still significant—are muted relative to the gains that occur once union density exceeds 15%. In essence, the policy assault on unions in recent decades has pushed density so low that we need a 50% increase—from 10% to 15% union density—just to start realizing the “normal” gains unions can bring to a high-road economy. Raising density from 10% to 30% would carry the labor market across that 15% threshold and well into the higher-density regime, where each additional percentage point increase in unionization delivers substantially larger gains for the median worker. This is why a transformational policy effort is needed: We must rebuild union density from the depressed levels created by decades of political neglect to the point where the full wage benefits of widespread collective bargaining can be realized.

Unions reduce racial wage gaps

Because unions increase wages for Black and Hispanic workers more than for white workers, unions reduce racial wage gaps. And this dynamic is not new—research shows that the union premium was already higher for Black workers than for white workers by the mid-20th century, meaning that the spread of unionization in that era was one of the country’s greatest forces for racial justice (Farber et al. 2021; Bivens et al. 2023). But with the decline in unionization over the past 45 years, racial wage gaps have widened and are now substantially worse than they were in 1979—damage that restoring union power would more than reverse. In 2025, the median Black or Hispanic worker earned 76.5% of the median white worker wage—a wage gap of 23.5%. Tripling union density would close more than one-third of that gap, reducing it to 14.6%.15

Unions boost benefits, not just pay

Unions also increase other forms of compensation, like health insurance benefits. In 2025, 95% of union workers had employer-sponsored health insurance, relative to 71% of nonunion workers. In addition, as discussed later, unions further reduce uninsured rates by advocating for increased public benefits like Medicaid. Figure C shows that nonelderly uninsurance rates are substantially lower in states with higher union density. To do this analysis, we divided the 50 U.S. states plus the District of Columbia into three equally sized groups based on their current (2023–2025) level of union density.16 Most low-union-density states have double-digit uninsured rates, but these rates typically fall to the single digits in medium- and high-union-density states. If union density tripled and all states were high-density states, the national nonelderly uninsured rate would fall by about a quarter, from 9.8% to 7.3%.

Figure C

Unions benefit communities

Unions don’t just improve workers’ pay and benefits—they give workers a voice in shaping the social fabric of their communities, lifting standards for union and nonunion workers alike. The data reveal a strong correlation between higher levels of unionization and a range of economic and personal well-being measures. When more workers are in unions, states have more equitable economic and social structures (McNicholas et al. 2025). Meanwhile, states with anti-union policies have lower union density and consistently worse outcomes across these measures.

Economic well-being

We first examine economic well-being—broadly defined as working people having the means to support themselves—using two indicators: the gap between productivity and pay, and unemployment insurance recipiency rates.

As discussed earlier, there has been a growing gap since 1979 between productivity—the value of the output generated by a worker in the U.S. economy in an hour of work, on average—and typical workers’ hourly compensation. Far from accidental, this divergence stems from deliberate policy choices in the U.S. beginning around 1980 that allowed the gains from economic growth to be increasingly captured by the highest earners, shareholders, and other capital owners—rather than being broadly shared across low-, middle-, and high-income households (Shierholz 2024).

The degree to which productivity gains have translated into higher pay for typical workers varies widely across states. Figure D shows that in states with smaller declines in unionization since 1979, a larger share of productivity gains translated into higher pay for typical workers. In other words, in places where unions remained stronger, it wasn’t just those with high incomes and wealth who benefited from economic growth—working people, both unionized and nonunionized, saw a bigger share of the gains.

Figure D

Unemployment insurance (UI) recipiency rates also offer insight into economic well-being. When a worker is laid off and their household income falls, unemployment insurance supports them and their family until they find another job. UI is a joint federal-state program that relies on state UI systems to effectively deliver benefits to unemployed workers. States differ in their rules and approaches under the federal UI framework, leading to wide variation in the share of unemployed workers receiving UI benefits (the UI recipiency rate).

Studies show a strong correlation between higher UI recipiency rates and high union density (Clegg et al. 2022); Figure E illustrates this strong positive relationship. In recent years, the average UI recipiency rate in high-union-density states was 36%, double the 18% rate in low-union-density states.

Unions fight to increase UI eligibility, ease of access, benefit levels, and benefit duration—to the benefit of all workers, union and nonunion (Hertel-Fernandez and Gould-Werth 2020). The strong correlation between union density and state UI recipiency rates suggests that expanding unionization by removing anti-union policies would result in higher UI recipiency rates.

Figure E

Personal health and well-being

Next we examine personal health and well-being—which we define as an individual’s physical and mental health—using one indicator, Medicaid expansion.

As we noted earlier, almost all union workers (95%) have access to health insurance, and uninsured rates are lower in high-union-density states. To show how unions influence health care coverage beyond explicitly bargained workplace plans, we examine whether a state has expanded Medicaid under the Affordable Care Act to broaden eligibility. The Medicaid public insurance program provides critical health coverage to families and individuals with low incomes. Research has found that Medicaid expansion has expanded access to health care; improved health outcomes, including fewer premature deaths; lowered uncompensated costs; bolstered financial security; and boosted economic mobility (CBPP 2020). While the Medicaid program has broad federal guidelines, it is administered by states—and a 2012 Supreme Court decision gave them the power to decide on eligibility and expansion. Since 2014, 40 states plus the District of Columbia have adopted Medicaid expansion; 10 states have not (Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming).

Figure F shows a stark divide between high- and low-union-density states in terms of Medicaid expansion. All 17 high-union-density states have expanded Medicaid. Out of 17 medium-union-density states, 14 have adopted Medicaid expansion (Alabama, Kansas, and Wisconsin are the only medium-union-density states that have not adopted expansion). Just 10 out of 17 low-union-density states have adopted Medicaid expansion (Florida, Georgia, Mississippi, South Carolina, Tennessee, Texas, and Wyoming are the low-union-density states that have not adopted expansion).

There is a strong correlation between union density and Medicaid expansion. If states removed anti-union policies and became high-union-density states, they would be joining a group of states in which Medicaid expansion is currently universal, potentially helping to close the Medicaid coverage gap that currently leaves 1.5 million adults uninsured (Zhang 2026).

Figure F

Spending on public education

Union density also intersects with public education investment. Investment in public education helped make the U.S. the richest country in the world in the 20th century. The benefits of universal education are many—including a more productive workforce, and a more informed and engaged democratic society equipped to think critically. Unions play a key role in negotiating public spending on education. At the school district and state level, education unions advocate for increased funds for schools. 

We can measure the relationship between union density and public education investment by looking at states’ level of per-pupil spending. Adequate levels of per-pupil spending are crucial to maintaining quality education; low per-pupil spending limits the support students receive toward achieving their learning goals and makes it harder for districts to retain teachers and staff by offering competitive salaries or benefits. Increased per-pupil funding pays off for students. Research has consistently shown that increased funding for schools improves educational attainment, student achievement, and economic outcomes in adulthood (Jackson and Mackevicius 2023). In one study, researchers examined the impact of school finance reforms between 1972 and 2010 and found that a 10% increase in school spending for 12 years leads to increased high school graduation rates, 7% higher wages, and 10% higher family incomes in adulthood for children from districts that saw the spending increase (Jackson, Johnson, and Persico 2016).

Figure G shows that states with higher rates of unionization spend substantially more per pupil on education—demonstrating the impact of union advocacy on education investment and building a more educated society.

Figure G

Voting rights and democratic participation

Many states disproportionately disenfranchise people of color (Johnson and Feldman 2020), and the number of voter suppression laws enacted across the country is high and rising. These restrictions threaten democratic participation and the stability of our democracy.

Unions strengthen democracy by encouraging civic engagement and helping workers become informed voters. Unions communicate with their members about issues and candidates to make sure workers have the information they need when they go to the polls. And as democratic institutions where members elect leaders and ratify contracts, unions serve as “schools of democracy,” equipping workers with civic skills that carry over to public life (Andrias and Hertel-Fernandez 2026). More broadly, because many organizations that shape policy represent elite or corporate interests, unions are a countervailing force, bringing working people’s voices into legislative debates and building coalitions that can win against well-resourced opposition.

Research shows that these effects translate into greater political participation. Union members are more likely to vote than the general public, and voter turnout is higher in states with greater unionization (EPI 2021). Conversely, turnout is lower in states with “right-to-work” (RTW) laws, which weaken unions and in turn the civic engagement they foster. Feigenbaum, Hertel-Fernandez, and Williamson (2018) found that RTW laws reduced presidential election turnout by 2%, a substantial effect given the narrow margins that often decide presidential elections.

We build on this evidence by examining the relationship between union strength and laws that restrict voting. Figure H shows that there is a strong correlation between union density and voter suppression legislation. A large majority of low- and medium-union-density states passed at least one voter restriction bill between 2023 and 2025, while a large majority of high-union-density states passed none. Among high-union-density states, 14 out of 17 did not pass any voter restrictions during this period, while only eight of the medium-union-density states and three of the low-union-density states can claim this distinction.

These results are consistent with evidence that unions actively defend voting rights. Unions have long mobilized members to oppose voter suppression laws, educated communities about their rights, and turned out to vote despite increasing barriers (Bondy 2025). Unions have also expanded access to voting: Dean, McCallum, and Grumbach (2023) found that county-level union density was associated with greater access to ballot drop boxes—a highly secure way to increase access to voting—during the 2022 midterm elections. Together, these findings suggest that stronger unions not only increase voter participation but also help preserve and expand access to the ballot.

Figure H

State policy and union density

Increasing union density across all states—including those where anti-union policies have historically suppressed unionization—is essential to strengthening both the economy and democracy, improving all workers’ wages, and expanding access to public goods like health care, retirement, and education.

As the previous section made clear, residents of high- and low-union-density states face starkly different economic and social realities. These wide variations in union density across states—and highly variable economic outcomes—are strongly correlated with variations in state labor policies. For example, the union rights of millions of public-sector, agricultural, and domestic workers (including home health care and in-home child care providers) vary by state because workers in these occupations are excluded from coverage under federal law. And even for private-sector workers whose union rights are covered under federal law, collective bargaining rights are limited by anti-union “right-to-work” laws in many states. Research shows that anti-union state policies result in lower union density. Union density averages 6.2% in states with anti-union RTW laws compared with 15.8% in non-RTW states, and states that limit or prohibit public-sector collective bargaining have lower overall union density than other states (Sherer and Gould 2024; Sherer and Morrissey 2026).

Here, we consider what union density would be if states with certain anti-union laws adopted the policies of states that better protect workers’ rights to unionize and collectively bargain. We consider two policy changes: 1) requiring state and local governments to bargain with public-sector workers who choose to unionize; and 2) repealing so-called “right-to-work” laws that limit collective bargaining rights of private-sector workers. These are two of many policies that states can adopt to remove barriers to unionization, but we focus on them because of their clearly documented, large-scale impact on large numbers of workers across much of the country. At present, roughly half of U.S. states have RTW laws in effect and do not require public employers to bargain with unionized public employees. Modeling changes to these two policies lets us estimate what would happen to union density if we removed large state-by-state labor policy disparities and created a stable “floor” for collective bargaining for workers across all states. This provides an important starting point for considering how additional, stronger state labor policies might affect union density, worker wages, and democracy.

Public-sector workers face wide disparities in bargaining rights across states

Variations in collective bargaining rights for public-sector workers are rooted in history, notably in Southern states where systemic racism drove the enactment of anti-union policies (Childers 2023; Dixon 2007; Kaufman 2018; Stelzner, Hoyt, and Ramchurn 2019). By the 1980s, most states had enacted public-sector collective bargaining policies, though these statutes varied in strength and coverage (Freeman and Ichniowski 1988). In more recent decades, many states have repealed or harshly limited formerly robust public-sector collective bargaining statutes, while a few states have expanded them. A key distinction is whether state and local government employers have a legal duty to bargain with unionized employees over pay and working conditions, rather than being merely permitted to bargain—or outright banned from doing so.

Sherer and Morrissey (2026) classify state public-sector bargaining rules across five categories of workers: teachers, police officers, firefighters, other local government employees, and other state government employees. States vary widely in which categories they cover and how strongly, and that variation maps closely onto union density. In states with strong, uniform duty-to-bargain rules across all five categories, public-sector union density can be close to 50% or higher, while in states that ban bargaining across most categories, state and local density can fall as low as the single digits. Pay consequences track these differences. Across the country, public-sector employees earn less than their private-sector counterparts with similar experience and education. This public-sector pay gap is smaller when bargaining rights are strong: Sherer and Morrissey (2026) estimate that in states with robust duty-to-bargain rights, public-sector workers earn 14.3% less than private-sector workers; the gap widens to 19.6% in states where bargaining is only permitted, and to 22.5% in states where it is banned.

“Right-to-work” laws weaken union density and suppress wages for all workers

“Right-to-work” laws prohibit unions and employers from negotiating over union security—the contract terms under which workers covered by a union contract either join the union or pay an agency fee covering their share of representation costs. State RTW laws first emerged as part of anti-union industry campaigns to suppress multiracial worker organizing and maintain Jim Crow labor relations in Southern states following the passage of the National Labor Relations Act (Pierce 2017). By making union finances more unpredictable and leaving unions more vulnerable to ongoing employer interference, these laws weaken unions’ stability, suppress union density, and limit workers’ bargaining power. As a result, RTW laws generate negative outcomes for all workers—with or without a union. States with RTW laws have lower unionization rates and higher income inequality, and workers in RTW states on average have lower wages and benefits (Fortin, Lemieux, and Lloyd 2022). Sherer and Gould (2024) document that workers in RTW states earn 3.2% less than otherwise comparable workers in non-RTW states—about $1,670 per year for a full-time worker.

There are currently 27 states with RTW laws in place—including Colorado, which is not a traditional RTW state, but whose law has, since 1943, effectively imposed RTW conditions. By barring unionized workers from negotiating over union security unless they first win a second, state-administered election by a 75% supermajority of those voting or 50% plus one of all eligible workers—whichever is higher—Colorado’s anti-union policy has produced RTW-like outcomes, so we group it with RTW states.

Removing state anti-union policies would raise national union density from 9.9% to 14.4%

We estimate that these two policy changes—1) requiring state and local governments to bargain with public-sector workers who choose to unionize, and 2) repealing RTW—would substantially increase unionization in states that currently have more anti-union policies in place, as shown in Table 1.17 In the 24 states without a duty to bargain with public-sector employees, establishing that duty would raise public-sector union density from 16.7% to 46.7%. In the 27 RTW states, repealing RTW would increase private-sector density from 3.4% to 8.8%. Overall, removing these anti-union policies would increase union density in 27 states from 5.4% to 14.3%. Nationally, union density would rise from 9.9% to 14.4%.18 This is a conservative national estimate reflecting changes in union density only for the 27 states undergoing hypothetical policy changes and not including likely impacts on the 23 states and D.C. where stronger union policies are already in place. These states would likely also see some level of increased union density under this scenario, given that removal of anti-union state policies across the country would strengthen worker bargaining power and union organizing resources in all states.

Table 1

Removing state-level anti-union policies would increase median wages by up to $4,900 a year

Were the 27 RTW states to increase unionization to estimated levels, overall annualized median wages would rise by $1,600 to $4,900 for full-time, full-year workers, depending on the state. Table 1 shows that if Virginia’s density rose from 4.9% to 15.5% because of the removal of state-level anti-union policies, annual pay for full-time, full-year workers at the state median wage would increase by about $4,500. Removing these anti-union policies in Texas could cause a similar increase in density, raising annual pay by $3,400.

Of course, were workers in all states able to achieve 30% union density, the effects on median pay would be even larger. These impacts are shown in Figure I. The 23 percentage point increase in density in Alabama, for example, would increase annualized median pay there for full-time, full-year workers by about $8,500.

Figure I

Recent state policy changes show that anti-union laws lower union density

Recent “natural experiments” in states that have changed one or both of these labor policies also show the impact on union density. For example, in states that adopted new RTW laws since 2010, union density fell 3.8 percentage points between 2010 and 2023. By comparison, union density declined only 2 percentage points during this same period in non-RTW states (Sherer and Gould 2024).

Wisconsin is an example of a state that both repealed a previous duty to bargain with public employees (in 2011) and enacted a new RTW law (in 2015). Since adopting these anti-union policies, between 2011 and 2024, Wisconsin’s union density has fallen by half, from 14% to 7%. Over this same period, national union density declined just 2 percentage points, from 13% to 11%. With both a RTW law in place and no public-sector duty to bargain, Wisconsin’s union density is plummeting in comparison with national and regional trends (Dresser, Rogers, and Vasquez 2025). Other studies show that Wisconsin’s adoption of anti-labor policies and declining union density have generated a wide array of harmful outcomes for the state’s economy and democracy, including sharp decreases in public education spending, declining worker wages, widening public-sector pay gaps (including stark increases in gender pay gaps for teachers), and declining voter participation (Nack et al. 2019; García and Han 2021; Biasi and Sarsons 2022; Feigenbaum, Hertel-Fernandez, and Williamson 2018).

States have other policy options to enable workers to increase union density

Beyond these two policy changes, states have numerous other opportunities to increase union density by removing obstacles to unionization and ensuring more workers have full rights to collectively bargain (Sherer 2026). A few examples that have not yet been adopted in most states include:

• Creating pathways to collective bargaining for all workers in occupations not currently covered by federal labor law, including in-home child care and home health care workers, agricultural workers, and rideshare or delivery drivers treated as “independent contractors” by digital platform companies;
• Protecting workers’ freedom to refuse mandatory “captive audience” meetings on political or religious topics not related to work duties, including mandatory anti-union meetings employers typically hold when attempting to block workers from unionizing;
• Ensuring workers whose paychecks stop due to a strike or lockout are eligible to apply for unemployment insurance; and
• Establishing or expanding state agency capacities and public labor education programs that ensure workers can easily learn about their union rights.

We do not model the specific impacts of all possible state policy changes in this report. But our conservative, baseline estimate of increases in union density likely to result from removing two of the largest state obstacles to workers’ union rights—RTW laws in 27 states and the lack of a duty to bargain for public employees in 24 states—suggests that combining these changes with additional policy changes would likely lead to additional increases in union density across the country.

Federal policy and union density

Given the clear benefits of tripling union membership, it is critical that policymakers prioritize reforms that enable workers to organize and collectively bargain. It is tempting to search for a policy “silver bullet” to restore the promise of the National Labor Relations Act (NLRA), our primary labor law. But the reality is that policymakers must adopt comprehensive labor law reforms to eradicate the effects of decades of political neglect that has steadily undermined the effectiveness of U.S. labor law. As discussed above, these reforms must at a minimum reverse state anti-union policies, via state or ideally federal labor law reforms that end Jim Crow-era occupational exclusions, ensure equal union rights and pathways to collective bargaining for all workers in all states, and eliminate RTW laws.

Labor law reform has passed the House three times with bipartisan support

A consistent narrative maintains that such policy change is impossible, but that narrative relies on the mistaken notions that real reforms require more political power than the labor movement has and that our legislative process prevents labor law reform. It is true that winning policy fights takes significant political capital. But labor law reform must not be seen as solely a labor movement priority. It is central to any attempt to address affordability pressures and economic inequality. And in this moment, such reform is imperative to our democracy. While the Senate filibuster rules do prevent much legislative progress, they are not inevitable dictates but rather agreed-upon rules that, as history shows, can change. It is deeply destructive to our political system to convince working people that the system simply cannot be expected to serve their interests, which is what this flawed narrative around labor law reform reinforces. To be clear, policies favored by elites benefiting from the unequal status quo are far more likely to become law than even broadly popular ones. But these reforms have the potential to help rebalance this inequality.

In fact, in the last two decades, legislation to significantly reform labor law has passed the U.S. House of Representatives three times—with bipartisan support each time. Even in the current Congress, legislation aimed at restoring collective bargaining rights has managed to bypass Republican House leadership opposition via parliamentary procedure (discharge petition) and pass with bipartisan support.19 Of the on average 12,000 bills introduced in a given Congress, labor law reform measures have had more success than roughly 95% of bills—passing a chamber with bipartisan support. Of course, Senate rules around the filibuster requiring 60 votes to proceed on consideration of various measures have been a significant impediment to the Senate passing these reforms. However, since 2013, the Senate has used the “constitutional option” to change its own rules for procedures and has eliminated the 60-vote requirement to proceed on specific debates three times. That could be done here, too.

Record high union approval strengthens the case for labor law reform

Labor unions today have significantly higher public approval ratings than when major labor law reform was last considered, polling more than 20 points higher.20 Since 2021, approval for unions has remained high, with over 68% of people in the U.S. viewing unions favorably (Brenan 2025). This positive view of unions is shared across generations, with majorities of Boomers (59%), Gen X (58%), Millennials (61%), and Gen Z (63%) viewing unions favorably. Young adults (ages 18–35) have the highest favorability rate at 72% (Glass 2025).

Unions are viewed positively across party lines, with both Democrats (90%) and independents (69%) having high favorability rates for unions, and over 40% of Republicans approving of labor unions (Brenan 2025). Some conservative organizations recognize that unions are popular among workers: Research by American Compass (2025) finds that at least 46% of Republicans view unions somewhat favorably, with favorability increasing among young Republicans (60%).

Data from the American National Election Studies show that people in the U.S. favor unions over big business now more than ever—with the average rating for labor unions hitting a new high (60%), while big business hit a low (44%) (Sojourner and Reich 2025). Further, most people in the U.S. say the decline in union density is bad for the country (60%) and bad for working people (62%). Most young adults (69%), including young Republicans (52%) and young Democrats (82%), view the decline in union density as negative for working people (Van Green 2025).

Three bipartisan bills would pave the way toward restoring collective bargaining rights

As with many popular policies, high public opinion of unions has not translated into the enactment of labor law reform. Even though several bills that would reform aspects of our current labor law are being introduced and even passing with bipartisan support in the U.S. House of Representatives, the Senate has failed to act on the legislation. There are three main bills with bipartisan support that would help reform our current labor law system and each should be passed.21

• The Protecting the Right to Organize (PRO) Act would restore private-sector workers’ right to organize and bargain collectively. It would streamline the process of forming a union, create a roadmap to reaching a first collective bargaining agreement, establish civil monetary penalties for employers who violate labor law, among other reforms—such as expanding coverage to more workers, overriding state “right-to-work” laws, and banning “captive audience” meetings (McNicholas, Poydock, and Rhinehart 2021). Since its first introduction in 2019, the PRO Act has passed the House of Representatives twice with bipartisan support.
• The Public Service Freedom to Negotiate Act (PSFNA) would establish public-sector workers’ right to organize and bargain collectively. This would fill an important gap—there is currently no federal law that guarantees all public-sector workers at the federal, state, and local levels the right to organize and collectively bargain. As a result, more than half of U.S. states today lack comprehensive collective bargaining laws for state and local public-sector workers (Sherer 2026).
• The Protecting America’s Workforce Act (PAWA) would reverse President Trump’s executive order that revokes collective bargaining rights for federal workers. The bill would reestablish collective bargaining rights for more than 1 million federal workers. In December 2025, PAWA passed the House of Representatives by a 231-195 vote.

Beyond passing these important bills, policymakers should also consider additional policies to help workers access collective bargaining and union membership. We propose two concrete policies that complement the labor reforms above. While these two proposals alone will not result in tripling union membership, they could help more workers receive the benefits of collective bargaining, which serves as a corrective to the affordability crunch and the economic inequality that characterizes our economy.

Guaranteed annual raises for workers in first contract arbitration

When workers win a union and begin to collectively bargain with their employer, both parties have an obligation to bargain in “good faith.” However, given that the NLRA lacks meaningful penalties for violations, employers often engage in bad faith bargaining tactics with few consequences. In fact, it is well documented that many union-busting consultants view bargaining as a new phase of union-busting and advise employers to drag out bargaining for as long as possible. The goal is to avoid reaching a contract for a year or more, hoping that workers will then give up their union through decertification, which is permitted one year after the election. It is no coincidence that workers who have successfully formed a new union spend an average of 465 days bargaining for a first contract before reaching an agreement.

The Faster Labor Contracts Act, which overwhelmingly passed the U.S. House of Representatives last month, would discourage delay and promote good faith bargaining by establishing a mediation and binding arbitration process when employers refuse to bargain in good faith. Beyond guaranteeing workers first contract arbitration, we suggest the adoption of a mandatory cost-of-living adjustment (COLA) for workers whose first contract bargaining ends up in arbitration. This would establish an important guardrail for workers in the arbitration process, given that an arbitrator will ultimately impose a final contract on both parties. This provision would ensure that workers receive at least a COLA each year of their first contract. In other words, by voting for a union, workers would be voting for a guaranteed raise.22

For the average production, nonsupervisory worker, a 3% COLA would result in almost a $2,000 increase in annual earnings for a full-time, full-year worker. 23 Table 2 shows that, while these increases would vary widely by industry because pay varies widely by industry, workers in some of the lowest-paid industries would still see annual pay increases above $1,000.

Table 2

Default collective bargaining when CEO-to-worker pay ratios exceed 100:1

The outsized and ballooning gap in recent decades between CEO pay and the pay of typical workers is among the clearest signs that the economy’s rules have been rigged to allow the most powerful to claim oversized shares of income growth. This CEO-to-worker pay ratio rose nearly tenfold from 1978 to 2024, as the pay of CEOs rose over 1,000% while the pay of typical workers rose just 26%. The explosion of CEO pay was driven not by CEO’s rising productivity or skills, but by policy changes that boosted both the incentives and the ability of CEOs to raise their own pay.

When a firm’s CEO makes more than 100 times what the typical worker in their industry makes, effective corporate governance has clearly broken down—which threatens the ability of those outside the C-suite to receive their fair share of the firm’s income. The two main parties competing with executives to claim a share of a firm’s income are the shareholders and the firm’s workers. The best mechanism for ensuring that workers are able to bargain against CEOs and shareholders for their fair share of the income generated by the firm is collective bargaining.

We propose instituting default collective bargaining in any firm that meets or exceeds this 100:1 ratio. Securities and Exchange Commission (SEC) reporting already requires the annual disclosure of CEO pay (SEC 2007). We propose that these disclosures be reported not only to the SEC but also to the National Labor Relations Board. Comparing those disclosures with Bureau of Labor Statistics data on the pay of a typical worker economy-wide in various industries, the NLRB would determine which corporations meet the default collective bargaining ratio of 100:1.24 The NLRB would then publish a public notice and notify specific corporations and their workers that the default collective bargaining ratio had been met, triggering default collective bargaining at the firm. The NLRB would then direct an election for a bargaining representative to be held within 45 days of the notification.25

Nonsupervisory workers at these firms would then have the opportunity to select a bargaining representative of their choosing—whether a labor organization or other representative. The NLRB would conduct the election for and certify a bargaining representative, after which bargaining would start. For purposes of default collective bargaining, the presumption for the bargaining unit would be a wall-to-wall unit—a model where all nonsupervisory employees join a single bargaining unit—ensuring comprehensive coverage under the collective bargaining process and resulting contract. This standard would apply absent an employer or employee representative demonstrating extraordinary circumstances.26 The NLRB would then determine the appropriate bargaining unit, the same way the agency already accepts or rejects bargaining unit proposals. We propose that all such questions be resolved within 10 days of the NLRB’s notice of election for bargaining representative. This proposal would not apply to existing bargaining units, but in firms where unions are present, it would apply to any nonunionized nonsupervisory employees, as described below.

A threshold of 100:1 for the CEO-to-typical-worker pay ratio is reasonable and fair. A ratio this high clearly signals a fatal breakdown in the ability of the firm’s workers and shareholders to protect their income claims against executives looking to maximize their own incomes. A ratio this high will not affect most publicly traded companies but will be relevant to a large share of the U.S. workforce.

Comprehensive data on CEO pay are available only for a subset of firms: The Compustat Execucomp database tracks CEO pay for half of publicly owned companies (and most U.S. firms are not publicly owned). For the firms in the Compustat database, under half (41.7%) had a CEO-to-typical-worker pay ratio exceeding 100:1 in 2024. This proposal would provide the 30 million workers employed in firms that have higher ratios—representing about a fifth of total private-sector employment in the United States—with collective bargaining.

It is not a coincidence that the stratospheric rise in CEO pay was accompanied by an acceleration in the downward trend of unionization in the United States. The broader correlation between declining unionization and the rise of inequality is well established, and the highest-quality research documents that this relationship is clearly causal, with the decline of unions leading to a higher share of income claimed by households at the top of the income distribution (Farber et al. 2021).

To be clear, using a threshold CEO-to-worker pay ratio as a trigger for default collective bargaining will not alone solve the problem of excess CEO pay. We focus on this threshold as a policy trigger because it is a readily available and measurable indicator of the outsized control of executives over the distribution of the firm’s income. In the total absence of collective bargaining or any other strong corporate governance institutions, firm executives will shift income in a zero-sum fashion away from both the workers and the shareholders of a firm. If shareholders manage to assert some influence over CEO pay—e.g., through public pressure campaigns or say-on-pay mandates—one likely outcome will be CEOs looking to suppress the firm’s wages even further to make room for both their own outsized salaries and a return to shareholders that placates them. Only collective bargaining can protect the interests and earnings of workers in firms where executives pocket an outsized share of firms’ incomes.

If collective bargaining became widespread enough throughout the corporate sector, it would likely not only boost workers’ wages but also rein in excess executive pay broadly—actually helping shareholders at the same time. The research on this question is encouraging: Unions and collective bargaining have been found to significantly restrain excess CEO pay (Huang et al. 2017; Nanda, Nishikawa, and Prevost 2025; DiNardo, Hallock, and Pischke 2000). But even if expanded collective bargaining does not tamp down the CEO-to-worker pay ratio beneath our 100:1 threshold, it will at a minimum protect workers’ interests from excess executive power—without foreclosing any policy route shareholders take to restrain excess CEO pay.

Currently, a number of firms with at least some degree of unionization among their workforces have CEO-to-worker pay ratios that exceed 100:1. But this is not an argument against using this threshold as an indicator of dysfunctional corporate governance requiring a strong policy solution. For many of these firms, union coverage among their rank-and-file workforce is far from complete, so this proposal would help fill in glaring gaps. Most of these firms clearly do pay wages that are among the highest in their industries, which signals that the policy of default collective bargaining to protect workers’ interests in the face of dysfunctional corporate governance would largely work. Finally, one key empirical driver of high CEO pay is the simple size of the firm: The CEO-to- worker pay ratio rises steeply with the size of the firm, all else equal.27 The firms with CEO-to-worker pay ratios above 100:1 and some degree of unionization among their workforces are large firms; it would take a very strong effect of collective bargaining on CEO pay specifically to have kept pay ratios at these large firms well below average.

In our world with only 10% union density (and less than this in the private sector), it should hardly be a shock that collective bargaining by itself has not been able to stem what has been an irresistible tide toward high CEO pay. Even large increases in executive pay are not enormous when compared with overall returns to shareholders. Given the strong policy and economic barriers to shareholder activism in restraining CEO pay, it takes truly outrageous pay scales to mobilize enough organized opposition from shareholders. In those firms where it is relatively strong, collective bargaining has protected workers’ interests, and that is the primary goal we are looking to achieve with this policy. The fact that in these firms the CEOs have felt free to shift income to themselves at the expense of other stakeholders (like the shareholders of the firm) is not a sign that default collective bargaining is a bad solution for protecting workers’ interests—it is only a sign that the problem of excess CEO pay needs to be addressed from other angles as well.

Tripling union density is what workers want—and it is entirely achievable

Restoring union density to 1950s levels is not a nostalgic pipe dream. Federal and state policymakers have a clear roadmap for tripling union density. While no single reform discussed in this report is a silver bullet for the problems facing the country, taken together they would address one of the worst: the erosion of workers’ right to bargain for their fair share of the wealth they produce. These reforms are meaningful steps toward tripling union density, and toward an economy where productivity gains are shared broadly, not captured by corporate elites and the superrich.

The evidence in this report shows what is at stake. Tripling union density would deliver nearly $270,000 in extra earnings over the median worker’s career and shift $1.2 trillion annually to working people—reversing a third of the rise in inequality since 1979. Rebuilding union power would narrow racial wage gaps by more than a third, and removing state anti-union policies would help dismantle the legacy of Jim Crow-era campaigns aiming to suppress multiracial organizing. States with higher union density deliver better economic and personal well-being outcomes to their residents, and they have healthier democracies with fewer voting restrictions. At a time when the voting rights of all citizens are under attack, rebuilding union power is a democratic imperative.

Acknowledgments

The authors thank Hilary Wething for her contribution to this report’s section on public education spending. We also thank Matthew Wich, Summer Labor Fellow from the Institute for Social Concerns at the University of Notre Dame, for his support of the project.

Appendix

Methodology

How we measure union density

The Bureau of Labor Statistics provides data on both union membership—workers who are full-fledged union members—and union representation, which includes both union members and workers who are not members but are covered by a collective bargaining agreement. As a result, the share of workers represented by a union is higher than the share of union members. For example, in 2025, 11.2% of workers were represented by a union, but 10% were union members.

In this report, we measure union density as the share of workers who are members of a union. Throughout this report, the terms “union density” and “unionization” refer to those who are members of a union. When measuring union density by state, data are averaged over three years (2023 to 2025) to give a more accurate estimate of state unionization rates and avoid temporary single-year changes due to small sample sizes in some states.

Estimating wage effects of tripling union density

To assess how much higher wages would be after tripling union density, we use state-level annual data on wages and unionization from 1979 to 2019 and compare median wages with unionization rates across states and over time. Specifically, we regress the state median wage on the state union membership rate, controlling for permanent differences in state characteristics, national annual shocks (like recessions), and annual state characteristics like state unemployment rate, minimum wage level, and education, race, age, gender, broad industry, and managerial shares.

Using state-level data from the Current Population Survey Outgoing Rotation Group for 1979–2019, we regress the log median wage on union density with state and year fixed effects and additional covariates: the log minimum wage, unemployment rate, and shares of those with less than a high school degree and just a high school degree, age group shares, and shares of those who are white, Black, Hispanic, married, and shares of those in the public sector, manufacturing, construction, services, and a managerial occupation. Regressions are weighted by state employment levels averaged over 1979–2019. The coefficient on union membership is 0.724 with a standard error, accounting for clustering at the state level, of 0.191.

To calculate effects of increasing union density on racial wage gaps, we use the same wage regression as before, except where the dependent variable is the state annual racial wage gap.

The calculation yielding the $1.2 trillion estimate of the annual increase in workers’ pay from tripling union density is as follows. First, the share of total labor income claimed by the bottom 80% is calculated from data provided by the Congressional Budget Office’s (CBO 2026) Distribution of Household Income data (we focus on the bottom 80% because research has generally identified the positive effect of unions on boosting pay as applying mostly to union and nonunion workers in the bottom 80% of the U.S. workforce). In 1979 this share was 60.5%, but by 2019 it had fallen to 50.1%. We use 50% for our calculations. Then we multiply the 14.5% boost to pay stemming from a tripling of union density by this 50% of labor income to get an estimate (7.25%) of how much total labor compensation would rise in the event of a tripling of union density. In the first quarter of 2026, the National Income and Product Accounts (NIPA) Table 2.1 from the Bureau of Economic Analysis (2026a) reports that total labor compensation was $16.1 trillion. Multiplying this by the 7.25% pay boost from tripling union density yields $1.16 trillion in higher pay for the bottom 80%. We believe this is the appropriate estimate for approximating how much higher wages would be for most workers if union density tripled. While potential caveats merit consideration, none, in our view, hold much force. For example, the regressions used earlier in the paper use median wages, not median total labor compensation, as the dependent variable. However, a long research literature has highlighted that benefit premiums stemming from unionization are likely even larger than wage premiums (Knepper 2020). To the degree that tripling union density works by giving all workers more leverage and bargaining power in labor markets, it seems clear that some of this leverage will be used to obtain broader and more generous coverage of benefits, not just higher wages. Another objection could be that union effects (both direct and indirect effects) are higher in the middle of the wage distribution than in either the lower or upper parts of the distribution, and hence the full 14.5% wage boost would only apply to (say) the second and middle fifths of workers while workers in the lowest and fourth fifth would see smaller wage boosts. However, in work that has estimated both the overall average effect of unionization on nonunion wages and the effect by wage percentile, the overall average effect is roughly one-half the effect at the median, a result that would be consistent with applying the 14.5% premium to half of all labor income, as we do (Fortin, Lemieux, and Lloyd 2021). Other research has similarly found that union effects at the median are very close to overall average effects (Baker et al. 2026).

For our analysis of how wage effects differ across union density levels, we use the same regression of log median wages on union density described above, modified to let the slope differ below and above 15% density using a piecewise-linear specification interacting union density with an indicator for density of at least 15%, while retaining the same controls and state and year fixed effects, weighted by state employment. The difference in slopes is statistically significant at the 1% level.

The scatterplot in Figure B uses 50 state-year bins to show this nonlinearity directly. The binned scatterplot groups the state-year observations into 50 employment-weighted bins by union density and plots each bin’s average real log median wage against its average union density, after partialing out the same controls and state and year fixed effects used in the regression.

State union density groupings

We divided the 50 U.S. states plus the District of Columbia into three equally sized groups based on their current (2023–2025) level of union density.

These groupings are shown in Appendix Table 1. We refer to the 17 states with the highest union density as “high-union-density states” (with 11.9%–25.1% union membership rates); the next 17 states (including D.C.) are “medium-union-density states” (6.8%–11.6%); and the remaining 17 are “low-union-density states” (2.5%–6.1%).

Appendix Table 1

Estimating union density effects of establishing a public-sector duty to bargain and repealing “right-to-work” laws

To estimate the effect of these two policy changes—1) requiring state and local governments to bargain with public-sector workers who choose to unionize, and 2) repealing RTW—we use the CPS Outgoing Rotation Groups for 2023–2025 to compute union density rates in states with stronger union policies (i.e., states with public sector collective bargaining and/or without RTW). We do this separately by industry and major occupation group for the private sector and by level of government (federal, state, and local) for the public sector. We then apply those rates to the workforce of each state that lacks the corresponding policy, holding each state’s industry, occupation, and government-employment mix fixed. Nevada is an exception on the private-sector side: Although Nevada is a RTW state, its private-sector union density is already comparatively high, so we hold its private-sector density at its current level.

Notes

1. “Union membership” refers to workers who are full-fledged union members, while “union representation” includes both union members and workers covered by a collective bargaining agreement but not members. The share of workers represented by a union is thus higher than the share of union members. In 2025, for example, 11.2% were represented by a union and 10% were union members.

2. In 2025, for the fifth consecutive year in a row, approval of unions reached record high levels last seen in the late 1950s, when union membership was roughly triple what it is now.

3. The productivity-pay gap is a measure of how much income is generated in an average hour of work.

4. “Union wage premium” refers to the additional wages paid to union members compared with nonunion workers with similar characteristics.

5. For example, when the top marginal tax rate was 91%, as it was in the 1950s and early 1960s, executives kept far less of each additional dollar of pay than they do under today’s 37% top rate, which reduced the payoff to pursuing ever-larger compensation packages.

6. Relatedly, expanded unemployment benefits during the pandemic boosted workers’ bargaining power and compelled employers to make higher wage offers (Bivens and Banerjee 2023).

7. See appendix for details about our methodology.

8. The real median wage is the wage of the person in the middle of the overall wage distribution, including both union and nonunion workers.

9. The median monthly cost of a mortgage in the U.S. is $1,521 according to Census (2025). Over the course of a year, that is $18,252.

10. See appendix for details about the calculation of this figure.

11. In 2020 and 2021, Congress authorized Economic Impact Payments—better known as the “COVID checks.” Those three rounds of payments added roughly $430 billion to U.S. families’ personal income in those years and were widely viewed as an historically ambitious economic intervention. Data on how much these checks added to personal income can be found at Bureau of Economic Analysis (2026c).

12. Data on federal defense spending in 2025 is from Bureau of Economic Analysis (2026b).

13. Data on the income shares by percentile come from CBO (2026), which contains data through 2022. The calculation of how much the $1.2 trillion gain to wages would reverse the rise in income shares of the top quintile uses data from BEA (2026a).

14. See appendix for details on how we estimated these wage effects.

15. See appendix for details on how we calculated the effects of increasing union density on racial wage gaps.

16. See Appendix Table 1, which shows how we grouped states into low-, medium-, and high-union-density categories.

17. For details on the data and methodology used to produce these estimates, see appendix.

18. For this state-level analysis, we use 2023–2025 averages of union density across states, which is 9.9%, rather than the 10% for 2025 cited earlier in this report.

19. See passage of Protecting America’s Workforce Act and Faster Labor Contracts Act.

20. The last time a major labor law reform was considered was in 2009 with the Employee Free Choice Act.

21. The Protecting the Right to Organize Act has two Republican co-sponsors, the Public Service Freedom to Negotiate Act has six Republican co-sponsors, and the Protecting America’s Workforce Act has nine Republican co-sponsors.

22. One way to determine the exact COLA amount is to use nonseasonally adjusted values of the national Consumer Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor Statistics. These price index values are easily available, less subject to revision, and widely covered in the media. The simplest COLA adjustment would be to use the annual rate of inflation measured as the percent change between the two most recent annual averages of nonseasonally adjusted CPI-U values. See BLS (2023) for other considerations.

23. CBO estimated CPI in 2026 at 2.8%, 2027 at 2.4%, and then 2.3% after—however those estimates were done before the U.S. war in Iran that increased energy prices, so we estimate COLA at 3% for purposes of the proposal. To calculate full-time, full-year worker wages, we used 2025 average production, nonsupervisory wage rates (EPI 2026f).

24. We specifically would recommend calculating the CEO-to-typical-worker pay ratio using the methodology detailed in EPI (2025). 

25. In order to appear on the ballot, an individual or organization would have to demonstrate a record of collective bargaining over the preceding three years or obtain 100 signatures or 10% of the workforce, whichever is less.

26. The showing of extraordinary circumstances is referenced in the acute care hospital rule: 29 CFR § 103.30 (1989).

27. This correlation between simple firm size and CEO pay is yet another piece of evidence that CEO pay is not about the skills or acumen of individual CEOs, but is driven by noncompetitive market structures and labor markets for executives.

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Figure A

These increases continue to be crucial for low-wage workers as they contend with the affordability crisis. The average increase in annual wages for a full-time, year-round worker resulting from these minimum-wage hikes ranges from $573 in Oregon to $811 in Alaska. These pay raises directly boost workers’ incomes, giving them a leg-up in the race against rising prices—a straightforward example of how policymakers can often more easily tackle affordability challenges through policy decisions that boost wages, such as setting strong wage floors.

A higher minimum wage has a positive impact on more than just the workers who currently earn the minimum wage; indirectly affected workers will see their pay go up too as employers adjust their wage ladders to the new wage floor. Our analysis of the increases in Alaska, Oregon, and Washington, D.C., accounts for these “spillover” effects and finds:

• Women make up more than half (56.3%) of affected workers.
• The wage increases disproportionately benefit Black and Hispanic workers. Black workers make up 15.3% of affected workers, despite making up 10.4% of the workforce across the three areas. Hispanic workers make up a similar percentage of the workforce (12.4%) but make up more than a fourth (26.0%) of affected workers.
• The vast majority (89.3%) of affected workers are age 20 or older, and more than 3 in 5 workers (62.1%) are 25 or older.
• More than half (52.9%) of the affected workers work full-time.
• The increases will raise wages for those who need it the most. Half (50.5%) of affected workers belong to households whose incomes are less than 200% of the poverty line.
• More than 1 in 5 (23.6%) of affected workers are parents.

Table 1

State and local policymakers should combat cost-of-living challenges with minimum wages

Because costs of living can vary significantly within a state, local policymakers should establish strong wage floors if the state minimum wage is inadequate for their area. In June, city councilors in Albuquerque, New Mexico, took an important step in that direction, passing a minimum-wage increase to $15 an hour by 2029. Whereas the current state minimum in New Mexico is $12 an hour, EPI’s Family Budget Calculator shows that a living wage for a single adult working full-time in Albuquerque is $17.56 an hour.1 The proactive step taken by local elected officials will provide significantly more economic security for low-wage workers in the city.

This summer, the minimum wage will increase in localities in California, Illinois, and Maryland (Table 2) due to “indexing”—automatic annual adjustments written into the minimum-wage law that require the wage floor be adjusted for price increases each year. Without indexing, the minimum wage is worth less and less every year as prices rise. With time, this can dramatically erode the value of the minimum wage. For example, the federal minimum wage of $7.25 an hour—which has not increased since 2009—has now lost 30% of its purchasing power.

Table 2

Indexing to inflation is a commonsense policy enacted in dozens of cities and states across the country, but it is not the strongest way to protect the value of the minimum wage. Adjusting for price increases mostly protects the real value of a low-wage worker’s paycheck (although low-wage workers are more vulnerable to inflation than top-of-the-line inflation measures indicate). However, in a well-functioning economy, wages for most workers—especially higher wage workers—will grow faster than inflation. If the minimum wage only rises at the rate of price growth, then over time, this can increase inequality between low-wage workers and everyone else.

One way to address this issue and ensure that low-wage workers do not fall further away from the middle class is to index the minimum wage to median wage growth. EPI’s latest vision for a federal minimum wage explicitly targets a wage floor that rises to two-thirds of the median wage and remains indexed there thereafter. This policy both creates a high floor that provides significantly higher wages for workers across the country and protects the minimum wage’s value against price increases and increases in wage inequality over time.

Oklahoma fails to pass minimum-wage ballot measure

In June, a minority of eligible Oklahoma voters rejected a ballot initiative (State Question 832) that would have increased the state’s minimum wage to $15 an hour by 2029. The initiative’s failure is a costly missed opportunity to increase wages for Oklahoma workers. More than 1 in 5 workers in the state earn less than $15 an hour, and if passed, the ballot initiative would have provided more than $783 million in increased earnings for low-wage workers.

During a time when cost of living and inflation are some of the most important concerns for voters, Oklahomans might have worried that increasing the minimum wage would have hurt affordability in the state. In fact, the opposite is true. Although raising the minimum wage can lead some affected businesses to increase prices, the resulting price increases are extremely modest—far smaller than the increase in pay that would go to low-wage workers. Even some of the most ambitious wage floor policies, such as California’s $20 fast food minimum wage, only increased fast-food prices 2.1% (around eight cents for a $4 item). A 10% increase in the minimum wage is associated with a 0.14 percentage point increase in CPI increase. In contrast, a 10% minimum-wage increase boosts income at the 10th percentile by around 3.6%, an order of magnitude greater. The average full-time, year-round Oklahoman worker affected by SQ 832 would have gained $2,322 in annual wages if voters had approved the initiative.

It is also important to highlight SQ 832’s winding path to the ballot. Ballot initiatives have historically been an important mechanism for passing minimum-wage increases in states with conservative-dominated legislatures like Florida, Missouri, and Nebraska. While Oklahoma is one of only three states in the South that has a ballot initiative process, conservative politicians have been increasingly curtailing it.

The Oklahoma minimum-wage ballot initiative is a prime example of this. Advocates originally began collecting signatures for SQ 832 in the lead-up to the November 2024 general election. Despite collecting nearly twice the necessary signatures in enough time to qualify for the ballot, advocates were thwarted when Governor Kevin Stitt delayed the State Question until the June 2026 gubernatorial primary election, a low turnout election in contrast to a general election with presidential candidates on the ballot. Voter turnout in the 2026 primary election was 26%, around half of what it was in the 2024 election.

In response to the emergence of SQ 832, the Oklahoma legislature also passed restrictions on the signature-gathering process, limiting the number of signatures that can be gathered from populous areas like Tulsa and Oklahoma City. These restrictions will make it more costly and logistically challenging to pass a future minimum-wage increase in Oklahoma. With such low voter turnout and marked interference in the ballot initiative process, it is difficult to say that SQ 832’s failure reflects a lack of popular support for minimum-wage increases in Oklahoma. Regardless of the cause, without a future minimum-wage increase, the issue of low pay in Oklahoma is only going to grow.

When policymakers like those in Oklahoma fail to adequately set the wage floor, it suppresses worker pay, not just for the lowest-paid workers, but for low-wage workers in general. Workers need a raise to help them overcome the affordability crisis, and the minimum wage is an evidence-backed tool under policymakers’ control to help them do that.

1. Assuming 81% of income comes from wages.

Does raising the minimum wage increase unemployment?

In brief: No. High-quality economic research finds increasing the minimum wage does not significantly impact employment.

In detail: The 90% of high-quality economic studies show that increasing the minimum wage boosts wages for low-wage workers without meaningfully increasing unemployment. These studies use statistical tools and empirical methods to measure what happens to workers before and after a minimum wage increase, controlling for other factors that can impact employment. The consistency of these findings across time, place, and level of increase is powerful evidence that increasing the minimum wage creates a healthier low-wage labor market.

An increase in the minimum wage raises the cost of labor for businesses by definition, but the economy can absorb these changes through channels of adjustment including decreased turnover, modest price increases (see Question 2), lower profits, and the reallocation of workers to more productive firms. Even if a minimum wage increase leads businesses to adjust their staffing levels, what workers are likely to experience are decreases in hours worked or increased time between jobs, not categorical unemployment. Higher hourly earnings can more than offset these reductions, leaving many workers with greater total income even if they are working fewer hours.

Will raising the minimum wage cause inflation?

In brief: No. Increasing the minimum wage does not meaningfully increase prices.

In detail: Economists do find that raising the minimum wage increases prices at affected businesses but only very modestly. For example, one study found that a 10% minimum wage increase was associated with a 0.14 percentage point increase in the Consumer Price Index. A study focused on the restaurant industry found a 10% increase in the minimum wage was associated with a 0.58% menu price increase. Even some of the most ambitious minimum wage policies, such as California’s $20 hourly wage floor for fast-food workers, only increased fast-food prices 2.1% (around 8 cents for a $4 item). 

The economic benefits of the minimum wage far exceed these price increases. For low-wage workers, the wage boost from the higher minimum wage more than compensates for increased prices of the goods and services they buy. These workers are in turn spending more in aggregate because of their additional income, which can boost the overall economy. It is also worth noting that modest price increases on things like restaurant menu items are redistributive. Higher-earning consumers pay higher prices, transferring income to low-wage workers receiving bigger paychecks.

Claims that increasing the minimum wage will dramatically increase prices in the economy are false. Low-wage labor is a small share of total business expenses. In restaurants, for example, total labor costs are around 30% of operating costs—which also include rent, food, utilities, and insurance—and the wage bill of the lowest paid workers is an even smaller amount. This, combined with the fact that minimum wage increases can be offset through reduced profits, lower turnover, and higher productivity, is why price increases are small.

Will businesses just relocate if a state or locality raises its minimum wage?

In brief: The best economic research suggests businesses do not move in response to minimum wage increases.

In detail: One way that economists try to understand the impact of minimum wage increases is to compare economic outcomes across jurisdictional borders where a minimum wage increase took effect on one side but not the other. An analysis of cross-state and county impacts of all local minimum wage differences between 1990 and 2006 found no evidence that employment decreased in the places where the minimum wage went up or that employment increased in the places without a minimum wage increase. More recent research supports these findings, strongly suggesting that businesses are not relocating or moving their workers in response to minimum wage changes.

Businesses commonly affected by minimum wage changes (such as restaurants and retail) want to locate where there are consumers with money to spend. Because raising the minimum wage boosts the spending power of low-income households, it can strengthen the local customer base for these direct-to-consumer businesses even as it raises their labor costs.

Is the minimum wage an effective way to fight poverty?

In brief: Increasing the minimum wage does reduce poverty and should be paired with a strong safety net.

In detail: Minimum wage increases do significantly reduce poverty by boosting household income, especially among low-income households. Research has found that a 10% increase in the minimum wage reduces nonelderly poverty by 2–4%. When EPI applied this research to the 2021 Raise the Wage Act (which would have gradually increased the minimum wage to $15 an hour), an estimated 1.8 to 3.7 million individuals would have been lifted out of poverty, including up to 1.3 million children.

The current weakness of the federal wage floor exposes workers to poverty-level wages. As of 2025, a full-time worker earning the federal minimum wage makes less than the poverty line. A stronger wage floor would generate more savings across critical safety net programs like Medicaid, SNAP, the Earned Income Tax Credit (EITC), and the Child Tax Credit (CTC), as fewer workers would need or be eligible for these programs due to their increased wages. The safety net would thus be more targeted toward the households that need assistance the most. Those public savings can and should be reinvested in those programs to make benefits more generous.

Can increasing the minimum wage harm workers by pushing them over a “benefits cliff”? 

In brief: The minimum wage does reduce safety net program eligibility, but the wage gains almost always outweigh the loss of benefits.

In detail: Most income-tested safety net programs are not characterized by “cliffs” but rather gradual phase outs. Nevertheless, when a worker’s income increases because of a minimum wage increase, they can lose eligibility to programs like Medicaid, EITC, CTC, SNAP, and housing assistance. Research on the interaction between the minimum wage and safety net eligibility finds that benefit reduction is significantly outweighed by the increase in income from the minimum wage. Benefit reductions offset around a third of the income increases for low-income families caused by the minimum wage—meaning that on net they still benefit overwhelmingly.

Higher minimum wages also help low-wage workers increase their access to medical coverage. While minimum wage increases can lift workers out of income eligibility for Medicaid, they simultaneously increase the take-up of employer-based health insurance plans by many low-wage workers, since those workers can more easily afford those plans. Many workers who lose Medicaid eligibility also can receive heavily subsidized private health care through the Affordable Care Act (ACA) exchanges. Researchers estimate that the $20 fast-food minimum wage in California could push almost 60% of Medi-Cal eligible workers in the industry off Medi-Cal and onto alternative health insurance. The wage benefits of the wage floor increase far outweigh the annual premium contributions workers must pay for ACA marketplace healthcare, even accounting for the Trump administration’s choice to let expanded subsidies for the ACA expire.

The reduction in public benefit usage created by higher minimum wages generates substantial savings for federal and state government. These savings should be reinvested in the safety net by expanding program eligibility or otherwise strengthening programs.

There are some safety net programs, which have cliff-like characteristics, like child care assistance, although states are required to provide a graduated phase-out. In rare cases where changes in program eligibility from a minimum wage increase does reduce a family’s total income, this indicates that the design of these programs’ eligibility criteria needs reform, not that the minimum wage increase should be abandoned.

Should lower cost of living in the South and Midwest mean a lower wage floor in those states?

In brief: Even accounting for differences in the cost of living, the minimum wage is far too low in many states across the South and Midwest.

In detail: Cost of living does vary between states and regions across the country, but the minimum wage is still too low across the South and the Midwest. According to EPI’s Family Budget Calculator, even under conservative assumptions of what constitutes a living wage, there is almost no county in the U.S. where a single adult worker can achieve a modest but adequate standard of living earning less than $15 an hour. In fact, many metro areas in the South and Midwest are much more expensive to live in. The living wage in Austin, Atlanta, and Charlotte exceeds $20 an hour. Affordability is still a pressing issue across these regions, even if on average the cost of living is lower. Notably, voters in Florida, Missouri, and Nebraska passed ballot referenda to raise their state minimum wages to $15.

Low wage floors in Southern and Midwestern states hurt workers by suppressing their pay. Most of the states that use the $7.25 federal minimum wage are in the South and Midwest, meaning the effective wage floor in these states is a poverty-level wage (see Question 5). Compounding the problem, many states in these regions preempt localities from passing their own minimum wage policies, preventing policymakers in these jurisdictions from setting wage floors that meet the needs of workers. The use of preemption to dismantle higher labor standards like the minimum wage in the South and Midwest has a long history of being used to reinforce anti-Black racism and white supremacy in these regions.

Can employers ever pay less than the minimum wage?

In brief: Most U.S. minimum wage laws do exempt some groups of workers (such as farmworkers) or set lower minimum wages that apply in certain circumstances (such as for workers who customarily receive tips). Unfortunately, these exemptions can be deeply harmful to workers; in some cases, they were originally adopted to exclude workers of color from minimum wage protections.

In detail: Federal and state labor standards make several groups of workers either ineligible for minimum wage protections or subject to a separate “subminimum wage.”

The FLSA exempts a variety of occupations and types of workers from minimum wage protections. Agricultural workers are excluded from the federal minimum wage entirely and workers who customarily receive tips may be paid a subminimum wage (sometimes called the “tipped minimum wage”) as low as $2.13 an hour (see Questions 8–11). Both of these exemptions originated as ways to exclude Black workers from New Deal economic policies in order to appease Southern lawmakers. Originally, the FLSA also excluded domestic workers, another group of workers with a high concentration of Black workers, but lawmakers extended coverage to them in 1974.

The FLSA also allows employers who have been granted a certificate from the U.S. Department of Labor to pay less than the minimum wage to employees with disabilities (see Question 14).

Another category of federal exemptions and subminimum wages impact young workers. Youth under 20 can be paid as little as $4.25 per hour for their first 90 calendar days of employment. Full-time students, apprentices, and student-learners can also be subject to subminimum wages. And specific occupations typically held by young workers, like babysitters and seasonal amusement workers, are exempt.

Workers misclassified as independent contractors, such as gig economy workers and other wrongly classified employees are not eligible for FLSA protections, including the minimum wage. Also, despite the fact around half of incarcerated people work full-time, these individuals are also excluded from the minimum wage.

State and local policymakers in many states have made efforts to close many of these gaps in minimum wage coverage, but states that do not go beyond the federal standards maintain these exemptions.

Does raising the tipped subminimum wage hurt the restaurant industry?

In brief: Tipped workers are low-wage workers who need wage increases just as much as any other type of worker. Economic research does not find that boosting the minimum wage for tipped workers hurts the restaurant industry.

In detail: There is no inherent economic reason why tipped workers should be paid a lower minimum wage than other workers. The fact that U.S. law allows this can be traced directly back to racist economic practices following the abolition of slavery. Seven states do not have a separate subminimum wage for tipped workers yet still have strong restaurant and hospitality industries. Economic research on the restaurant industry finds that tipped minimum wage increases boost wages for workers without affecting employment. Similarly, when the District of Columbia increased its tipped minimum wage, the restaurant industry did not suffer in terms of employment growth or number of establishments when compared with the U.S average or nearby counties.

Don’t tipped workers earn enough to earn a living wage?

In brief: Tipped workers, including restaurant servers and bartenders, are overwhelmingly low-wage workers. Many struggle to make ends meet, especially those in states where they can be paid less than the minimum wage.

In detail: Tipped workers are more than twice as likely as non-tipped workers to be in poverty. Poverty rates of tipped workers who live in states that use the federal tipped minimum wage of $2.13 are substantially higher than poverty rates of tipped workers in states that use the same minimum wage for all workers, regardless of tips.

The subminimum wage for tipped workers exacerbates economic insecurity for many workers. Employers are legally required to ensure that on a weekly basis, tipped workers’ tips cover the gap between the tipped minimum wage and the regular minimum wage for all hours worked that week, on average. If they do not, employers are responsible for making up the difference. In practice, this requirement is exceptionally difficult to enforce, as it is largely left to workers themselves to track their hours and tips, make the relevant calculations, and then confront their employer if something seems amiss. As a result, tipped workers—who are already paid low wages—are particularly vulnerable to wage theft.

Will raising/eliminating the tipped minimum wage lead to fewer tips or force restaurants to end tipping?

In brief: Tipping is deeply embedded in U.S. culture. Even in places with no separate tipped subminimum wage, workers still receive tips and typically have higher overall take-home pay than their peers in places with a separate tipped subminimum wage.

In detail: In the seven states that do not have a tipped subminimum wage, tipped workers continue to receive tips. According to the Toast platform, California (a state where tipped workers receive the full minimum wage) had the lowest tipping rate (i.e., the average percentage tip on a bill) in the country at 17.2%. This is less than 5 percentage points less than Delaware, the highest tipping state (21.8%). By contrast, the effective minimum wage for tipped workers in California ($16.90) is more than seven times greater than in Delaware ($2.23). EPI research finds that tipped workers in states without a lower tipped subminimum wage earn, on average, 17% more per hour in total take-home pay (base wages plus tips) than tipped workers in states that use the federal $2.13 tipped subminimum.

There is nothing wrong with workers receiving tips for their work in service jobs, but formalizing tipping in minimum wage law allows employers to shift responsibility for paying their workers onto customers. This in turn means workers are more vulnerable to harassment, discrimination, and other forms of abuse. Restaurant workers, particularly women, are subject to the highest rates of sexual harassment of any industry. Research has also found that racial discrimination leads to Black workers receiving fewer tips than their white counterparts. Relying on tipping means workers have less ability to avoid or protect themselves from harmful interactions in the workplace.

Does the so-called “no tax on tips” deduction eliminate the need to raise the tipped minimum wage?

In brief: The 2025 budget tax bill did create a temporary tax deduction for tipped income, but for most tipped workers the benefits are modest and pale in comparison to the benefits of increasing the wage floor.

In detail: The 2025 Republican budget bill created a new, temporary federal income tax deduction for tipped income. This policy does little to address the precarity of tipped work and the benefits to most tipped workers pale in comparison to the gains they would receive through a significant minimum wage increase. The tax deduction encourages employers to rely more on tipped jobs and avoid raising base wages, exacerbating the low wages and challenging conditions of most tipped jobs (see Questions 9 and 10). Many tipped workers earn too little to qualify for the benefit, and those that do will likely see modest tax benefits. Whereas the average annual benefit for an eligible tipped worker will be around $1,700 a year for the three remaining years the deduction is in place, a minimum wage increase to $15 per hour would boost earnings by $3,200 a year for a full-time worker, in perpetuity.

Aren’t most minimum wage workers teenagers?

No, the vast majority of workers impacted by the minimum wage are not teenagers. Low-wage work is a widespread problem and not just isolated to younger workers. EPI’s analysis of the 2025 Raise the Wage Act found that only 14% of the workers that would be impacted by the policy were younger than 20 years old.

Will raising the minimum wage hurt young workers in their first jobs? 

In brief: Higher minimum wages cause little to no employment changes for teenagers.

In detail: The majority of studies find little to no evidence that the minimum wage causes employment losses for teen workers. Instead, their incomes increase as they earn higher pay. It is also worth keeping in mind that teen workers are a minority of low-wage workers, and a shrinking share of the workforce overall as the cultural and economic emphasis on education has grown. To that end, minimum wage increases can support young workers’ educational attainment, particularly for low-income teens. Minimum wage increases significantly improve high school graduation rates for low-income students, a vital investment that can have large long-term consequences for those workers’ lifetime earnings.

Do workers benefit from the FLSA’s subminimum wage for workers with disabilities?

In brief: The federal subminimum wage for disabled workers does not provide real wage protections and is out of step with the most effective ways to boost employment for workers with disabilities.

In detail: Under Section 14(c) of the Fair Labor Standards Act, employers can apply for special certificates with the Department of Labor that allow employers to pay workers with mental or physical disabilities less than federal minimum wage. Employers can only apply for certificates if the worker’s disability actually impairs the worker’s earning or productive capacity. An overwhelming share (96%) of 14(c) employees work in so-called “sheltered workshops” which put workers with developmental disabilities in isolated, noncompetitive environments.

These certificates apply to a small number of workers (less than 37,000 nationally) but also produce exceedingly low pay for workers with disabilities. Nearly half of 14(c) workers were paid less than $3.50 an hour, exacerbating the economic precarity experienced by disabled workers. Disabled adults are 24.1% more likely to live in poverty than other adults. The low pay permissible under 14(c) perpetuates these workers’ struggle to make ends meet. This measure is also unnecessary for providing well-paying employment opportunities to workers with disabilities.

Researchers studying state repeals of 14(c) have found that the change has not hurt disabled workers’ employment. In Maryland, eliminating the provision caused no significant change to disabled worker employment, while in New Hampshire, employment increased. An analysis of the federal AbilityOne program, which is composed of nonprofits that primarily employ workers with disabilities, found that state and local minimum wage increases did not impact the employment of those workers. Employers also do not appear to shift more workers to 14(c) certificates in response to minimum wage increases.

Overall, the use of 14(c) certificates has been declining over time. Across the country, 27 states and D.C. have eliminated or restricted the use of the provisions, reflecting that the policy does not offer real wage protections for disabled workers and that there are superior models of employment for workers with developmental disabilities. Respecting the dignity of workers with disabilities requires prioritizing real pay and inclusion in supportive, but integrated employment opportunities.

Many cities and states already have minimum wages above $15 an hour. Is increasing the federal minimum wage still important?

In brief: Yes, tens of millions of workers still earn less than $15 an hour. In many states and cities, higher wage floors are needed to provide meaningful economic security.

In detail: In the last decade, dozens of cities and states have responded to federal minimum wage inaction by enacting stronger wage floors, in many cases reaching or exceeding $15 an hour. As of 2026, more workers work in a state with at least a $15 minimum wage than in a state using the federal minimum wage. However, there are still 20 states that use the federal $7.25 wage floor and around 14 million workers earn less than $15 an hour.

Even places with recent minimum wage increases might need higher wage floors. The first $15 minimum wage was enacted in 2013. Prices have risen substantially since then, and consequently, the value of targets like $15 an hour has declined significantly. According to EPI’s Family Budget Calculator, $15 is not a living wage almost anywhere in the country. Many cities and states have at least partially protected their wage floors by adopting automatic annual adjustments to account for inflation, but if the initial value is too low, this inflation-indexing only locks in an unlivable floor.

Very few workers earn the federal minimum wage of $7.25 an hour. Is the minimum wage even relevant anymore?

In brief: The fact that so few workers earn the federal minimum wage is a policy failure, not a reason to abandon the policy. The minimum wage is a vital tool for lifting wages and addressing systematic power imbalances between workers and employers. The failure to adequately raise the minimum wage over time has left millions of workers being paid less today than they could have been earning.

In detail: It is true that a small fraction of the labor force earns exactly the federal minimum wage, but this is a policy failure that has left tens of millions of workers with lower wages. Had Congress simply raised the federal minimum wage to keep pace with inflation since the late 1960s, it would be over $12.50 today. According to EPI’s Low Wage Workforce Tracker, 14 million workers earn less than $15 an hour, while 42 million earn less than $20 an hour. The minimum wage does not just impact workers at the very bottom of the wage distribution; it exerts upward pressure for low-wage workers in general. Minimum wage increases create “spillover effects,” where workers above the new minimum wage threshold also see wage increases as employers keep wage ladders and seniority consistent in their firms.

It is important to recognize that without leveraging policy tools like the minimum wage, the low-wage labor market gives employers excess power to set low wages. Workers have limited information about the wages and work policies at alternative employers and can be constrained in their job choices by limited transportation options or the need to maintain specific schedules for child care and other family needs. These economic “frictions” add up, providing leverage for employers to pay lower wages than is optimal for the economy. In short, the longstanding failure to increase the federal minimum wage suppresses worker pay, leaving low-wage workers worse off every year there is no increase.

Does raising the minimum wage lead to automation of low-wage jobs?

In brief: The minimum wage is not a primary cause of automation of low-wage work, but automation is changing the tasks and occupations of some low-wage workers.

In detail: Increasing the cost of low-wage labor can encourage businesses to invest in automation. This can lead to disruption for specific low-wage jobs, or changes in the roles in those occupations. Since we see that the minimum wage does not increase unemployment for low-wage workers (Question 1), the effects of automation on these low-wage jobs are either limited or counterbalanced by expanding employment in other occupations. Evidence suggests that while in recent years automation is taking over a growing number of routine tasks from low-wage workers, the minimum wage has a limited contribution in driving that adoption. Researchers with access to extensive data on McDonalds franchises nationwide found that, while the adoption of touch-screen ordering kiosks grew significantly between 2017 and 2019, there was no evidence that uptake was driven by minimum wage increases. So far, the overall employment impact of automation on low-wage workers has been insignificant, as reductions in occupations with high amounts of routine tasks have been replaced with greater demand for jobs with interpersonal tasks.

Technology is a tool, but the balance of labor market power determines who it helps. Automation has been a feature of our economy since the industrial revolution, boosting productivity in our economy. Technological change can disrupt employment for specific sectors or professions, but in aggregate the economy benefits. Workers benefit from these productivity increases when there are strong labor institutions like access to unions, a strong minimum wage, and policies that support full employment. When those institutions are weak, the gains from technological advancement are not shared widely and contribute to increased inequality.

Key takeaways:

• Misclassification of workers as independent contractors is a pervasive and widespread problem. AAPI workers are overrepresented in three of the 11 commonly misclassified occupations: manicurists and pedicurists, home health aides, and personal care aides. Vietnamese, Bangladeshi, Filipino, Samoan, and other Pacific Islander workers are overrepresented within these occupations.
• Groups with lower median hourly wages also have larger shares of their working populations in the 11 commonly misclassified occupations.
• Federal protections against misclassification are limited and currently under attack by the Trump administration. The state and local landscape for curbing misclassification is varied, which leaves some workers less protected than others.

In March, EPI published updated research highlighting the cost to workers of being misclassified as an independent contractor for 11 commonly misclassified occupations. Asian American and Pacific Islander (AAPI) workers were overrepresented in three of those occupations—manicurists and pedicurists, home health aides, and personal care aides—relative to their share of the overall workforce.

Most federal, state, and local labor laws apply only to employees and not to independent contractors, so misclassification strips workers of key protections such as minimum wage laws or qualifying for employer-provided health insurance and retirement benefits. Additionally, both misclassified workers and social insurance funds lose out on income: the report conservatively estimates that for the three jobs in which AAPI workers are overrepresented, misclassification costs workers at least $7,000 annually and costs social insurance programs $600 to $800 per worker each year.

With the understanding that the umbrella term “AAPI” encompasses an immensely diverse population both in ethnic origin but also in economic outcomes, this piece goes beyond the narrow view that all AAPI workers are high-wage earners. Below, we provide more detail on which groups of AAPI workers are most likely to be employed in lower-wage commonly misclassified occupations.

Disaggregated data shed light on particular AAPI communities that may be vulnerable to misclassification

Across all occupations, AAPI workers comprise approximately 8% of the total workforce. For three of the 11 occupations highlighted in the report—manicurists and pedicurists, home health aides, and personal care aides—AAPI workers make up 67%, 13%, and 10% of employment, respectively, according to Current Population Survey (CPS) data.

Table 1 provides a detailed breakdown of the composition of the AAPI workforce for the three occupations in which AAPI workers are overrepresented. Here, we use the American Community Survey (ACS) as it offers detailed race definitions which the CPS does not offer due to sample size restrictions.

Asian Indian and Chinese populations combined make up over 40% of the working-age AAPI population, thus their relatively large shares of the AAPI workforce in these occupations are not surprising. However, several groups are disproportionately represented across these occupations compared with their share of the overall AAPI workforce.

For example, Bangladeshi workers make up 5.1% of AAPI workers employed as home health aides while only constituting 1.1% of the total AAPI workforce. Chinese workers represent almost half (47.7%) of AAPI home health aides while representing just over one-fifth of the overall AAPI workforce (20.9%). AAPI employment among manicurists and pedicurists is largely held by those of Vietnamese origin (71.4%).

Finally, a majority of AAPI personal care aides are either Filipino (32.8%) or Chinese (20.8%). Filipino workers, however, are overrepresented by twice their share of the overall workforce. While Samoans and other Pacific Islanders comprised a much smaller share of personal care aide employment, they are also overrepresented in this occupation by more than twice their share of the overall workforce.

Table 1

Figure A provides a more comprehensive picture of the share of each detailed group employed across all 11 commonly misclassified occupations, revealing that smaller communities—often overlooked because of their size relative to the aggregate AAPI workforce—may be among the most vulnerable to misclassification. Workers belonging to seven of those groups are more likely than the average U.S. worker to be employed in one of those occupations. Almost 20% of Vietnamese workers are employed in one of those occupations, with over half concentrated as manicurists and pedicurists.

Samoan, Hawaiian, and other Pacific Islanders have the next highest shares working in the 11 occupations, making up 15% or more of their total working-age population. These groups also earn lower median hourly wages than the national median and the aggregate AAPI median hourly wage. Their disproportionate representation in commonly misclassified occupations further exposes these workers to wage suppression due to misclassification.

Misclassification enforcement varies by state—meaning different AAPI populations can be disproportionately impacted

Federal protections from misclassification are limited and are currently under attack by the Trump administration, which has proposed a rule to weaken standards to determine worker classification under the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Protection Act. The proposed rule narrows the definition of who is a covered employee under these statutes, encouraging employer schemes to reclassify their employees as independent contractors to evade those obligations.

Broadly, the Trump administration has been actively dismantling long-standing federal worker protections, leaving states to bear the responsibility of ensuring workers are given rights and protections and that they can exercise them. For most states, labor and employment protections only apply to workers classified as employees, meaning workers misclassified as independent contractors are denied their legal rights and protections.

EPI’s 2026 misclassification report outlines state and federal policy recommendations that ensure proper enforcement mechanisms to curb misclassification. One of the recommendations includes implementing the ABC test. Unlike the six-part “economic reality” test or the “common law” test, the ABC test presumes that a worker is an employee unless they can demonstrate they are an independent contractor based on three criteria. Placing the onus on the employer to determine the employment status of a worker provides protections against misclassification and extends proper protections to workers. Many states have adopted the ABC test for unemployment insurance programs and, to a lesser extent, for wage and hour orders and other employment applications.

As shown in Figure B, The AAPI population is highly concentrated across a handful of states. Almost half of the prime-age working Asian population is concentrated in California, New York, and Texas, and a majority of the Pacific Islander population resides in California, Hawaii, and Washington. Overall, 21 states have significant numbers of AAPI residents, and some are home to large shares of specific AAPI communities. For example, the Hmong community in Minnesota and the Burmese community in Indiana are concentrated in states that have smaller total AAPI populations.

The current landscape for state policy protections against misclassification is quite varied. For example, among the states with the largest AAPI populations, California is the only state to adopt the ABC test for both unemployment insurance and employment law, although certain occupations are exempt from the test—including app-based drivers. California also institutes penalties for misclassifying a worker, which can include restitution payments and, if the misclassification was willful, a penalty between $5,000 to $25,000 per violation.

Texas, on the other hand, has significantly less state enforcement. Apart from using the common law test for its unemployment insurance program and providing a definition of an independent contractor for workers’ compensation, Texas mainly relies on federal law for classifying workers as employees. In the last 15 years, Texas lawmakers have introduced several bills that would create penalties for misclassifying workers in the construction industry, but all have stalled or failed.

Figure B

Comprehensive protections are needed to protect workers from misclassification

AAPI workers are facing multi-pronged attacks from the Trump administration through the degradation of federal protections for workers, immigration, and equity. Occupational segregation and other labor market disparities lead women, people of color, and immigrants to be disproportionately represented in occupations that are commonly misclassified. These factors—in addition to historical and current geopolitical relations that shape the flow of labor to the U.S., immigration and citizenship status, and English language proficiency—can contribute to the concentration of AAPI workers in these occupations. Disaggregated data further identify which specific AAPI communities are overrepresented, revealing that smaller, less economically secure groups are often most exposed to the costs of misclassification. Strong policies at the federal, state, and local levels are needed to combat misclassification and to ensure workers can exercise their rights.

Key takeaways:

• The federal minimum wage is at its lowest real value in 77 years. Frozen at $7.25 since 2009, the federal minimum wage has lost 30% of its purchasing power during this 17-year freeze.
• Setting the federal minimum wage at two-thirds of the national median wage would raise pay for 39.6 million workers in 2030, about 1 in 4 of the wage-earning workforce.
• The policy would move the federal floor meaningfully toward one definition of a living wage, meeting EPI’s Family Budget Calculator thresholds in half of U.S. counties for a single adult working full time. But it falls short for many families, meaning that policies to strengthen unionization, provide a more robust safety net, and keep unemployment low remain essential.
• Decades of economic research support this two-thirds benchmark, finding little to no employment loss from ambitious minimum wage increases.
• Indexing the federal minimum wage to median wage growth would lock in these gains. Median wages typically outpace prices, so median wage indexing would prevent the kind of decades-long slide that has eroded the current floor.

Introduction

The federal minimum wage, frozen at $7.25 since 2009, is now at its lowest real value in 77 years and a major driver of the affordability crisis facing low-wage workers. For over a decade, the senior Democrats on the House and Senate’s labor committees have consistently introduced and championed the Raise the Wage Act, which would significantly raise the federal level (most recently, to $17 an hour in 2030) and index it to median wage growth going forward. But Congress as a whole has failed to take action on the legislation. In the absence of federal movement, states have moved on their own: Thanks in large part to the Fight for $15 campaign, 21 states and the District of Columbia, home to half of all U.S. wage earners, will have a minimum wage of at least $15 by 2028. But that patchwork still leaves 20 states—home to about 55 million workers—at $7.25, and updating the federal floor to a modern benchmark is the only way to reach these workers.

Raising the federal minimum wage to two-thirds of the national median wage would lift pay for nearly 40 million workers, about a quarter of the workforce. Two-thirds of the median—equivalent to roughly $17.70 today, a projected $20 in 2030, and a projected $25 in 2038—matches the benchmarks used in other high-income countries and tracks the direction of recent minimum wage research. Indexing to median wage growth thereafter would keep the floor from losing ground to inflation or falling behind the broader economy.

A federal minimum at two-thirds of the national median would eliminate poverty wages and move the floor meaningfully toward a living wage in much of the country: A single adult working full time could cover modest expenses in half of U.S. counties under EPI’s Family Budget Calculator thresholds. Maintaining the two-thirds minimum-to-median ratio would lock in those gains, improving affordability for U.S. workers and their families. It would also durably narrow the gap between low-wage workers and the typical worker, with Black workers and women seeing the largest benefits.

The two-thirds benchmark is also well-supported by economic research. Decades of studies of state and federal minimum wages find that higher floors raise pay for low-wage workers with little to no effect on employment, and a smaller but growing body of work on minimum wages approaching two-thirds of the median reaches the same conclusion. Setting the federal floor at two-thirds of the median, and updating it annually, would raise incomes at the bottom and prevent the kind of decades-long slide that has left the current minimum at its lowest real value in 77 years.

The outdated federal minimum wage and extent of low pay

The federal minimum wage is now at its lowest real value in 77 years. Stuck at $7.25 since 2009, it is in its longest stretch without an increase since the federal wage floor was established in 1938 (Figure A). Inflation has eroded 30% of its purchasing power over those 17 years, gradually cutting real pay for the lowest-wage workers in states still tied to the federal floor. Simply indexing the 2009 wage to inflation, a far weaker standard than this report proposes, would put the federal minimum at about $10.60 today.

The minimum wage was once meaningfully higher in real terms. Civil rights organizers in the late 1960s pressed Congress not only to raise the wage floor but also to extend its coverage to service industries that had previously been excluded because they disproportionately employed Black workers. By 1968, the federal minimum wage reached $1.60 per hour, equivalent to $12.62 in 2026 dollars and roughly 61% of the national median wage at the time, close to the two-thirds benchmark this report proposes. Even a federal minimum wage of $12.62 today would raise the wages of about 12 million workers.

Because Congress has not raised the federal floor in 17 years, states and localities have moved on their own. Thirty states, the District of Columbia, and dozens of cities and counties have raised their minimum wages, many in response to the Fight for $15 campaign (EPI 2026a). By the end of 2028, more than half of the U.S. workforce, about 74 million workers, will live in a state with a minimum wage of at least $15.

The state-by-state patchwork has delivered real successes but also left tens of millions of workers behind. Roughly 55 million people work in the 20 states still tied to the $7.25 federal floor, and they are nearly twice as likely as workers elsewhere to earn less than $15 per hour. Nationally, almost no one is paid exactly $7.25 anymore: The floor is so low it rarely binds. Yet 14 million workers, about 9% of the workforce, still earn less than $15. Closing that gap and preventing the federal floor from eroding further requires a national standard pegged to a modern benchmark.

A new standard: Two-thirds of the median wage

The federal minimum wage suffers from two related deficiencies: Its level is too low, and it does not adjust as the economy grows. Both can be solved by tying the federal minimum to two-thirds of the national median wage. Congress would first raise the floor to that level, and each subsequent year the minimum would adjust to maintain the same ratio.

First, the new benchmark replaces a poverty-level federal floor (Hickey and Cid-Martinez 2025) with one that pushes the minimum wage toward a living wage. As Oakford (2026) argues, two-thirds of the median is “a realistic stepping stone to living wages,” and standards below that ratio leave too large a gap between earnings and the cost of necessary expenses. A federal minimum at two-thirds of the median also better fulfills the original promise of the federal standard, which Congress described in 1937 as protecting “this Nation from the evils and dangers resulting from wages too low to buy the bare necessities of life” (U.S. Congress 1937).

Second, maintaining the two-thirds ratio guarantees automatic increases as the economy grows, ending the recurring erosion that comes from a frozen federal floor. Because median wages typically outpace prices, median wage indexing produces real gains, not just inflation protection. In 2025, two-thirds of the national median wage was $17.11 per hour (Figure B), and today, it is estimated to be $17.70. By 2030, applying Congressional Budget Office (2026) Employment Cost Index projections, it would reach $20.02. A federal minimum tied to two-thirds of the median would likely reach or exceed $25 by 2038, four years sooner than if a $17.11 wage in 2025 had been indexed only to the cost of living going forward.1

Nineteen states and the District of Columbia index their minimum wages to inflation, but Connecticut goes further by indexing to average wage growth and capturing the real gains that wage growth typically delivers above prices. Congress should follow Connecticut’s lead and link the federal minimum to the national median wage. Of course, indexing to price inflation would be an enormous improvement to current federal minimum wage policy and to state and local minimum wage policies that have also failed to implement automatic increases. Tying the minimum wage to median wages—i.e., indexing the minimum to typical workers’ wage growth—would yield even larger increases over time.

Tying the federal minimum to two-thirds of the median would also durably narrow inequality in the bottom half of the wage distribution. Whenever the minimum wage fails to keep pace with economy-wide wage growth, the gap between low and median earners widens. But a substantial increase in the minimum to a fixed ratio of the median shrinks and bounds that gap by construction. The gains disproportionately affect Black workers and women, who are overrepresented in low-wage jobs due to persistent racism and sexism (Banks 2019). Minimum wages are a major determinant of Black-white wage gaps (Derenoncourt and Montialoux 2020; Wursten and Reich 2023), and the long erosion of the federal minimum was a leading driver of widening pay inequality among women (Autor, Manning, and Smith 2016).

The state of minimum wage research and new policies

Minimum wages and job losses

A federal benchmark of two-thirds of the national median would significantly raise wages, and recent research strongly supports the conclusion that ambitious minimum wage targets work as intended, with little to no employment downsides. Across more than three decades of modern economic research, the median estimated employment effect is small; among studies that look at all low-wage workers rather than narrow subgroups, the effect is essentially zero (Zipperer 2024). The recurring scare stories about job losses are not borne out by the body of evidence.

Businesses adjust to higher minimum wages through what Dube (2026b) and Bernstein (2013) call the “Three P’s”: productivity, prices, and profits.2 Take productivity first. Higher wages reduce the rate at which workers quit, particularly in high-turnover sectors like restaurants and retail. That lowers hiring and training costs and means employment levels can hold steady even as new hiring slows. Better-paid workers, and workers with longer tenure, are also typically more productive, further offsetting the cost of the wage increase.

The minimum wage also redistributes income to low-wage workers when employers cover higher labor costs through reduced profits or modestly higher prices. Vergara (2026) and Coviello, Deserranno, and Persico (2022) both find that minimum wage increases shrink profits in low-wage industries. Price pass-through is small in aggregate terms because low-wage workers’ earnings are only a fraction of total labor costs, which are themselves a fraction of total business expenses. California’s $4 overnight increase in the fast-food minimum generated a one-time increase in fast-food prices of 2.1% to 3.6% (Sosinskiy and Reich 2026; Clemens et al. 2026). To put that in context: The price of a $6.00 hamburger would have risen to about $6.17.

How high is too high?

A common way to measure the level of a given minimum wage is to use the minimum-to-median wage ratio. Sometimes called the Kaitz index, the minimum-to-median wage ratio compares the minimum with the underlying distribution of wages by measuring the share of the typical wage that the floor reaches. This report proposes setting that ratio at about 67%. Most of the U.S. evidence base reflects periods when the ratio sat well below that level, because until recently, U.S. minimum wages were rarely considered high by today’s standards. But a growing body of recent research, together with recent state and local policies, has pushed the evidence into higher ratios—and the results are the same: There is substantial room for higher minimums without large employment losses.

Cengiz et al. (2019) found no negative employment effects at minimum-to-median ratios up to 59%. Dube and Lindner (2021), studying city-level minimum wages with ratios averaging 58% to 64%, found small and statistically insignificant effects. Godoy and Reich (2022) found no employment effect across localities with ratios ranging from 56% to 82%. And the 1968 federal minimum, which reached roughly 61% of the median,3 has been reexamined in two recent studies that likewise found small or no employment effects (Bailey, DiNardo, and Stuart 2021; Derenoncourt and Montialoux 2021).

The most direct evidence that the floor can go meaningfully higher comes from California’s $20 fast-food minimum wage. In April 2024, the state raised the wage for fast-food chain workers from $16 to $20, pushing the ratio of that minimum to the state’s median wage to about 74%, well above most U.S. precedents.4 One might worry that customers would substitute toward lower-priced independent restaurants exempt from the policy, generating job losses at the chains. The actual evidence shows otherwise. Despite the large wage increase, research finds little to no employment effect of the policy (Bivens and Zipperer 2026), and the median employment effect in Dube (2026a) is essentially zero. Evaluations of the UK minimum wage through 2019, when it reached nearly 60% of the median wage, also find small, statistically insignificant effects on the employment of low-wage workers (Giupponi et al. 2024).

A federal benchmark set at two-thirds of the national median will push some states above two-thirds of their own median wage. There is good reason to be optimistic about employment changes there as well. The studies above already span a wide range of Kaitz ratios, from the high 50s through the low 80s, and consistently find little or no employment effect. California’s $20 fast-food minimum extends this evidence to a 74% state-level ratio with essentially no employment losses, and only five states would have a minimum-to-median wage ratio above that threshold under the proposed federal benchmark. And while the minimum wage would be at a higher level relative to the state median in those states, it would still be less than a “living wage” for many families in those areas, as I discuss later.

Even if some employment loss does occur, that is not the right test of policy success. Low-wage labor markets are dominated by job-to-job churn, so reduced employment in response to a higher minimum typically shows up as longer gaps between jobs rather than workers permanently shut out of the labor market (Cooper, Mishel, and Zipperer 2018). On net, low-wage workers come out ahead in annual earnings when significantly higher hourly pay more than offsets a modest increase in unemployment.

Policymakers and organizers campaigning for minimum wage increases have considerable room to maneuver above the current federal floor before needing to worry about job losses. To assuage concerns about employment impacts, a federal proposal could be structured to limit annual increases of the federal minimum wage so that they never exceed two-thirds of the national median wage. States and localities, of course, can and should continue to push for higher minimum wages, as many will have higher median wages and costs of living than the national average.

Existing proposals and policies reaching two-thirds of the median

Some recent federal proposals already target or are consistent with the two-thirds benchmark. The recent Give America a Raise Act would raise the federal minimum to $20 by 2029, close to this report’s projection of two-thirds of the 2029 median wage ($19.44). The Living Wage for All Act names the two-thirds benchmark explicitly and locks in indexation in statute: “once the minimum wage equals two-thirds of the national median hourly wage, it shall thereafter be automatically adjusted each year to maintain that ratio.” The Bold Economic Program for America (Reich 2026) likewise proposes $20 by 2030, and Oakford (2026) embeds the two-thirds target in a broader portfolio that includes just cause protections and stronger wage theft enforcement.

The benchmark also aligns U.S. policy with international practice. The UK Low Pay Commission has targeted two-thirds of the median for the National Living Wage since 2024, and in the EU, 17 of 22 countries benchmark their statutory minimum wages to a ratio of the median or average wage. The 2022 European Union Minimum Wage Directive obligates member states to use “indicative reference values”—such as 60% of the gross median wage—to assess adequacy of their wage standards (Luebker and Schulten 2026).

Some of these international benchmarks may look numerically lower than two-thirds, but they are usually defined against a different denominator. Germany, for instance, benchmarks against the median wage of full-time workers. In the United States, the full-time median is about 10% higher than the overall median, so 60% of the full-time median is roughly equivalent to two-thirds of the overall median that this report proposes.

Implementing a minimum wage equal to two-thirds of the median wage

Any federal legislation will need a phase-in period, but it must specify two things: a clear path to the target and an explicit guarantee that automatic median wage indexing kicks in once the floor reaches two-thirds of the median.

Implementing the benchmark also requires choosing a wage source. Legislation should designate the Department of Labor (DOL)—which already publishes median wage estimates through the Bureau of Labor Statistics (BLS) Occupational Employment and Wage Statistics (OEWS)—to publish the official median wage each year. DOL has two ready sources: OEWS, an establishment survey, and the Current Population Survey (CPS), the household survey already used to produce the unemployment rate, which collects detailed wage and hours data.

Each source has tradeoffs. The CPS is timelier, with wage data available at a one- to two-month lag, but smaller samples, the difficulty of computing hourly earnings for salaried workers, and respondents’ tendency to round wages all introduce noise. OEWS uses an established BLS hourly wage methodology and median wage calculation that may be less volatile, but it is published with a one-year lag and pools data from earlier, lower-wage years. DOL could pick one source or use a weighted average; recent data show only about a $1 difference between the two surveys.5 Either way, expanding resources at BLS and the Census Bureau would strengthen the underlying data and support further refinements to the methodology.

Once DOL has a baseline median, indexing requires projecting that median forward to the year the new minimum takes effect. The UK Low Pay Commission, which recommends a two-thirds median target to the UK government, offers a useful template: It estimates a midyear median wage by combining lagged historical data with timely indicators and short-run forecasts (Low Pay Commission 2024). A concrete schedule illustrates the approach. To set the minimum for January 1, 2030, DOL would announce the new wage on July 1, 2029, six months in advance, based on its best projection of the July 2030 median, the midyear point representative of the median wage workers will face on average throughout 2030. The projection would proceed in three steps: compute the 2028 median from CPS or OEWS data; roll it forward to early-to-mid-2029 using a combination of available data—like the Current Employment Statistics, the Consumer Price Index, and the Employment Cost Index (ECI); and then roll it forward one more year using short-run wage projections like those in the CBO Budget and Economic Outlook (2026).

National and state effects of a federal minimum wage at two-thirds of the median

To estimate the economic benefits of a federal minimum wage set at two-thirds of the median wage, I model how many low-wage workers would see higher pay under this policy. I assume the policy is phased in over five years, so that if it went into effect today, the federal minimum would reach two-thirds of the median in 2030 and then automatically adjust each year to maintain that ratio.

Concretely, I assume the federal minimum rises to $12 immediately in 2026 and then increases incrementally to $20 in 2030, which is about two-thirds of the projected national median wage.6 Legislation should build in a path adjustment if 2030 median wages come in higher or lower than projected.

I focus on the effects in 2030. I assume the same phase-in path and automatic indexing applies to the federal tipped minimum wage, which has been frozen at $2.13 per hour since 1991.7 Wages elsewhere are assumed to grow in line with CBO ECI projections from 2026 to 2030, and the model incorporates the effects of scheduled state-level minimum wage increases (see the appendix for details).

In 2030, a federal minimum wage equal to two-thirds of the national median would raise pay for 39.6 million workers, about 1 in 4 of the wage-earning workforce (Table 1).8 Annual earnings would rise substantially, and the gains would be largest for Black workers: A full-time, full-year Black worker affected by the increase would earn about $5,000 more per year, compared with $4,400 for all affected workers. In line with other minimum wage increases, women would gain more than men, with 31% of women seeing higher pay compared with 23% of men.

Adults ages 20 and over would make up 9 in 10 affected workers (teens would have the largest share of affected workers of any age group, but they make up a small share of total employment). The problem of low pay is far from limited to the youngest workers.

Although several states with scheduled minimum wage increases will see the gap between their minimum wage and the new federal floor shrink, workers in every state would still be affected (Figure C). With the exception of D.C., no state’s scheduled 2030 minimum wage reaches $20. The largest gains go to workers in the 20 states still tied to $7.25: 1 in 3 (33%) would see a raise, and annual pay for those affected would rise by about $6,200 on a full-time, full-year basis.

Figure C

Beyond who gets a raise and how much, a related question is whether the raise is enough to cover a family’s basic costs. Setting a target of two-thirds of the median would push the federal floor much closer to a living wage for many families. What counts as a living wage varies across the country, depending on local costs and on family size and composition. EPI’s Family Budget Calculator thresholds make this concrete: They calculate the income a given family type needs in a given place to afford a “modest but adequate” standard of living. For example, in 2025 a two-adult, one-child family in Los Angeles County, California, needed about $118,000 in annual pretax earnings to pay for housing, food, child care, transportation, health care, taxes, and other necessities. In more rural Early County, Georgia, a similar family needed about $74,000. These budgets are minimal by design, with no allowance for savings, emergencies, retirement, college, or entertainment.

Of course, other business income and government provided social benefits can lower the amount of labor market earnings a family needs to maintain the same standard of living. Gould, Mokhiber, and deCourcy (2024) report that, according to Congressional Budget Office data, about 81% of a middle-income family’s budget is met by labor market income.

Applying that 81% adjustment to EPI’s Family Budget Calculator thresholds gives a more useful benchmark for what wages need to deliver. Under this adjusted measure, the Los Angeles County family would have needed about $96,000 in earnings to meet their 2025 budget, equivalent to both adults working full time, year round at about $23 per hour. The Early County family would have needed about $60,000, equivalent to both adults working full time, year round at $15 per hour.

The implications for everyday affordability are significant. After inflating these adjusted thresholds to 2030 dollars using CBO Consumer Price Index projections, a federal minimum at two-thirds of the median substantially closes the gap between full-time annual earnings and necessary expenses for low-wage workers and their families. A single adult working full time at the 2030 minimum of $20 would cover modest but adequate expenses in half of U.S. counties. Two full-time working parents with two children would meet their family budget in roughly a quarter of U.S. counties. Using similar thresholds, Oakford (2026) finds that a federal minimum at two-thirds of the national median in 2025 would be “90% to 99% of the median living wage of a single adult without children in 16 states.”

A federal minimum tied to two-thirds of the national median would therefore make enormous progress in increasing affordability and helping families make ends meet. Closing the remaining gaps will require a broader set of policies, including strengthening other labor standards like overtime protections and their enforcement, a more robust safety net, expanded public goods like universal health insurance, fewer barriers to unionization, and a renewed commitment to full employment.

Conclusion

The federal minimum wage is at its lowest real value in 77 years, and tens of millions of low-wage workers are paying for that erosion every paycheck. Pegging the federal floor to two-thirds of the national median wage, and maintaining that ratio, would correct the two flaws that have left the floor unfit for purpose: a level too low to function as a meaningful wage standard and a structure that does not adjust as the economy grows.

A federal minimum at two-thirds of the median would raise pay for nearly 40 million workers in 2030, deliver the largest gains to Black workers and to women, and bring the floor close to a living wage in much of the country. Decades of research, recent state and local experience, and California’s $20 fast-food minimum all point to the same conclusion: The labor market can absorb minimum wages of this size with little to no employment cost. The benchmark also brings U.S. policy into line with the UK and most of the EU, where two-thirds-style targets are now standard practice.

A higher floor cannot, on its own, guarantee economic security for working people. That will require a broader agenda: a stronger safety net, expanded public goods, fewer barriers to unionization, and a renewed commitment to full employment. But updating the federal minimum to a modern, indexed benchmark is the single most direct step Congress can take to raise wages at the bottom, and the only step that reaches the 55 million workers in the 20 states still stuck at $7.25.

Appendix

State benefits

Methodology

Underlying wages are based on the 2025 Current Population Survey and between 2025 and 2030. I assume wages increase at the rate of CBO (2026a) ECI projections and because of future state-level minimum wages. Due to the Trump administration’s immigration policies and the possibility of continued labor market weakening, how the baseline level of employment grows over the next five years is very uncertain. For simplicity, I hold the estimated employment level constant between 2025 and 2030 instead of making additional assumptions about either employment rates or population growth. In terms of total population growth, this assumption may not be too far off the mark of current projections; CBO (2026b), for example, estimates that between 2025 and 2030, the civilian population ages 16 to 64 will only grow by 0.06%, or 130,000 people.

Affected workers include those “directly” affected, whose wages would otherwise be less than the new federal minimum wage, as well as “indirectly” affected workers who earn up to 115% of the new minimum (Cooper, Mokhiber, and Zipperer 2019). These particular estimates may overstate the number of workers affected because while they incorporate already scheduled state-level increases, they exclude city-level minimum wage increases, and some cities will have higher than $20 minimum wage standards in 2030. On the other hand, if the labor market continues to weaken, low-wage workers will, in the absence of minimum wages, face slower than usual wage growth because their wage growth slows disproportionately when unemployment is higher (Bivens and Zipperer 2018).

Notes

1. These projections follow CBO ECI and CPI projections from 2025–2036, and for subsequent years assume 2026–2035 annual growth rates of 2.26% for CPI and 2.94% for ECI. 

2. For additional discussion, see Dube and Lindner (2025), Schmitt (2013), and Zipperer (2023).

3. OECD (2026) estimated the U.S. minimum-to-median wage for full-time workers was 55.05% in 1968. Assuming a 10% premium for the full-time median wage relative to the overall median wage results in a minimum-to-median wage ratio of 60.56%.

4. In April 2024, the state raised the wage for fast-food chain workers from $16 to $20, pushing the ratio of that minimum to the state’s median wage to about 74%, well above most U.S. precedents.

5. The 2024 OEWS national median wage (which is the latest available data) was $23.80 (BLS 2025). The EPI State of Working America Data Library (EPI 2026b), which uses CPS wage data and which we use for wage levels throughout this paper, reports a 2024 median wage of $24.87.

6. The exact schedule simulated below is $12 in 2026, $13.50 in 2027, $15.50 in 2028, $17.50 in 2029, and $20 in 2030.

7. Ideally other subminimum wages would be phased out, including those for some workers with disabilities and youth workers. I do not model the effects of those changes due to data constraints.

8. I concentrate on the effects in 2030. Were low-wage workers’ wages to grow slower (or faster) than median wages, these estimates would understate (or overstate) the effects in later years.

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