Rising authoritarianism and the need to upend the failed Southern economic development model

For generations, Southern politicians backed by powerful business interests have promoted a Southern economic development model—characterized by low wages, regressive taxation, lax environmental regulations, a weak social safety net, and vicious opposition to unions—while claiming such policies will attract business and thereby generate regional economic gains. But data actually show a grim reality. The South lags all other regions on most indicators of economic health including job growth and wages, and Southern workers and their families experience significantly higher rates of poverty than in other parts of the country (Childers 2024a).

The truth is that this Southern economic development model was never designed to benefit most Southerners; rather, it is historically rooted in efforts of white plantation owners to retain their wealth following emancipation and ensure continued access to the labor of Black people for as little compensation as possible (Childers 2025). Foundational to these efforts was an authoritarian approach to state governance that suppressed popular democracy and worker organizing—an approach that also sanctioned prison labor, sharecropping, a century of Jim Crow laws, lynching, and other forms of state-sponsored terror and exploitation. Until partially challenged by federal legal and policy interventions won by post-WWII civil rights movements, many Southern states for decades held elections that served merely to provide a cover of legitimacy to one-party rule of white, wealthy elites—functionally excluding Black voters from the electorate and blocking working-class constituencies from any meaningful participation in governance (Mickey 2015; Perez 2024; Mast 2025).

Today, the Trump administration’s increasingly authoritarian actions echo this troubling Southern history. At their foundation, the administration’s approaches to bypassing constitutional checks and balances—while rolling back civil rights, worker rights, and environmental protections; terrorizing immigrant communities; deploying military troops in U.S. cities; and attempting to engineer election outcomes via gerrymandering and other forms of voter suppression—are rooted in authoritarian models developed and tested in the U.S. South, and that Black, brown, and immigrant communities across the country are no stranger to.

Recent attempts to terminate federal employee collective bargaining agreements, for example, are familiar to public employees in Southern states for whom collective bargaining has long been banned or severely restricted. The Trump administration’s use of military-style policing in communities across the country echoes Southern histories of weaponizing law enforcement (or National Guard troops) to suppress organizing and instill fear, while prioritizing the expansion of the carceral state over investments in housing, education, and public services. Trump’s efforts to override the authority of state officials mirror Southern state uses of abusive preemption laws to strip policymaking authority from local governments. And administration attempts to halt clean energy investments and environmental protections threaten to repeat harms familiar in Black and brown communities in the South, where corporations have insisted on lax environmental regulations that allow them to degrade air, water, and climate quality, while profiting from the exploitation of local natural resources and labor.

Seizing opportunities to reverse decades of anti-worker, anti-democratic policymaking in the South at a moment of rising authoritarianism in the U.S. is a daunting and unavoidably urgent challenge. It will require robust new forms of multiracial organizing and labor-community coalition building across a broad set of industries in the South. Labor-community coalitions can leverage community benefits agreements (CBAs) as a powerful tool to transform economic power relations in Southern workplaces and communities. Because CBAs are private agreements between labor-community coalitions and project owners, they do not rely on government action and can therefore shape economic outcomes of major projects even in otherwise hostile political environments. CBAs have traditionally been fought for and won by labor and community groups coming together and building necessary public pressure to hold developers, corporations, and elected leaders accountable for ensuring that public investments in major new developments truly benefit workers and communities.

In this report, we analyze the potential for labor-community coalitions to pursue strong CBAs that secure significant economic benefits for Southern manufacturing workers and communities, drawing on examples of existing agreements to model potential impacts. We examine the scale of recent public investments in Southern manufacturing and examine how strong CBAs on major publicly-subsidized private projects could improve the quality of newly created construction and production jobs; open up pathways to unionization; ensure equitable hiring and training opportunities for local residents; and address community needs such as child care, affordable housing, and natural resource protection.

We contend that upending the failed Southern economic development model and the authoritarian structures that underpin it will require building new forms of labor and community power to increase union density in the South. Well-known research shows that unions promote economic equality and help workers win improvements in pay, benefits, and working conditions (Economic Policy Institute 2021). But unions also powerfully affect people’s lives outside of work. They help foster solidarity, increase democratic participation, enable working-class communities to shape economic policies affecting their lives, and serve as a counterweight to corporate power in our economy and democracy (McNicholas et al. 2025). Historically, unions have been engines of resistance to entrenched and undemocratic power—mobilizing working people to challenge inequality, defend civil rights, and push back against authoritarianism in all its forms. For all these reasons, strengthening labor-community coalitions and pathways to unionization in growing Southern industrial sectors is not just good economic policy—it is also a democratic imperative amid national authoritarian backsliding.

Worker and community power can ensure new manufacturing investments yield good jobs and community benefits

The latest wave of manufacturing growth in the South presents both opportunities and pitfalls for workers and communities. Southern states continue to lure businesses—including large manufacturing facilities—with promises of low corporate tax rates, low wages, lax regulations, and massive public subsidies. The automotive manufacturing industry has been a key recipient of public subsidies, receiving billions of dollars from Southern states in recent decades (Childers 2024a; Todd 2021). This system of low taxation and corporate giveaways starves other essential public goods, like education and social safety net programs (Mast 2025b). Likewise, weak or nonexistent environmental regulations have contributed to toxic sites and resource degradation that disproportionately affect Black and brown families, reflecting often intentional decisions to site hazardous facilities in low-income communities of color (Bergman 2019).

Some announced manufacturing projects have been cancelled or reduced in size after the Trump administration’s slashing of federal supports for strategic industries, but many projects launched during the Biden administration continue to move forward. These manufacturing investments, both in traditional industries and nascent ones such as electric vehicle (EV) and EV battery manufacturing, are spurring significant job growth in some Southern communities. Yet past experience shows that new investments and resulting jobs are unlikely to generate economic benefits for most Southerners unless local residents are able to ensure that developers and corporations respect workers’ rights, protect local natural resources, and contribute a fair share toward addressing priority community needs.

Community benefits agreements can be powerful vehicles for communities to secure lasting local economic benefits from major industrial development, at both new and existing facilities. A CBA is a legally enforceable contract between a private developer or company and a local coalition—typically made up of labor, community, faith, environmental, and other grassroots organizations—that details how a project will benefit workers and the community, and in turn how the community will support the project (including via potential public investment). Benefits spelled out in a CBA can include commitments to strong labor standards; respect for workers’ rights to organize; equitable workforce recruitment, training, and hiring practices; affordable housing; environmental protections; or a broad range of other community-identified priorities. CBAs are a well-developed model for responsible community development—so far mostly, but not entirely, in regions outside the South—and have been used for many different types of major projects including sports stadiums, events centers, manufacturing plants, airports, transit projects, and more (WRI n.d.).

CBAs can likewise mitigate risks for project developers by ensuring local project support and addressing important concerns early on, whereas failure to engage local communities in major development decisions can otherwise lead to strong community opposition, interruption of development, obstacles to obtaining necessary siting permits or rezoning approvals, or significant legal costs. In an example from June 2024, developers shelved plans for a $1.3 billion data center in Indiana after facing significant local opposition over environmental concerns (Fazili et al. 2025).

Because a CBA is a private, legally binding agreement, it does not require government action and can be used to shape outcomes of major projects even in contexts (as in most of the South) where state legislators have preempted local governments from establishing their own job quality or environmental standards (EPI 2025a). That being said, state and local governments can still have a role in facilitating, negotiating, or enforcing community benefits. Cities like Detroit and Cleveland have ordinances requiring developers of projects using public resources to engage in a community benefits plan process (City of Detroit n.d.; City of Cleveland n.d.). In 2005, Atlanta passed an ordinance specifying worker and community benefits for the Beltline redevelopment (WRI 2025). However, government involvement in community benefits plans does not guarantee strong agreements on its own. A strong labor-community coalition remains essential for securing meaningful community benefits.

Another key strength of a CBA is that it can set standards across all stages of a project’s development to ensure long-term benefits for the community at large. Private developers or public entities sometimes negotiate Project Labor Agreements (PLAs) or Community Workforce Agreements (CWAs) with building trades unions and community partners to set wages, working conditions, and timelines for the construction phase of a complex development project. A CBA can be negotiated alongside a PLA to also ensure pathways to quality jobs for local residents during the operational phases of a project, including any future expansions of the facility or additions to its workforce. A CBA can also secure commitments to build affordable housing, strengthen environmental standards, and provide other benefits to the community such as child care, public parks, or other community spaces.

To be successful, a CBA must also include defined enforcement mechanisms that hold all parties to the agreement accountable. It must clearly establish the obligations of each party, metrics for measuring progress, and ongoing monitoring of compliance with the agreement’s provisions (Last 2025; PWF and CBLC 2016). If the company or the coalition fails to make good-faith efforts on the agreement’s commitments, an arbitration process is initiated. While monitoring of the agreement is an ongoing responsibility of all members of the coalition, providing a pathway for workers to organize in the operational phase of a project is of particular importance. A newly established union at the project site is well-positioned to monitor the commitments of the CBA and hold the company accountable over the long term.

Organizers and advocates should be clear-eyed that while strong CBAs can yield powerful economic outcomes, such agreements are by no means easy to win. There are generally no legal requirements for a particular company or developer to recognize or engage with a labor-community coalition, much less to agree to negotiate and implement a CBA. Building the broad-based, durable coalitions and leverage necessary to compel private interests to engage in CBA negotiations (and then to implement and enforce the terms of a CBA) is unavoidably a challenging, long-term, resource-intensive organizing project. And like any worthwhile organizing, the formation of strong, durable labor-community coalitions is itself a key outcome of successful CBA campaigns. Vastly expanding the capacity of broad-based coalitions and labor, faith, environmental, and other grassroots organizations to gradually build community and worker power in Southern communities is the most essential ingredient for transforming existing power imbalances and, ultimately, upending the failed Southern economic development model.

Indeed, recent initiatives to win CBAs in Southern states have proven so threatening to some corporate interests that they have sought to undermine them. In 2025, Tennessee Republicans passed legislation prohibiting any company that enters into a CBA from receiving state economic development funds—aiming to create obstacles to replication of a highly successful CBA covering Nashville’s soccer stadium, and to discourage a coalition of West Tennessee residents and allied groups calling on Ford and SK Innovation to negotiate a CBA covering its massive BlueOval electric vehicle and battery manufacturing complex (Abrams 2025). In Tennessee and elsewhere, however, labor-community coalitions are nonetheless continuing to organize to ensure that massive, publicly subsidized new facilities yield good jobs and community benefits.

A new wave of Southern manufacturing is an opportunity to transform working conditions in growing industries—and across the South

Growth in Southern manufacturing industries presents a significant opportunity for labor-community coalitions to shape labor standards and community benefits in new plants and facilities—and to shape economic outcomes for generations of Southern workers to come. In recent years, the South has seen a wave of manufacturing investments. Between 2017 and 2023, manufacturing construction doubled in the East South Central Census division (Alabama, Kentucky, Tennessee, and Mississippi) (O’Brien 2023). The West South Central division (Arkansas, Louisiana, Oklahoma, and Texas) has the highest amount of manufacturing construction spending of any division in the U.S. These investments are part of a long-term trend of manufacturing industries locating in the South, which in recent years was accelerated by large federal investments through the Inflation Reduction Act, Infrastructure Investment and Jobs Act, and CHIPS and Science Act. These federal investments included both direct public subsidies and tax credits to businesses that invested in key clean energy manufacturing industries such as the production of batteries, electric vehicles, solar panels, and wind energy products.

In contrast to the typical economic development approach of many Southern states, some recent federal investments have included incentives meant to encourage strong labor standards on projects receiving public funds. While the future of many of these investments (and accompanying incentives) is now uncertain, the U.S. has in the past two years experienced its largest investment in clean energy manufacturing ever, and much of that has occurred in Southern states.1 Since the third quarter of 2023, more than $125 billion worth of clean energy manufacturing investments were announced across Georgia, North Carolina, South Carolina, Tennessee, Kentucky, and Texas (CET 2025). Advancing even a portion of these projects would result in thousands of jobs for Southern workers.

Independent of the future of federal support for clean energy manufacturing, the South will likely continue to be the largest manufacturing employer of all U.S. regions. Figure A shows manufacturing employment by region in the United States since 1990. While manufacturing employment overall has fallen during the last three decades, the South has retained the largest share of manufacturing employment of any region. In 2024, 35% of U.S. manufacturing employment was in the South. Furthermore, since 2010, manufacturing employment in the South has grown by 17%, the quickest growth of any region.

Figure A

Manufacturing jobs are often considered to be well-paid, benefit-providing “middle-class” jobs, but there is nothing inherent to the sector that determines their quality. Manufacturing jobs in some industries became “good jobs” thanks to relatively high levels of unionization during the mid-20th century, which improved wages, benefits, and working conditions (Bayard et al. 2024; Rhinehart and McNicholas 2020). As Figure B shows, unionization in manufacturing has fallen in all regions since 1983, but the South has almost without exception had the lowest unionization rate of any region.

Conservative Southern policymakers have long been hostile to union organizing. For example, every Southern state except Maryland and Delaware has passed anti-union so-called right-to-work (RTW) laws, which make it harder for workers to form, join, and sustain unions. Southern states like Florida and Arkansas were among the first to pass such laws in the 1940s, amid a wave of big business backlash against new federal labor laws and white supremacist campaigns to maintain racial hierarchies and suppress multiracial worker organizing. RTW laws suppress unionization rates and, as a result, have driven down wages for both union and nonunion workers alike across the South (Sherer and Gould 2025; Childers 2023).

Figure B

In 2025, Southern manufacturing had a 6.7% unionization rate—slightly below the national unionization rate for private-sector workers (6.8%). Unionization in Southern manufacturing grew by more than a percentage point between 2024 and 2025, a notable one-year reversal of the industry’s long-standing unionization decline, consistent with overall union gains in the South (McNicholas, Poydock, and Shierholz 2026). Nevertheless, Southern manufacturing’s unionization rate remains well below the Midwest’s (11.2%), the region where manufacturing is the most heavily unionized. Unions have a strong impact on job quality because they leverage worker power collectively to raise wages, win benefits like health care and retirement, and enact other meaningful workplace improvements, such as improved health and safety standards. These benefits can extend beyond unionized workers themselves, helping set standards across a workplace, and with enough density, across an industry.

As unionization declines in an industry or region, so does job quality. For instance, as unionization rates have fallen in auto manufacturing, the pay advantage for auto workers compared with the median worker has declined significantly (Barrett and Bivens 2021). Figure C demonstrates how this relationship holds across regions in 2025. Manufacturing jobs in the South have a pay advantage of 7%, the lowest of any region. Southern manufacturing workers also experience the lowest median hourly pay of any region ($24.41).2

Figure C

The Southern economic development model clearly hurts the region’s workers by denying them their right to organize and suppressing their wages, but there are harmful spillover effects for their communities as well. Corporate tax breaks with no strings attached provide billions of dollars to corporations that could otherwise be used to invest in schools and other essential government services. These types of tax breaks might be worthy of consideration if manufacturing employers were required to create high-quality jobs for local workers and make long-term investments in local community development needs (i.e., housing, infrastructure, education, etc.). Without such protections, they are simply taxpayer-funded giveaways that often drain the very resources needed to develop the local workforce recruited by large new facilities.

Southern states enact little to no regulation of workplace safety or environmental pollution. This results in unsafe workplaces with greater levels of injury and death (Childers 2024a). Environmental pollution from manufacturing sites can negatively affect public health by contaminating water, air, and soil. New manufacturing investments also can mean significant changes to the demand for housing in a community. A new plant or factory can drive up the cost of living for nearby residents without yielding any economic benefits to a local community. Labor, community, and environmental groups need to collaborate on shared solutions to effectively address these intertwined challenges.

Labor-community coalitions can obtain commitments that ensure “economic development” means shared prosperity for all

Labor-community coalitions organizing around manufacturing projects can secure commitments that offer direct economic benefits to workers and communities, while also establishing groundwork for the growth of worker and community power in the area. While a campaign to win a CBA can be the impetus for forming a local labor-community coalition, the alignment and relationships built through this shared work can lead to longer-term, sustainable coalitions capable of transforming local and state power relationships.

The following section analyzes a set of commitments that can be included in a CBA for a manufacturing project. The CBA framework is flexible and allows for the inclusion of many different types of commitments prioritized by particular groups of workers, community members, and environmental groups. This report focuses on key types of commitments including union neutrality agreements, living wage floors, equitable workforce development practices (such as local or targeted hire policies and programs to expand pathways to apprenticeship training), affordable housing provisions, child care benefits, and environmental protections. Each type of commitment is analyzed in terms of its economic impacts and effectiveness in reshaping local economic development to ensure that public investments generate broadly shared community benefits.

The construction phase and Project Labor Agreements (PLA)

This report mostly focuses on community benefits for workers during the operational phase of a manufacturing plant. Nevertheless, it is just as vital to set high labor standards during the construction phase. Strong community benefits agreements are ideally developed in tandem with strong project construction labor standards set via project labor agreements (PLAs). A PLA is a multiparty agreement between a project owner and a coalition of labor unions that sets out labor standards and dispute resolution procedures to promote stability and efficiency on complex infrastructure projects while also ensuring the project will generate good jobs. PLAs ensure that construction projects run smoothly, are safer, and pay workers fairly (Mangundayao, McNicholas, and Poydock 2022). By setting negotiated wage and benefit levels for each type of work on a project, PLAs level the playing field in highly competitive construction bidding processes; they ensure that contractors base bids on their ability to deliver on quality and efficiency, rather than low-ball cost estimates that reflect intent to pay substandard wages or cut corners on safety. By standardizing wage and benefit levels and taking them out of the competition in the bidding process, PLAs incentivize the use of skilled union labor, which is 14% more productive than nonunionized construction work (McFadden, Santosh, and Shetty 2022). PLAs typically set wages, fringe benefits, and working conditions but can also include requirements to utilize certain numbers of apprentices, hire locally or from certain target worker populations, and/or provide child care or other benefits that open up pathways to good union construction jobs for members of underrepresented groups.

Several of the types of standards for construction workers typically included in a PLA have analogous labor standards in the operational phase. For instance, a CBA can secure commitments for local or targeted hiring and the development of registered apprenticeship programs in a manufacturing facility, extending equitable recruitment and high-quality training requirements that a PLA typically sets for construction into the operational phase of a project.

Removing obstacles to unionization: Neutrality and labor peace agreements

Protecting workers’ freedom to unionize has historically been key to turning manufacturing jobs into good jobs. This remains just as true today. However, like workers across the country, Southern manufacturing workers continue to face formidable obstacles—including weak labor laws, powerful anti-union corporations, and hostile politicians—to exercising their legally protected rights to form or join a union. Employers are charged with violating federal labor law in more than 40% of union elections and spend more than $400 million a year on “union avoidance” consultants (McNicholas et al. 2019; McNicholas et al. 2023). Because existing weak labor laws do not effectively deter employers from union busting, these tactics are treated by many employers as a normal cost of doing business—stacking the deck unfairly against workers seeking to exercise their rights to organize and collectively bargain.

Union neutrality agreements can help safeguard workers’ right to form unions free of the types of interference employers often deploy. Under a neutrality agreement, an employer agrees to remain “neutral” and not interfere with workers’ decisions on whether to unionize. Such agreements typically include joint commitments to a “card check” process for verifying whether a majority of employees have indicated interest in forming a union. Unions and employers sometimes also enter into a labor peace agreement, where unions agree not to engage in certain types of picketing, work stoppages, or other economic disruptions during the organizing process in exchange for employer neutrality.

Employers can also choose to commit to union neutrality as a matter of principle or company policy. Union neutrality—providing workers a more free and fair choice to decide whether to unionize—has been a key component of successful unionization drives in Southern manufacturing. To take two recent examples:

• In 2024, workers at the Volkswagen (VW) Chattanooga plant voted to join the United Auto Workers. Like many European corporations, the German-based VW has an established policy of maintaining neutrality in union election processes, although workers still voiced concerns that in its U.S. facilities, VW management tried to intimidate and dissuade workers from forming a union (Bomey 2024).
• In tandem with community benefits agreement negotiations with New Flyer in Anniston, Alabama, the United Steel Workers and Communications Workers of America negotiated three neutrality agreements with New Flyer and its subsidiaries in 2022. Over the two years that followed, these union neutrality agreements enabled workers to pursue five successful union drives, including at the New Flyer facility in Alabama (Last 2025; Sasha 2024).

Successful recent instances of union organizing in Southern manufacturing facilities have been powerful enough to generate their own backlash. Because of the threat that union neutrality agreements represent to the reigning Southern economic development model, several conservative state legislatures in the South have used model legislation developed by the American Legislative Exchange Council to pass laws intended to interfere with these agreements (Sachs 2024). While the legality of such measures remains in question and has not yet been tested, Alabama, Tennessee, and Georgia now all have legislation in place stating that employers who agree to a union neutrality agreement will be barred from receiving state economic development funds, disincentivizing companies from participating in these agreements (Stephenson 2024).

Importance of unionization to improve manufacturing jobs and wages

Securing unionization in Southern manufacturing can have significant wage benefits for workers. Unionized manufacturing jobs are more likely to provide family-sustaining wages. Unionization in manufacturing is associated with a 17.9% wage premium for workers (Scott et al. 2022). This means that compared with similar workers in terms of education, occupation, experience, race, and ethnicity, unionized manufacturing workers are paid almost a fifth more per hour than their nonunionized counterparts.

Table 1 translates this union premium into how much more unionized workers in the South could make on an hourly, annual, and plant-wide basis. The average nonunionized manufacturing worker in the South earns $34.50 an hour, so with the typical union premium, that worker would be earning an additional $6.18 an hour. If that worker works full time, year-round, the hourly premium translates to $12,846 more a year. To illustrate the potential impact of unionization in an entire plant, we take the example of the BlueOval auto manufacturing investment in Tennessee, which is projected to create 6,000 jobs (TN Office of Governor 2023). For a plant of that size, unionization could mean more than $77 million in additional wages for workers.

Table 1

Wage gains from successful unionization are not hypothetical for manufacturing workers in the South. For example, in 2024, workers at New Flyer in Anniston, Alabama, ratified a union contract with significant pay raises, with some workers gaining raises of up to 38% through 2026 (CWA 2024). Establishing a union contract with transparent pay ladders will also help New Flyer workers combat persistent pay gaps between white and Black workers in Anniston’s manufacturing industry (Erickson 2021).

The benefits of unionization go far beyond hourly wage increases. The workers at New Flyer also achieved significant gains in terms of vacation time and retirement contributions. Unionized workers secure critical benefits like health care and sick days at greater rates than their nonunion peers. Adjusting for differences in industry, sector, and region, union workers are 18.3% more likely to have employer-covered health insurance than their nonunion counterparts (EPI 2021). Almost 9 in 10 private-sector union workers have paid sick days, compared with less than three-fourths of nonunion private-sector workers (EPI 2021).

Unions also contribute to safer and healthier working conditions across a wide range of industries (Dean, McCallum, and Venkataramani 2022). By strengthening workers’ voice on the job, unions empower workers to report safety issues and demand better protocols. One example of this is that unionized construction sites experience significantly lower rates of Occupational Safety and Health Administration (OSHA) violations than nonunionized sites (Manzo IV, Jekot, and Bruno 2021). This is despite the fact that unionized workplaces actually experience greater rates of OSHA inspections than other workplaces, likely because many unions maintain active health and safety committees and because unionized workers have greater access to education on how to recognize safety hazards and are less afraid of reprisals from their employer for reporting them (Leigh and Chakalov 2021).

As the New Flyer agreement demonstrates, a strong CBA includes (or is negotiated in tandem with) union neutrality commitments ensuring that workers have a free and fair choice to unionize, without employer interference or retaliation. Securing a pathway to unionization can provide direct benefits to workers at a particular facility, while also increasing local organizing capacity and coalition strength for future negotiations over new projects and local development decisions. Not only is a new union a legally recognized institution that can monitor and hold the company accountable for commitments in the CBA, but it can also play a critical role in amplifying demands of workers and communities outside of the workplace and building power for working people more broadly.

Living wage floor

CBAs can also include commitments to minimum wage floors for the workers who will operate a new facility. For example, the 2018 Nashville Soccer CBA in Tennessee included a commitment to an hourly wage of at least $15.50 for stadium workers (SUN 2018). This provision set the stadium’s wage floor well above the minimum wage in Nashville, where workers—like all Tennessee workers and many across the South—are otherwise subject to the federal minimum wage of $7.25 an hour.

If a wage floor set by a CBA is high enough, it can help workers achieve a living wage in the place that they live. What constitutes a living wage must be determined by labor and community partners (Gould, Mokhiber, and DeCourcy 2024). For example, a living wage could be defined narrowly as covering the necessities for a single adult, or more broadly as including the needs of a working parent and their children. A living wage target must also make assumptions about nonwage income such as health care benefits and government transfers. Manufacturing workers in the South can also rightfully seek wages that not only cover bare necessities but provide the family-sustaining resources needed to be healthy and thrive.

Figure D shows the share of manufacturing workers in the South earning less than $30 an hour, or $62,400 a year in wages for a full-time worker. More than 3 in 5 (60.8%) manufacturing workers in the region earn less than $30 an hour. Around 80% of Southern Black and Hispanic manufacturing workers earn below the $30 threshold. Women in manufacturing are also more likely to earn below $30 an hour (71.8%) than men (59.1%).

Figure D

A $30 wage floor exceeds the minimum costs for a single adult in most jurisdictions in the U.S., but still barely covers needs for many families with children in manufacturing-dense counties nationwide. EPI’s Family Budget Calculator estimates living wage standards by county that cover modest but necessary costs families face like food, rent, and transportation in the United States. Table 2 shows three Southern counties with significant clean energy manufacturing investments in recent years (CET 2025). Each county has significant manufacturing employment, exceeding the U.S. average for manufacturing employment density. For each county, living wage standards from the Family Budget Calculator are listed for different family types. In Morgan County, Georgia, and Maury County, Tennessee, a single adult with a child must earn at least $30 an hour to cover basic needs. For a single economic provider to cover the costs of a four-person family, they must earn over $35 an hour in all the counties listed. These living wage standards indicate that a $30 wage floor would provide significant economic security for workers with smaller families or multiple wage-earners.

Table 2

A CBA that secures a strong living wage standard in a manufacturing facility can create a virtuous cycle that brings about greater prosperity in the area. Higher wages for low- and middle-income workers boost spending in the local economy because these workers spend a greater share of their paycheck than high-income workers (Anderson 2014). Other employers in the area might have to raise their wages to compete for workers with the CBA-bound employer. The establishment of a living wage also demonstrates to other workers in the area that higher wages are a feasible goal through collective action.

Local and/or targeted hire policies

Local and targeted hiring refers to policies that prioritize recruitment of individuals from the local community, or workers from specific groups who are otherwise underrepresented in a given workforce relative to local population demographics, such as women, people of color, veterans, low-income workers, formerly incarcerated workers, or workers with disabilities (Lawliss, Finfer, and Sherer 2022). A local hire policy can require that a certain percentage of hours worked on a project be completed by local workers. These policies can also require giving local workers the first option to apply for jobs on a project. For the prosperity created through manufacturing investments in the South to be shared equitably, it is important that local community members have access to the jobs that are created during both the construction and operation phases of a development. Workforce policies also should be designed to remove barriers to employment for groups of workers—especially workers of color and women—who have historically been excluded from many construction and manufacturing career opportunities. Increasing access to these well-paying jobs can increase economic mobility for workers with more limited opportunities.

Despite these benefits, some state policymakers have been hostile to local hire as a public policy. In 2015, Nashville voters passed a ballot initiative that required city-funded construction projects to dedicate 40% of construction hours to Nashville residents, with 25% of those hours going to low-income Nashville residents (Blair et al. 2020). The Tennessee state legislature then quickly passed a bill that preempted the city from creating its own local hire policy.

As Figure E shows, the harm of Tennessee’s preemption of local hire falls disproportionately on workers of color. The construction workforce in the Nashville metro area has a higher share of workers of color and immigrant workers compared with the state construction workforce overall. Black workers are 8.2% of the construction workforce in Davidson County, but 5.5% of the overall state workforce. More than half (51.5%) of construction workers in Davidson County are Hispanic, compared with less than a quarter (20.1%) of the state overall. Davidson County construction workers are also more than twice as likely to be immigrants (40.2%) than in all of Tennessee (14.8%). State preemption of local hire prevented Nashville from ensuring that public spending would benefit local workers. However, private agreements like CBAs offer an opportunity to incorporate local hire and/or targeted hire requirements into publicly subsidized developments, even in heavily preempted jurisdictions.

Figure E

In 2018, three years after the preemption of Nashville’s local hire policy, the labor-community coalition Stand Up Nashville was able to leverage $275 million in public subsidies for a new professional soccer stadium into a successful CBA (SUN 2018). The Nashville Soccer CBA included commitments to local hire for stadium workers, particularly workers from “Promise Zones,” i.e., high-poverty areas with fewer economic opportunities (SUN 2020). Through the CBA, Nashville Soccer Holding, LLC agreed to consider qualified Promise Zone resident referrals for jobs at the stadium. So far, the program has succeeded in hiring Promise Zone residents. In 2023, Nashville Soccer Club had hired 180 employees, 80 of whom were residents of Promise Zones (SUN 2023).

CBAs in the South and throughout the country are securing similar commitments to local and targeted hiring in clean energy and manufacturing investments. In Alabama, the New Flyer CBA commits the company to ensuring that at least 45% of new hires and 20% of promotions are members of “Historically Disadvantaged Groups” (Sabin 2022).4 In Massachusetts, a new offshore wind terminal entered into a CBA with the City of Salem—setting targets for hiring of local workers, workers of color, and women workers (Sabin 2024). The CBA for Maine Aqua Ventis, an offshore wind facility, includes local hiring opportunities for residents of Monhegan, Maine (Sabin 2017). 

These types of agreements help ensure that local residents benefit from large investments in their communities, particularly when policymakers have invested public dollars in the form of tax breaks or corporate subsidies to support a new facility. Ensuring local workers are prioritized in training programs and hiring processes for newly created jobs also helps community members stay in the area when housing costs are driven up by a large new manufacturing investment. And in the longer term, providing pathways for local workers to benefit directly from these investments strengthens the labor and community alliances needed to hold developers and corporations accountable over time.

Equitable workforce development through apprenticeships and pre-apprenticeships

In addition to local hire policies, which help create equitable pathways for local workers to secure good jobs at a manufacturing site, construction and manufacturing projects require a skilled workforce to operate safely and productively. A robust ecosystem of registered apprenticeship and pre-apprenticeship programs can help ensure both that employers find the skilled workers they need in a large new manufacturing facility, and that local workers can access pathways to newly created jobs.

Registered apprenticeship programs are training programs vetted by federal or state agencies to ensure use of high-quality, best-practice training standards and approved curriculum aligned with skills needed to succeed in a particular occupation. Registered apprenticeships combine paid on-the-job and classroom training and result in a recognized, portable credential certifying that a worker has the skills and experience necessary for a specific occupation. Pre-apprenticeship programs (also known as apprenticeship readiness programs) recruit and prepare participants for registered apprenticeships—often partnering with community organizations—to open pathways to apprenticeship for women, Black and brown youth, immigrants, workers with disabilities, or others historically excluded from skilled trades occupations. The best practice is for these apprenticeships and pre-apprenticeships to be joint programs between unions and employers, providing high-quality instruction tailored to industry needs and training that leads to placement in a high-quality job with wages, conditions, and benefits negotiated into a union contract. Often, a vital building block for successful manufacturing apprenticeship programs is the establishment of a unionized workforce at a facility.

Unlike lower-quality workforce development programs, registered apprenticeships pay workers fairly for their labor during their training—and in joint apprenticeship programs, the wages and benefits of apprentices are negotiated into a union contract and typically include scheduled increases as apprentices progress through the training program. Registered apprentices (across joint and non-joint programs) typically see their earnings increase 49% between the year before they enter the program and the year after completing it (Walton, Gardiner, and Barnow 2022). These increases in earnings are greater than for similar workers who do not enter the apprenticeship during the same time period (Katz et al. 2022). Apprenticeships can also be particularly attractive to workers because they are debt-free. Most apprentices (60%) consider debt avoidance the most important reason for choosing to enroll in an apprenticeship (Walton, Gardiner, and Barnow 2022).

Apprenticeships can be a powerful tool for increasing the diversity of construction and other industry workforces. While participation of women and workers of color in apprenticeships has grown in recent years, this growth has been painfully slow for decades (CEA 2024). Research finds that union-based (joint) apprenticeship programs have been more successful than other types of apprenticeships at increasing diversity in the construction industry (Ormiston and Bilginsoy 2024). Joint apprenticeships enroll a higher share of women, Black workers, and Hispanic workers than non-joint programs, and have higher program completion rates for all workers, including for women and workers of color. Community benefits agreements can secure commitments and partnerships that equitably grow this pipeline of workers and set enforceable local and targeted hiring goals which in turn spur diversification of construction and manufacturing apprenticeship programs.

For instance, the New Flyer CBA creates a partnership between the company and coalition partners to develop pre-apprenticeship and technical training programs that expand access to manufacturing jobs for workers with low incomes and from disadvantaged groups (Sabin 2022). For these programs to succeed, community groups and educational institutions must have an active role in shaping the programs and connecting workers to these opportunities. The development of a growing skilled workforce and a robust, high-quality workforce development ecosystem can in turn be a strong incentive for bringing more facilities to an area over time. In 2015, Polaris stated that a significant factor in its decision to choose Huntsville, Alabama, for a new production facility was the area’s skilled workforce (Polaris 2015). As more workers participate in high-quality training programs that lead to union jobs, the organized workforce of the region will grow, strengthening labor-community coalitions the next time there is an opportunity to shape new development in the region.

Child care

Child care is an essential but extremely costly expense for many working families across the South. Average annual infant care costs in the South range from $6,868 in Mississippi to $14,277 in Virginia.5 The Department of Health and Human Services recommends that 7% or less of family income go toward infant child care costs, but typical Southern families spend significantly more. In Alabama, infant care costs are 9.8% of median family income, while in Oklahoma the share is 15.4% (EPI 2025b).

Increasing access to high-quality, affordable child care not only makes work more accessible to parents (and especially to women, who on average continue to assume disproportionate care responsibilities), but is a powerful investment in children’s development that can help narrow class and racial inequalities (Morrisey 2020). In addition, child care workers tend to work for very low wages and experience poverty at greater rates than the typical worker.

A large manufacturing investment in a locality might produce a significant number of jobs, and in turn increase the demand of workers and their families to live nearby. This is likely to increase the need for child care services in the region. However, data show that child care employment has not kept up with manufacturing growth in Southern counties. Table 3 compares counties with high manufacturing density, where manufacturing employment makes up more than the national average (9% in 2009), with those with lower manufacturing employment density (EPI 2025c).

Table 3

Between 2009 and 2024, manufacturing employment in high-manufacturing-density counties in the South grew 15.9%, achieving faster growth than similar counties in the U.S. overall (12.1%). However, over the same period, child care employment only grew 4.5% in Southern high-manufacturing-density counties, far below the national rate of 14.2%. Child care employment growth in the South for low-manufacturing-density counties (22.3%) is also below the national level (28.5%). The South systematically underinvests in child care, despite its importance to a healthy economy in the region.

CBAs and PLAs have been used to secure both the construction of physical child care spaces and financial support for actual services. The Nashville Soccer CBA reserved 4,000 square feet for the development of a child care center (SUN 2020). In 2001, the CBA for the North Hollywood Commons mixed-use development project in Southern California secured a commitment to an on-site child care center. Fifty child care spaces at the center were reserved for low- and moderate-income families (Sabin 2001). In the Boston area, unions have secured Project Labor Agreements that seek to address the unique child care needs of the construction industry. The PLA for the Winthrop Center in Boston established a child care access fund to research, develop, and implement alternative child care models within the construction industry, with a particular focus on assisting single mothers with child care while supporting their career (NEREJ 2019).

These types of investments are vital supports for working families, particularly mothers, seeking to balance professional and care work. Combined with union neutrality for the child care workers at these facilities, commitments to providing child care can further elevate worker power in the region and help large new facilities recruit and retain the skilled, experienced workforces they need to succeed.

Affordable housing

Without strategies to address the housing needs of a community impacted by a new manufacturing investment, local residents can experience increased economic precarity or forced displacement. The local housing impacts of a large industrial investment can be complex. A significant manufacturing investment can make a local community more attractive as workers move into the area to be close to their place of work. Manufacturing investments are also likely to be paired with prospective real estate investments in anticipation of future development around the original project. State and local governments might use eminent domain and other purchasing mechanisms to secure land for roads and other new infrastructure. These dynamics can increase housing costs for residents, particularly renters who are most vulnerable to the impacts of housing speculation and prospective rent increases. For instance, the BlueOval development in West Tennessee is already reported to have increased property prices and housing rents (TCG 2023). Homeowners, particularly those with fixed incomes, can also be more burdened with housing costs as higher demand in the area increases property tax valuations (Payne 2019).

On the other hand, extreme proximity to an industrial site can expose residents to environmental hazards and noise pollution, and may be considered unsightly, which decreases property values (Currie et al. 2016; Upton and Talpur 2024). The exact distribution of these changes in demand for housing across a community will depend on the type of industry and any other types of development included in the project.

Industrial investments like manufacturing facilities tend to take place in rural and semirural areas, in part because land is relatively inexpensive (Wiley 2015). While the counties with a higher share of manufacturing employment tend to have lower housing costs than urban areas, housing affordability remains a significant issue for workers. On average, across high-manufacturing-density counties in the South, a two-adult, two-child household must cover more than $14,000 a year in housing costs.6 A large share of renters in high-manufacturing-density counties in the South still are cost-burdened by housing, meaning they spend more than 30% of their income on rent, utilities, and other housing costs. As shown in Figure F, across the Southern states, the share of cost-burdened households in high-manufacturing-density counties ranges from 28% in Arkansas to 47% in Florida. More than 2 in 5 (42%) of Texas renters in these counties are also housing cost-burdened.

Figure F

A strong CBA will secure commitments to build a certain number of affordable housing units or dedicate a share of housing at the site as affordable. The Nashville Stadium CBA created agreements that at least 12% of residential units in the development would be affordable and that 20% of those units would be three-bedroom units to accommodate families (SUN 2020). The Staples Center CBA in Los Angeles, California, was another successful example of strong affordable housing benefits. The 2001 agreement for the development of an expanded convention center, theater, and surrounding housing, hotel, and retail space secured commitments that 20% of housing units would be affordable. The developer also agreed to provide $650,000 in interest-free loans to nonprofit affordable housing developers in the local community (WRI 2001).

Even in situations where a labor-community coalition is unable to reach a final CBA with a company, coalition organizing around community demands can still deliver meaningful affordable housing victories. Between 2002 and 2006, a labor-community coalition in Denver pressured Cherokee Investment Partners to provide community benefits as part of their redevelopment of the site of the Gates Rubber Company. The coalition leveraged zoning changes necessary for the project and a potential subsidy package from the city to extract benefits including an affordable housing plan for hundreds of rental and for-sale affordable housing units (Ingram and Hong 2011; PowerSwitch Action 2025).

In 2005, the labor-community coalition organized by Georgia STAND-UP was able to attach community benefits to an Atlanta city ordinance allocating $2 billion in public funding for the Atlanta Beltline transit-oriented development project. The city resolution shaped by the coalition established an affordable housing trust fund and a goal of developing 5,600 affordable housing units (PowerSwitch Action 2025). As of 2024, more than 4,100 affordable units have been created as part of the project (Atlanta Beltline, Inc. 2024).

Labor-community coalitions can also pursue other land-use commitments beyond the development of affordable housing. The BlueOval Good Neighbors coalition in West Tennessee has demanded commitments to protect land for farmers in the area. The development of the Ford factory has pushed Tennessee’s Department of Transportation to pursue land for new roadways through purchase and eminent domain. The area targeted for new roadways is a majority Black farming community, and several farmers are engaged in lawsuits with the state over the state’s meager compensation offers for their land (Wadhwani 2023). The coalition has demanded that farmers be offered replacement land in exchange for their sold land, as well as the creation of a 10,000-acre community land trust (BlueOval Good Neighbors n.d.).

Creating or protecting affordable housing is essential for protecting the communities that are necessary for any effective labor-community coalition. Large developments can cause instability within the community as new residents arrive, and existing residents are buffeted by rising housing costs. Because of historic and ongoing racial discrimination in housing policy, labor policy, and real estate practices, the costs of these changes are most likely to impact Black and Hispanic workers. Black families and other workers of color are the most likely to be cost-burdened by housing (JCHS 2024). Creating housing for workers and families to remain in the area is vital for continued collective action to secure benefits from developers and hold those developers accountable for their promises.

Environmental standards, funding, and monitoring

Large-scale manufacturing projects often have significant environmental impacts, both during construction and once they are in operation. Air, noise, and groundwater pollution; harm to wildlife habitats; and residents’ exposure to toxic byproducts are just a few examples of common concerns, and these consequences can be severe when projects are approved without sufficient environmental consideration. The consequences of large manufacturing projects often disproportionately harm communities of color and low-wealth areas throughout the South (Brouk 2024). For decades, poor and Black residents in the region have been exposed to toxic chemicals, pollution, and other environmental dangers at alarming rates (Bergman 2019).

In 2021, the Tennessee governor approved the construction of a General Motors lithium battery supplier in the city of Spring Hill, on the banks of the Duck River. Though the project was seen as an economic success, the plant’s operation has taken a toll on the fragile river ecosystem. The lithium battery factory is not the only strain—just eight companies along the river drain tens of millions of gallons of water daily (Wadhwani 2024). This enormous water usage has lowered river water levels, threatened biodiversity, and harmed local tourism and recreation. Advocates for the river’s health blame the state’s prioritization of manufacturing expansion without regard to the long-term environmental or economic consequences for local residents or other existing local industries.

CBAs are a tool that may help community-labor coalitions address the environmental impacts of data centers in the South. Data centers are booming across the United States, but particularly in Southern states like Georgia, Texas, and Virginia (Walker and Goldsmith 2026). New centers are heavy users of water and energy, create noise and air pollution, and are driving up electricity costs nationwide both by increasing demand for energy and requiring utilities to invest in new infrastructure paid for by all ratepayers (Merchant and Guerra 2025; Bizo et al. 2021; AI NOW 2025; Reed 2025). For example, in Virginia, electric bills were on track to increase as much as 25% in 2025 because of data centers (Penn and Weise 2025).

Growing community concerns surrounding data centers could create leverage for labor-community coalitions to pursue CBAs and other community benefits strategies. In 2025, community opposition blocked or delayed $64 billion in data center projects across the nation (Data Center Watch 2025). As community resistance to data centers continues to grow, more developers may recognize the need to come to the table with local coalitions to negotiate binding commitments on environmental and economic outcomes to secure project approvals. A handful of localities have begun to create agreements with data center developers regulating water use and securing commitments to green energy use (Turner Lee and West 2026).

Past development projects provide examples of how communities have used CBAs to secure long-term commitments to clean energy transition and protection of local natural resources in a multitude of ways, from mandating that any new construction must meet specific sustainability standards to requiring companies to contribute a set dollar amount to a city’s renewable energy transition fund. In Virginia, the City of Richmond Resort Casino CBA ensured the developing and operating company would design and construct all project buildings to Leadership in Energy and Environmental Design (LEED) Silver standards and would use previously existing pavement where possible (WRI 2021). The agreement also required the developer to attempt to reduce the urban heat island effect by planting shade trees along sidewalks and using other landscaping methods (WRI 2021). These agreements can mitigate additional environmental harm in areas that have already been polluted. A CBA between the Town of Waterloo, New York, and Seneca Meadows, Inc. regarding a landfill expansion commits the waste management company to pay for the development of new public water lines and other potable water infrastructure if existing public water wells become contaminated (WRI 2005).

CBAs can also be used to expand the positive impact of an already climate-friendly project. In New York, a CBA with an offshore windfarm developer stipulates that the company must contribute $2 million to the town of East Hampton’s Ocean Industries Sustainability Program (WRI 2018). Additionally, Deepwater Wind South Fork, LLC must spend $200,000 to establish an Energy Sustainability and Resilience Fund to support East Hampton’s transition to 100% renewable energy (WRI 2018). CBAs with environmentally focused companies provide valuable opportunities for communities looking to address climate change, especially where state governments have failed to invest in environmental programs.

A CBA can achieve a variety of climate and environmental commitments from a company but is also a strong starting point for building local capacity to monitor resource use, pollution, and other environmental priorities. A strong coalition of community, labor, and environmental groups can play essential roles in implementing and enforcing CBA commitments in contexts where understaffed government agencies have limited ability to monitor or investigate pollution and other environmental harms. Instead, workers and community members are often the first to report harmful practices and safety concerns. A strong CBA can provide opportunities for labor and environmental groups to work together to monitor and protect worker and community health, natural resources, and ecosystems.

Conclusion

For decades, Southern economic policies shaped by dominant business and corporate interests have resulted in poor working conditions and failed to ensure that profits generated by publicly subsidized development are shared with local workers and communities. Confronting the deep, long-standing imbalances of power that have entrenched this failed economic development model will require significant organizing and coalition-building to increase the collective power of workers and community members to shape different outcomes from the latest Southern manufacturing boom. Building new forms of worker and community power will be equally necessary to counter escalating authoritarian actions of the Trump administration, which closely parallel many features of the failed Southern economic development model that by design prioritizes corporations over workers and communities.

Our analysis shows that community benefits agreements could be powerful tools for Southern labor and community groups building the shared power necessary to reshape local and eventually regional economies. When strong coalitions of labor, environmental, faith-based, and other grassroots community organizations are able to build the necessary power to bring a company or developer to the table to negotiate an enforceable agreement, such coalitions can secure measurable economic benefits like higher wages, respect for workers’ rights to unionize, local or targeted hiring, protection of natural resources, or more affordable housing. Such economic gains are beneficial in themselves, but they also raise expectations, build local capacity to pursue additional gains, and demonstrate to the community at large that local residents can shape their own economic futures, and that these types of victories are achievable in the face of the Southern status quo.

While the urgent project of upending the Southern economic development model will require vigorous and persistent organizing across many sectors and geographies, community benefits agreements are one key strategy for turning manufacturing jobs into good jobs, ensuring long-term local economic gains from new industrial investments, and even renewing democracy in contexts where it has long been suppressed. Forming strong, long-lasting labor-community coalitions is essential to winning concrete gains for local workers as well as reshaping the political fabric of Southern communities and increasing working people’s influence over broader state or regional economic policy decisions. Winning and implementing any strong CBA requires the formation of an empowered labor-community coalition, which ideally endures and gains greater strength, experience, and influence over time. Just as the economic benefits of unionization extend far beyond an individual workplace, establishing a strong CBA coalition can create broader positive impacts across a community or region—delivering higher-quality jobs; more equitable tax systems; stronger public services; and healthier, more inclusive political systems.

Acknowledgements

The authors wish to thank the AFL-CIO Center for Transformational Organizing for their partnership and invaluable contributions in the production of this report. The authors are also grateful to Athena Last and Ian Elder at Jobs to Move America and Ben Beach at PowerSwitch Action for their expert feedback.

Appendix

Appendix Table 1

Notes

1. Clean energy manufacturing includes manufacturing of batteries, electric vehicles, mineral products, solar energy products, and wind energy products.

2. Workers in Southern states experience lower wages than in other regions even after adjusting for cost-of-living differences (Childers 2023).

3. The facilities covered by these agreements included plants in Alabama, California, Kentucky, Minnesota, New York, and Wisconsin.

4. This category includes workers who are Black, Indigenous, and/or people of color; women; LGBTQ+ persons; systems-impacted people (formerly incarcerated people); persons emancipated from the foster care system; residents of Anniston, Alabama, lacking GED or high school diploma; and veterans.

5. Southern states excluding D.C., Delaware, and Maryland.

6. EPI analysis of Family Budget Calculator and Quarterly Census of Employment and Wages data.

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Chairman DeFazio, Ranking Member Graves, committee members, thank you for inviting me to talk with you today. I am Adam Hersh, Ph.D., Senior Economist at the Economic Policy Institute, a nonpartisan, 501(c)3 nonprofit think tank in Washington, DC.

Today, I will talk about 2 things:

1. Why infrastructure matters, and
2. What impacts we can see and expect from recent major legislation to expand infrastructure investment.

First, I want to recognize that this Congress, over the past 18 months, passed three monumental pieces of legislation that are critical for American transportation and infrastructure and by so doing have started America on a path to higher, more broadly shared, and more sustainable prosperity. These are the American Rescue Plan Act (ARPA), the Infrastructure Investment and Jobs Act (IIJA), and the Inflation Reduction Act (IRA).

Considering that the previous administration along with the 115th and 116th Congresses failed to advance any new infrastructure agenda—despite grandiose pledges and repeated “Infrastructure Weeks”—these three acts mark not just monumental political achievements, but also the promise to fundamentally transform the American economy and improve everyone’s quality of life.1 When these spending plans are fulfilled, you will have touched the lives of every single person in America with upgraded and expanded access to safer roads, less time spent in traffic congestion, cleaner drinking water and sanitation, modernized schools, dependable and sustainable energy grids, cleaner air and better health, lower costs of doing business, a revitalized manufacturing sector, more money in their pockets because of the investments in America this Congress has made.

Still, all you have done is far from enough. We need to be doing much more to meet the needs of our current economy and provide the foundation for America’s future prosperity and security. America faces a yawning infrastructure deficit and if we don’t rise to meet this moment, we risk being left behind economically.

1. Why infrastructure matters

Infrastructure constitutes the essential public goods at the heart of our economy that allow people, goods, and ideas to be more easily exchanged, as well as to address the costs of negative externalities arising in such complex social organization.2 This is the “truck, barter, and trade,” that Adam Smith wrote about in his book, The Wealth of Nations; infrastructure lowers the cost of moving people and goods as well as creating more opportunities to trade information and spark innovation. Policy debates often focus on infrastructure’s impact in terms of the jobs and investment that can be created today. Yes, every job created directly in infrastructure construction creates an additional 17.8 jobs in other sectors of the economy and fuels domestic manufacturing.3 But infrastructure is even more essential to creating the opportunity and productivity that propels economic activity into the future, yielding economic dividends for years to come by connecting people, goods, and information together more efficiently.

Consider your own consumption of a very basic infrastructure good like bridges. You may have crossed a dozen or more to get to this hearing today. You probably cross dozens more on every trip home for your district work periods. You probably don’t notice them passing by while you are busy on your mobile phone, but they are essential to everyday life in America and they are in trouble. A Department of Transportation survey of nearly 620,000 bridges nationally finds that 3 in 5 are in less than “good” condition, while 2 in 5 are more than 50 years old.4 Practically, this means most American bridges have reached or are approaching structural deficiency or functional obsolescence. Some states are significantly worse off than the average: In West Virginia 77% of bridges are in less than good condition, and the shares drop to 73% in Kentucky and 66% in Pennsylvania (see Table 1). Even in relatively well-situated states like Ohio and Florida, 39% and 38% of bridges, respectively, are still problematic—totaling more than 15,000 bridges.

Table 1

Bridges are just one type of critical infrastructure. There are many more that are also essential in everyday life for American families and businesses. Until now, Congress has allowed America’s infrastructure to go to rot, failed to supply it in adequate amounts, and—whether by design or malign neglect—too often forced select communities most in need of affordable transportation to bear the costs of infrastructure projects while excluding them from the benefits. These include:

• Roads and other surface transportation assets
• Drinking, waste, and irrigation water systems
• Energy generation and transmission
• Public transit, passenger rail, and airports and aviation systems
• Coastal and inland waterways and ports
• Access to high-speed internet
• Conservation and public recreation space

America has been disinvesting in infrastructure assets for years, and our growing deficiencies impose staggering economic costs.5 The American Society of Civil Engineers (ASCE) estimates that the loss of functionality from America’s depreciated infrastructure assets will cost the United States $10 trillion in GDP, 3 million jobs, and $2.4 trillion in lost exports by 2039 due to increased costs of doing business, lost time and wasted fuel, health impacts, and other individual costs that add up to a big deal in the aggregate.6

The ASCE projects that the U.S. economy will need $6 trillion in infrastructure investment, sustained over 10 years, may be too low. The aging infrastructure we have is ill-prepared to cope with increasingly frequent severe weather events, wildfires, and flooding we can expect moving forward as the climate warms—and certainly if we fail to limit that warming to 2 degrees Celsius above pre-industrial levels—which will cause it to deteriorate faster. And the ASCE analysis did not factor in additional investments that will be needed to deploy decarbonization technologies at the ambitious pace and scale needed to meet emissions targets. The U.S. Global Change Research Program estimated that, if unabated, climate change will permanently reduce U.S. GDP by 10 percent.7 Economic losses will result from harm to physical assets, reduced industrial and agricultural productivity, increased mortality and health impacts on labor force participation, and sociopolitical destabilization around the world. Other researchers estimate an additional $400–600 billion investment a year is needed to achieve carbon net neutrality.8

The good news is that you have the power to change this in ways that will yield outsized effects on the U.S. economy and the lives of families across this country. Research on the longer-term return on investment from public infrastructure finds that, on average, every $100 spent on infrastructure generates an additional $17 benefit, though some research finds a return on investment as high as 73%.9 The broad economic benefits may be even larger than these estimates suggest. Typical economic models, such as those used by the Congressional Budget Office (CBO) to score legislation, can paint a misleading picture by accounting for costs but not the full range of real-world benefits, making unrealistic assumptions about how people and markets behave, and assessing investment returns over too short a time horizon.

In the real world, infrastructure investments deliver an immediate economic surge, but also simultaneously achieve other objectives, for example:

• Expanding broadband internet access to rural and other neglected communities not only will create immediate jobs installing communications equipment, but also help bring to every corner of the country employment, education, health care, and social opportunities afforded by connectivity.
• Overhauling public water systems to eliminate lead and other toxics not only will create a lot of jobs and lower utility prices for families and businesses, but also yield lifelong impacts on educational attainment, earnings, and productivity for those living in affected communities.
• Reinvesting in and expanding sustainable public transportation systems not only will create direct jobs, but also open new opportunities for labor force participation and higher wages and productivity—connecting people to jobs that were literally out of reach—while reducing greenhouse gas emissions and improving air quality and therefore health and education outcomes.

This Congress has taken significant steps in the right direction to do this with ARPA, IIJA, and IRA, allocating new resources to these long-neglected foundations of national economic prosperity. But it is also important to note that the foundations of a dynamic and efficient economy go deeper than hard physical infrastructure assets. The pandemic “she-cession”—job losses disproportionately affecting women—has laid bare how essential caregiving “soft” infrastructure also is for the overall economy and that inadequate and unequal access to quality care has caused preventable harm to individuals, families, and on aggregate economic performance. America’s lack of paid caregiving infrastructure represents a glaring obstacle to achieving the country’s full economic potential that future Congresses must address.

2. Benefits of ARPA, IIJA, and IRA Infrastructure Measures

ARPA delivered critical resources to American state, local, tribal, and territorial governments in a time of acute crisis so that they could maintain continuity in essential public and private transportation and infrastructure services when revenue streams tanked;10 expanded and accelerated local infrastructure projects to offset demand losses in other sectors of the economy; and provided support for struggling small businesses and families to keep the lights on. Moody’s analytics found that ARPA increased employment by more than 4 million jobs and nearly doubled the rate of GDP growth in 2021, and delivered sufficient aggregate demand to ensure that the Great Lockdown of 2020 did not repeat in a double-dip recession.11

The Infrastructure Investment and Jobs Act reauthorized funding for existing infrastructure and provided nearly $550 billion in new investments in surface transportation, public transit and rail, water, and broadband internet infrastructure, along with new investments in renewable energy and electric vehicles.12 By my estimates, the additional infrastructure spending in IIJA supports 772,400 jobs annually.13 Table 2 details the number of jobs associated with each program under the IIJA, with most jobs coming from road and surface transportation projects, though all program areas provide significant job creation effects.14 Table 3 looks at the kinds of jobs that IIJA will create broadly across the economy. Of course, the construction industry accounts for the largest share of employment, with nearly 176,000 jobs annually. But the investments also stimulate 175,000 jobs annually in the manufacturing sector, nearly 100,000 jobs in transportation industries, and more broadly across other industries through induced demand. Critically, Buy America and prevailing-wage provisions in this and other legislation help set a high standard for contractors to ensure that America’s investments create good jobs with fair wages and contribute to the revitalization of our manufacturing base. Moody’s Analytics estimates that, at the peak of the expenditures, U.S. GDP will be roughly 0.8 percentage points higher as a result of IIJA.15

Table 2

Table 3

Ink is still drying on the Inflation Reduction Act, but it is clear this is the most ambitious action Congress has taken to confront the impending climate change crisis with more than 100 programs that will restore, expand, and modernize a broad range of infrastructure systems. These investments will bring the costs of transportation, electricity and other utilities, building heating and cooling for families and businesses in America. The spending will do so while supporting domestic manufacturing and development of new domestic industries where U.S. businesses will lead innovation and critical components of energy goods and systems will better insulated from disruption in global supply chains. University of Massachusetts economists estimate that IRA will generate 912,000 jobs per year, on average, for 10 years from the public and private investments that the policies incentivize.16 Rhodium Group economists estimate that IRA will reduce energy costs for the average household by $730 to $1135 annually.17

Conclusion

While this Congress has taken great strides to tackle pressing crises while reinvesting in the infrastructure at the foundation of America’s long-term economic prosperity. Achieving our economic goals will require not just significantly more resources, but embracing new approaches to the public role in how we fund and incentivize infrastructure and technological investments. Thank you.

Endnotes

1. Emily Cochrane and Eileen Sullivan, “The Many Times It’s Been ‘Infrastructure Week’ in Washington.” New York Times. April 1, 2020. Accessed September 15, 2022. https://www.nytimes.com/2020/04/01/us/politics/coronavirus-infrastructure-week-timeline.html.

2. Technically, economists define a “public good” as non-rival and non-excludable, although in common usage public goods may also refer to rival, non-excludable goods.

3. Josh L. Bivens,  Updated Employment Multipliers for the U.S. Economy. Economic Policy Institute, January 23, 2019.

4. EPI analysis of Department of Transportation, National Bridge Inventory: Bridge Condition by County 2022. June 15, 2022. Accessed September 15, 2022. https://www.fhwa.dot.gov/bridge/nbi/no10/county22.cfm; ASCE, Making the Grade: America’s Infrastructure Report Card 2021: Bridges. Accessed September 15, 2022. https://infrastructurereportcard.org/wp-content/uploads/2020/12/Bridges-2021.pdf.

5. Sarah Ayres Steinberg and Adam Hersh. “New Ryan Budget Cuts Investments in America’s Future.” Center for American Progress. March 13, 2013. https://www.americanprogress.org/article/new-ryan-budget-cuts-investments-in-americas-future/; Josh L. Bivens, “The Potential Macroeconomic Benefits from Increasing Infrastructure Investment.” Economic Policy Institute. July 18, 2017.

6. American Society of Civil Engineers. 2021 Infrastructure Report Card. 2022. https://infrastructurereportcard.org/.

7. U.S. Global Change Research Program (USGCRP). Impacts, Risks, and Adaptation in the United States: Fourth National Climate Assessment, Volume II. 2018. https://nca2018.globalchange.gov/.

8. Robert Pollin, Shouvik Chakraborty, and Jeanette Wicks-Lim, Employment Impacts of Proposed U.S. Economic Stimulus Programs: Job Creation, Job Quality, and Demographic Distribution Measures. Political Economy Research Institute, 2021. https://peri.umass.edu/publication/item/1397-employment-impacts-of-proposed-u-s-economic-stimulus-programs.

9. See Josh L. Bivens, The Potential Macroeconomic Benefits from Increasing Infrastructure Investment, Economic Policy Institute. July 2017. https://www.epi.org/publication/the-potential-macroeconomic-benefits-from-increasing-infrastructure-investment/; James Heintz, “The Impact of Public Capital on the U.S. Private Economy: New Evidence and Analysis.” International Review of Applied Economics 24, no. 5 (2010), 619–32; Joseph Berechman, Dilruba Ozmen, and Kaan Ozbay, “Empirical Analysis of Transportation Investment and Economic Development at State, County and Municipality Levels.” Transportation 33 (2006), 537–551.

10. In addition to supporting public health, public security, and education services, and providing aggregate demand support more generally—through the business and household sectors—with indirect economic benefits for transportation and infrastructure industries.

11. Moody’s Analytics. “Global Fiscal Policy in the Pandemic.” Moody’s Analytics. February 24, 2022. Accessed https://www.moodysanalytics.com/-/media/article/2022/global-fiscal-policy-in-the-pandemic.pdf.

12. Adam S. Hersh, Build Back Better’ Agenda Will Ensure Strong, Stable Recovery in Coming Years. Economic Policy Institute. September, 2021. https://www.epi.org/publication/iija-budget-reconciliation-jobs/.

13. To be clear, these average annual number of jobs supported cannot be summed together over 10 years. If, for example, all of the spending ramped up in Year 1 and then persisted, then 772,400 jobs would be supported in the first year and then this number would persist but not grow. Over the 10-year window, one could cumulate these job numbers and classify them as “job-years”—a measure of total hours of work supported by this spending over the next decade. For more on the estimation methodology, see Adam S. Hersh, Build Back Better’ Agenda Will Ensure Strong, Stable Recovery in Coming Years. Economic Policy Institute. September, 2021. https://www.epi.org/publication/iija-budget-reconciliation-jobs/.

14. These tables are reproduced from a report that also analyzed the potential effects of President Biden’s broader Build Back Better agenda.

15. Moody’s Analytics, “Macroeconomic Consequences of the Infrastructure Investment and Jobs Act & Build Back Better Framework.” Moody’s Analytics. November 4, 2021. https://www.moodysanalytics.com/-/media/article/2021/macroeconomic-consequences-of-the-infrastructure-investment-and-jobs-act-and-build-back-better-framework.pdf.

16. Robert Pollin, Chirag Lala, and Shouvik Chakraborty, Job Creation Estimates Through Proposed Inflation Reduction Act. Political Economy Research Institute. August 2022. Accessed https://peri.umass.edu/publication/item/1633-job-creation-estimates-through-proposed-inflation-reduction-act.

17. John Larsen, Ben King, Hannah Kolus, Naveen Dasari, Galen Hiltbrand, and Whitney Herndon, A Turning Point for US Climate Progress: Assessing the Climate and Clean Energy Provisions in the Inflation Reduction Act. Rhodium Group. August 2022. Accessed https://rhg.com/research/climate-clean-energy-inflation-reduction-act/.

This chartbook shows that the loss of manufacturing jobs has been particularly devastating for Black and Hispanic workers and other workers of color, who represent a disproportionate share of those without a college degree, and for whom discrimination has limited access to better-paying jobs. It calls for creating millions of good jobs for workers at every level of education by investing in infrastructure and rebalancing trade. When implemented with clearly defined racial and gender equity goals, these investments can help raise living standards for men and women workers of color without a college degree.

This chartbook comes at a crucial time. The bipartisan infrastructure bill signed into law in November, the Infrastructure Investment and Jobs Act (IIJA), invests about $550 billion in new federal funding for roads and bridges, railways, broadband, and other infrastructure. And an even larger social safety net and climate change bill awaiting a vote in the Senate—the Build Back Better Act (BBBA)—would invest roughly $2 trillion in child care, long-term care, universal pre-K, renewable energy, electric cars, and other human and climate infrastructure. But although these job-creating investments are welcome, they constitute just a down payment on a much larger agenda of investments needed over the coming decades to rebuild the American economy and complete the conversion to a zero-carbon, clean-energy future by 2050. And the current investments are already at risk: If steps are not taken to rebalance trade so that more of the goods consumed in the United States are made domestically, much of the new spending and new jobs will leak away to foreign suppliers. The threat is real: We continue as a country to import more than we export, and the surging imports mean that the reported U.S. trade deficit in manufactured goods for 2021 is likely to exceed $1.1 trillion.

Following are some key data points in the chartbook:

• Nearly 7 million jobs would be supported by a four-year, $2 trillion infrastructure and climate change investment program combined with trade and industrial policies that dramatically boost U.S. exports and eliminate the U.S. trade deficit. This includes at least three million good jobs (with high wages and benefits) in manufacturing and construction. If implemented with policies to help ensure that workers of color and women can access these jobs, this program would help reduce racial and gender inequities in the job market.
• Rebalancing trade, investing in infrastructure, and addressing climate change would help rebalance the economy back from lower-paying service- sector jobs to higher-paying jobs in manufacturing and construction. Essentially all of the net new jobs created in the economy over the last two decades were in services. In contrast, 45.7% of jobs supported by investing in climate and infrastructure and 40.8% of the jobs supported by rebalancing trade would be in manufacturing and construction.
• Supporting new manufacturing jobs is important for Black workers, who have been particularly hard hit by globalization and the decline in manufacturing employment. While Black workers’ share of total employment increased from 11.3% to 12.3% between 1998 and 2020, their share of manufacturing employment was essentially unchanged. Meanwhile, they experienced the loss of 646,500 good manufacturing jobs during that time period, a 30.4% decline in total Black manufacturing employment as part of the overall loss of more than 5 million manufacturing jobs between 1998 and 2020.
• Black, Hispanic, Asian American/Pacific Islander (AAPI), and white workers without a college degree all earn substantially more in manufacturing than in nonmanufacturing industries. For median-wage, non-college-educated employees, Black workers in manufacturing earn $5,000 more per year (17.9% more) than in nonmanufacturing industries; Hispanic workers earn $4,800 more per year (+17.8%); AAPI workers earn $4,000 more per year (+14.3%); and white workers earn $10,100 more per year (+29.0%). Manufacturing wage premiums are also substantially larger for all workers at the 10th percentile of the wage distribution.
• Surging imports from China and the resulting growing trade deficit with China have had a key role in manufacturing job loss. Reducing that deficit is critical to bringing jobs back. Between 2001, when China entered the World Trade Organization, and 2018, the growing bilateral trade deficit displaced 3.7 million U.S. jobs, including 2.8 million jobs in manufacturing.
• Historically, growing trade deficits have displaced a disproportionately large number of good jobs for workers of color. Between 2001 and 2011 alone, the growth of the trade deficit with China displaced 958,800 jobs held by workers of color—representing 35.0% of total jobs displaced by the growing trade deficit with China. About three-fourths of jobs displaced were manufacturing jobs, which feature high pay and excellent benefits.
• Growing trade deficits have hit workers of color in the pocketbook. In 2011 alone, workers of color displaced from higher-earning jobs in manufacturing and other traded industries into lower-earning jobs in nontraded industries earned $10,485 less in annual wages because of the growing trade deficit with China. This trade-related average annual wage loss per worker translates into a total loss of $10.4 billion per year for the 958,800 workers of color affected by growing trade deficits with China.

Policymakers should heed the data on globalization’s impact and boost investment and rebalance trade

As the charts in this chartbook show, investments in infrastructure, domestic manufacturing capacity, and addressing climate change would create millions of good jobs for workers who have been hardest hit by globalization and the shift toward more low-wage service-sector jobs. The jobs created through these investments would offer better pay and benefits than average service industry jobs, with the potential to improve living standards for a broad group of racially and ethnically diverse, non-college-educated women and men.

At this writing, physical and human infrastructure investments approved or under debate in 2021, while welcome, are down payments on a much larger agenda of investments needed to rebuild the American economy and complete the conversion to a zero-carbon, clean-energy future by 2050. The job of rebuilding the American economy will not be completed in the first year of the Biden administration.

Policymakers must implement smart trade and industrial policies to maximize the jobs and benefits created by the current investments in infrastructure and clean energy and significantly boost those investments to match the scale of the need. These policies include aggressive and expanded use of Buy America programs, which should be applied to as much of new investments as possible. And any investments must be accompanied by substantial investments in research and development, training, and extension services, which will increase the supply of skilled workers for these good jobs and the competitiveness of U.S. manufacturing and construction industries.

These recommendations align with the Alliance for American Manufacturing’s American Manufacturing Plan, a plan calling for measures to increase domestic competitiveness, improve trade enforcement and trade agreements, and carefully shift the value of the dollar so that U.S. goods are competitive (Paul 2020). The recommendations also would operationalize the EPI policy agenda for trade, which states that we should “restore and protect American manufacturing by using policy levers to ensure that American manufacturers’ ability to compete on global markets is not hamstrung by a chronically overvalued dollar, as it has been for decades” (Economic Policy Institute 2018). Ways to realign the dollar and rebalance U.S. trade and capital flows are explained by Scott (2020a, 2020b).

This report shows the employment impact of infrastructure investments at the scale of the need combined with smart trade policies designed to eliminate the U.S. goods trade deficit with the rest of the world. Specifically, we illustrate the employment impacts of investing roughly $500 billion per year in climate and infrastructure over four years (as originally proposed by President Biden during his 2020 election campaign) and eliminating the U.S. goods trade deficit of $854.3 billion (which was projected to likely reach $1.1 trillion in 2021 according to the U.S Census Bureau (2021b)), which would dramatically increase demand for American-made manufactured goods. We draw on Scott, Mokhiber, and Perez (2020), which showed that these investments, and the increased spending on domestic goods, could support at least 6.9 million jobs over four years, including at least three million good direct and indirect jobs in manufacturing and construction. Rebalancing U.S. trade alone could support 3.5 million of those 6.9 million jobs, including 1.4 million good jobs in manufacturing and 44,000 good jobs in construction.

The investments called for are scaled to the need. Every four years, the American Society of Civil Engineers (ASCE) estimates the investment needed in each infrastructure category to maintain a state of good repair and earn a B grade. ASCE’s 2021 Infrastructure Report Card estimates that the U.S. infrastructure investment gap—how much less the U.S. will invest in its infrastructure than it needs to over the next decade—is $2.59 trillion (ASCE 2021). Since the recently enacted IIJA includes only $548 billion in new funding for both infrastructure and climate investments, and the bulk of the investments in the proposed Build Back Better Act (included in the reconciliation bill still being considered at this date) are for safety net and climate expenditures, with relative small and still-indeterminant amounts for infrastructure, it is clear that there will be substantial infrastructure needs remaining to be addressed during the balance of President Biden’s first term. Furthermore, even if President Biden’s full $6 trillion proposal to upgrade America’s physical and social infrastructure, first unveiled in June 2021, were eventually fully funded, much more is needed to meet our infrastructure needs and fully fund the transition to a zero-carbon economy over next 30 years (Tankersley 2021).

Future research should focus on women’s access to manufacturing and construction jobs

As the charts in this chartbook show, manufacturing and construction offer good jobs for women, but women make up a smaller share of total employment in these two industries (29.2% and 10.6%, respectively) than men. Women hold a disproportionately large (56.4%) share of service industry jobs—a notoriously low-paying sector—despite being less than half (48.8%) of the overall workforce (EPI 2021a). Women employed in manufacturing earn $183 more per week (22.2%) than women employed in service industries, on average, and women manufacturing workers earn much more than women workers in rapidly growing service industry subsectors such as restaurants and retail trade, where average weekly earnings are much lower than the overall average for service industries. (Data on average weekly earnings for all workers by industry are reported in Appendix Table 1.) Future research should explore ways in which public policies can help expand employment opportunities for women in high-wage manufacturing and construction industries. Boosting women workers’ share of higher-paying jobs would help close the persistent gender pay gap. Despite some narrowing of the gap, women workers overall are paid a lot less than men with comparable backgrounds. The regression-adjusted wage gap was 22.6% in 2019 (down slightly from 23.9% in 2000), meaning women were making 22.6% less than men with comparable backgrounds (that is, adjusting for differences in education, age, and region) (Gould 2020, Appendix Table 1). 

A quick note about the data and definitions

The data in the charts and tables in this report are drawn from a number of sources, and specific sources are provided for each chart and table. This note provides a general introduction to the data and time periods covered in this analysis. For the broad overview of trends in employment, trade, and compensation by major industry, we use detailed historical data on employment by industry for 1998 to 2019 obtained from the Bureau of Labor Statistics Employment Projections program (BLS-EP 2020). These data were supplemented with monthly data from the BLS’s Current Employment Statistics (BLS-CES various years). Data on overall compensation, including wages and benefits shown in Chart 3, are from the BLS’s Employer Cost for Employee Compensation series (BLS 2021a).

All of the data in this report refer to the number of workers employed (that is, people with a job), so estimates of total employment are a measure of the total workforce. Workforce measures (as used here) are distinct from estimates of the domestic “labor force,” which are derived from the monthly household (CPS) surveys of employment, unemployment, and labor force participation rates. To provide a more comprehensive look at the economy, we did not restrict the sample to only those who are working full time.   

We use industry-based definitions of employment in this study to break the economy into three basic types of jobs: construction, manufacturing, and services. These sectors are responsible for the vast majority (99.2% in 2019) of total nonfarm employment (estimated from Appendix Table 1 at the end of the report) in the United States, and for an even larger (99.8%) share of net job creation or destruction over the 1998–2019 period in the nonfarm economy (also derived from Appendix Table 1). In 2019, the construction industry employed about 7.5 million workers, or about 4.9% of total nonfarm employment of 151.7 million.  While the number of construction workers has increased slightly over the past two decades (as shown in Appendix Table 1), the number and share of manufacturing workers has fallen steadily for the past two decades (Table 2 and Chart 2), to 12.8 million workers in 2019, or 8.5% of total nonfarm employment. The vast majority of all jobs in the economy are then included in the service industries, which employed 130.1 million workers in 2019, or 85.8% of total nonfarm employment. The service sector encompasses a broad set of industries ranging from very low-wage sectors such as retail trade, restaurants, and other segments of the hospitality industry—sectors dominated by minimum wage labor—to high-wage sectors dominated by professionals such as law, accounting, and financial services. But even large, relatively skill-intensive sectors such as health care include vast numbers of workers with less than a college degree (roughly half of total employment in this industry), and these health care workers have average earnings of less than $800 per week. 

Data on average hourly wages and average weekly hours by industry, and head counts for different demographic and ethnic groups—shown in Charts 4 and 13 and Tables 1 through 3—were based on a pooled four-year sample of Current Population Survey (CPS) data covering the years 2017 to 2020 from EPI Microdata Extracts (EPI 2021a). Estimates of average hourly wages in real 2020 dollars (wages only, not including benefits), average weekly hours by industry, and head counts by demographic group were used to compute average weekly earnings. Those data were used to compare average weekly earnings by industry and demographic group in Charts 12 and 15, and Tables 1,2, and 3. Average weekly earnings in construction and manufacturing are higher than in the service industry both because hourly wages are higher and because workers in these industries are employed for more hours per week. Separately, benefits are substantially higher in manufacturing and construction than in services, as shown in Chart 3.

Broad estimates of annual earnings of manufacturing and nonmanufacturing workers by race and ethnicity, shown in Charts 6 and 7, were estimated using the March CPS Annual Earnings estimates file (also known as the Merged Outgoing Rotation Groups or CPS ORG), using a data set compiled by Flood et al. (2021).  Estimates of union wage premiums in Chart 9 also use CPS ORG data but from EPI’s Current Population Survey Extracts (EPI 2021a), while benefit coverage for all workers in manufacturing, construction, and service industries, shown in Charts 10 and 11, were estimated with CPS Annual Social and Economic Supplement (SEC) data compiled by EPI (U.S. Census Bureau CPS-ASEC 2021).

Data on average weekly earnings by industry were combined with estimates of jobs supported by investments in infrastructure and clean energy and by rebalancing trade (Scott, Mokhiber, and Perez 2020) to estimate the average weekly earnings by race and ethnicity associated with these investments shown in Chart 15. The distribution of jobs supported by climate and infrastructure investments and by rebalancing trade are shown in Chart 14.

The demographic groups and breakdowns shown in these charts are broadly inclusive. They cover four major racial and ethnic categories: White, Black, Hispanic (to include Latina, Latino, Latine, and/or LatinX workers), and Asian American/Pacific Islander (abbreviated AAPI, which include indigenous and other Pacific Islanders) workers. These breakdowns are based on the EPI (2021b) Current Population Survey Extracts race/ethnicity variables, drawn from the CPS “wbhao” variable (white, Black, Hispanic, AAPI and other variable). (Results for “other” workers, who make up 1% of the sample, were excluded from these charts because of the small sample size, because this group includes workers from a wide variety of racial and ethnic backgrounds that do not self-identify as white, Black, Hispanic, or AAPI, and because of the high variability and low reliability of the results.)

As trade deficit soared past $1 trillion, the U.S. lost more than five million manufacturing jobs: Manufactured goods trade deficit (billions$) and manufacturing employment (millions), 1998–2021

1

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From 1998 to 2021, the U.S. lost more than 5 million manufacturing jobs thanks to the growing trade deficit in manufactured goods with China, Japan, Mexico, the European Union, and other countries. Not shown in the chart are the loss of more than 70,000 manufacturing plants over roughly the same period (1998 to 2019). Mismanaged global competition led to rapidly growing imports of manufactured products and the failure to grow foreign demand for U.S. products enough to offset the declining demand for domestic goods. The resulting job losses devastated local economies and workers in the industrial heartlands. The exploding trade deficit is the result of unfair trade practices (by China, South Korea, the European Union, and other foreign governments) and substantial overvaluation of the U.S. dollar, which makes U.S. goods more expensive than our competitors’ products. The dollar needs to fall about 25% to 30% to rebalance trade and rebuild U.S. manufacturing.

Data on plant losses come from Scott 2020c and U.S. Census Bureau 2021a. For more on the causes of growing trade deficits, see Scott, Mokhiber, and Perez 2020; Scott 2020a; and Scott 2020b. See Supplemental chart notes at the end of the charts for more details on the data.

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As manufacturing lost about five million jobs in two decades, the low-wage service sector gained almost 30 million jobs: Change in U.S. employment overall and for construction, manufacturing, and service industries (millions), 1998–2019

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The elimination of nearly five million manufacturing jobs between 1998 and 2019 was accompanied by explosive job growth in service industries—growth that accounted for all U.S. employment growth in the nonfarm economy in this period. Most of the manufacturing jobs were shed between 1998 and 2007, the so-called China Shock period shortly after China entered the World Trade Organization and imports from China grew most rapidly. However, manufacturing job losses continued in the wake of the Great Recession (2007–2019). Meanwhile, jobs increased slightly in construction, a sector that, like manufacturing, has historically offered higher wages to non-college-educated workers than has the service sector.

Prior EPI research has shown that growing trade deficits with China displaced a disproportionately large number of good jobs for workers of color. Between 2001 and 2011 alone, the growth of the trade deficit with China displaced 958,800 jobs held by workers of color—representing 35.0% of total jobs displaced by the growing trade deficit with China. About three-fourths of jobs displaced were manufacturing jobs, which feature high pay and excellent benefits. As a result, in 2011 alone, those 958,800 workers of color displaced from higher-earning jobs in manufacturing and other traded industries into lower-earning jobs in nontraded industries earned $10,485 less in annual wages, which translates into a total loss of $10.1 billion per year.

Also not shown in the graph, the big shift toward service-sector jobs lowered average wages for all workers without a four-year college degree. First there is the composition effect; as the share of lower-wage service-sector work in the U.S. labor market increases, the average wage overall falls. In addition, growing competition with low-wage workers in countries such as China and Mexico also pulled down wages not just in manufacturing but for all workers with a similar skill set. As a result, earnings fall not only for manufacturing workers but for all workers without a college degree—by nearly $2,000 per year, according to one estimate. This wage suppression affected essentially all 100 million non-college-educated workers in the U.S. labor force in this period. As wages for workers without college degrees fall, the gap between their pay and the pay of college-educated workers grows. The college wage premium measures what college-educated workers make relative to those without a college degree. One study of the growth of the college wage premium from 1995 to 2011 found that the rapid growth of imports from China in that period explained more than half of the growth in the college wage premium, as described above.

For more on the China Shock, see Autor, Dorn, and Hanson 2016. For more on manufacturing job losses after the Great Recession, see Scott and Mokhiber 2020. For more on wage suppression of non-college-educated workers and its causes, see Bivens 2017, Scott 2015, and Bivens 2013b, and for the impacts of China trade on Black and Brown workers, see Scott 2013.

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Manufacturing and construction jobs have higher wages and better benefits than jobs in the exploding service sector: Average hourly compensation in construction, manufacturing, and service industries, 2021

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The decline in manufacturing employment and simultaneous rise in service industry employment means good middle-class jobs in America are being replaced by jobs with lower pay and benefits. Average wages and benefits in manufacturing are $40.71 per hour, 13.9% higher than in service industries. Wages and benefits in construction average $41.24 per hour, 15.4% more than in services. The gap is particularly wide in benefits. Relative to service jobs, the dollar value of manufacturing benefits per hour is 41.7% higher and construction benefits are 30.0% higher.

See Appendix Table 1 for employment change from 1998 to 2019 and mean wages for all 52 industries in the United States.

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Manufacturing and construction offer good employment opportunities for the non-college-educated workers who make up nearly two thirds of the workforce: Shares of jobs held by workers with given education level, by industry and overall, 2017–2020

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The shift away from manufacturing and construction employment to more service industry employment has meant lost opportunities for non-college-educated workers. That’s because manufacturing and construction industries employ a significantly larger share of workers with less than a four-year college degree: 84.6% of construction workers and 69.3% of manufacturing workers do not have a four-year college degree or more education, while 62.6% of service workers are non-college-educated workers. The disparities are even greater for workers with a high school diploma or less education, who make up 59.2% of construction, 43.0% of manufacturing, and only 33.3% of service workers. When good jobs with less restrictive educational requirements are readily available, that means more workers and families have an opportunity to attain a higher standard of living. Though not shown in the chart, investments in infrastructure, clean energy, and energy-efficiency improvements totaling $2 trillion combined with policies to rebalance trade could add at least three million good jobs in manufacturing and construction over a four-year period.

For more on the job-creating potential of a combined investment and trade rebalancing initiative, see Scott, Mokhiber, and Perez 2020.

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Black workers were especially hard hit by manufacturing job losses associated with globalization: Black share of workforce, total and manufacturing, 1977–2020

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The overall loss of more than 5 million manufacturing jobs during the past two decades hurt all of the workers who depended on those jobs to support themselves and their families. However, the losses among Black workers were uniquely troubling. The chart shows that until the early 1990s, as Black workers increased their share of the workforce, they were securing a roughly commensurate share of the higher-wage jobs available in manufacturing. The Black share of the manufacturing workforce peaked at 10.6% in 1992, which exactly equaled their share of the workforce. But in the 1990s, Black workers’ share of manufacturing jobs began to flatline and then fall. In 2020, Black workers made up 12.3% of all workers but only 10.2% of manufacturing workers. In raw numbers of jobs lost, the data behind the graph are startling: Black workers lost 646,500 manufacturing jobs between 1998 and 2020, a 30.4% decline in Black manufacturing employment.

Though not shown in the graph, the increasing underrepresentation of Black workers in manufacturing jobs relative to their share of the workforce since the 1990s occurred alongside the shift of a substantial share of U.S. manufacturing employment to Southern states, where black workers accounted for a much larger share of the population relative to other regions of the country.

Given the workforce-share declines Black workers suffered in the 2001 recession, the Great Recession that began in 2007, and the COVID-19 recession, it is important that the rebuilding underway today include a focus on Black workers, who experienced disproportionately large job losses in the last three U.S. recessions.

Also not shown here but available in Appendix Table 3: The number and share of Hispanic and Asian American/Pacific Islander (AAPI) workers in manufacturing both rose rapidly over the past 20 years, in line with their dramatic rise in overall shares of the workforce. However, Hispanic workers make up a disproportionately large share (30.0%) of workers in the low-wage and high-risk meatpacking and other food manufacturing industries.

For more on the substantial share of U.S. manufacturing employment moving to Southern states, see BLS 2021c.

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The lowest-earning workers without a college degree make twice as much in manufacturing as in other industries: Average annual earnings of manufacturing and nonmanufacturing workers without a four-year college degree and in the 10th percentile of earnings, by race and ethnicity, 2019

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Manufacturing provides good, steady employment, even for some of the lowest earners in the workforce. If you are a non-college-educated worker at the 10th percentile of earnings in manufacturing, you are making at least twice as much as your peers working outside manufacturing. This manufacturing pay advantage—which holds true for Black, Hispanic, Asian American/Pacific Islander, and white workers—is in part because average weekly hours are much higher in manufacturing and in part because unionization rates for these groups are higher in manufacturing. The advantage is substantial. Among the lowest paid Black and Hispanic workers, average annual earnings in manufacturing are twice as high as earnings in other industries, while white manufacturing workers’ annual earnings are 2.5 times as high and AAPI manufacturing workers’ annual earnings are three times as high as earnings in other industries. Note that in both manufacturing and nonmanufacturing industries, earnings of Black, Hispanic, and AAPI workers at the 10th percentile are lower than those of white workers at the 10th percentile. These racial and ethnic earnings differentials may reflect disparities in average weekly hours, occupations, or job responsibilities. While we cannot conclude discrimination from this data, it can be reflected in differences in hours, job assignments, opportunities for overtime, etc.

For more on how discrimination may appear in earnings differentials, see Wilson 2020.

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Typical non-college-educated workers in manufacturing are paid much more than noncollege workers in other industries: Annual earnings of workers without a four-year degree at the 50th percentile of earnings, by race and ethnicity, 2019

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A typical non-college-educated worker—i.e., a worker without a bachelor’s degree whose annual earnings fall at the 50th percentile or median—earns much more employed in manufacturing than in other industries, no matter what major racial or ethnic groups the worker belongs to. Among workers with less than a bachelor’s degree, median AAPI, Hispanic, and Black workers earn an additional $4,000 to $5,000 per year in the manufacturing industry compared with noncollege median workers in other industries. White noncollege median workers earn over $10,000 more. These dollar differences translate to a manufacturing pay advantage (how much more manufacturing workers make in percentage terms) of 14.3% for typical noncollege AAPI workers, 17.8% for typical noncollege Hispanic workers, 17.9% for typical noncollege Black workers, and 29.0% for typical noncollege white workers.

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Workers in construction and manufacturing are much more likely to be unionized (thus enjoying higher wages and better benefits): Share of workers represented by a union, by industry, 2019

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Manufacturing and construction provide excellent jobs, in part because more of these jobs are unionized. As much research shows, unions give workers more power to bargain for higher pay, better benefits and working conditions, training, and promotional opportunities, as well as protections against discrimination and harassment. Unions also help reduce racial- and gender-based economic disparities, and they support families with better benefits and job protections as well as better retirement security. Historically, unions have disproportionately benefited low- and moderate-income workers, as well as those with lower levels of education and workers of color.

For more on how unions raise pay and improve benefits and reduce disparities, see EPI 2021c. For more on the benefits of unionization for workers of color and workers with lower incomes and less education, see Mishel 2021.

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Unionized manufacturing and construction workers get a bigger pay boost from union representation than their unionized peers in service industries: Union hourly wage premium, by select industries

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Unionized workers in construction and manufacturing earn much higher hourly wages than nonunionized workers with similar characteristics in these industries. These union wage premium estimates control for the effects of education, occupation, experience, race, ethnicity, and other factors that help explain individual wage differences. The union wage premium in construction was 35.6%, more than four times as large as the union wage premium in service industry jobs (8.0%). The union premium in manufacturing (17.9%) is more than twice as large as the union wage premium in services jobs.

If the chart showed the overall union pay premium including benefits, the manufacturing and construction premiums would settle a little bit closer together because manufacturing workers get more in benefits than construction workers (as shown in Chart 3). But the gap would still be substantial.

Does unionization really offer a much bigger boost to construction workers than manufacturing workers? Yes, but the reason has little to do with unionization per se and much to do with globalization.

First, manufacturing workers must compete with low-wage workers in countries such as China, Mexico, South Korea, and Vietnam, meaning that even when in unions, they have much less bargaining power than construction workers, who do not face the competitive pressures from offshoring and unfair trade that make foreign goods and workers artificially cheap. Second, manufacturing work has been increasingly outsourced to less unionized staffing and temporary help services, which also puts substantial downward pressure on wages of U.S. manufacturing workers.

In short, the excess union wage premium in construction relative to manufacturing is another data point in support of the argument for investments and trade policies that bring manufacturing jobs back to the United States.

For more on the causes of unfair trade and how it artificially depresses wages of U.S. workers, see EPI 2018, Scott 2020a and 2020b, and Bivens 2013b and 2017. For more on the union status of the manufacturing temp help and staffing agencies, see BLS 2021b, and for more on increasing domestic outsourcing of manufacturing jobs to staffing firms, see Mishel 2018 and 2021. See Supplemental chart notes at the end of the charts for more details on the data.

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Manufacturing workers are much more likely to have health insurance than service workers, unionized or not: Share of workers with health insurance by select industry and union status

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Manufacturing workers, both union and nonunion, have higher rates of health insurance than comparable workers in services or construction. More than three-quarters (76.7%) of unionized manufacturing workers, 73.8% of unionized construction workers, and 73.7% of unionized service workers have employer-provided health insurance. Among nonunion workers, 66.6% of those in manufacturing have health insurance coverage compared with 53.6% of service industry workers and 44.9% of construction workers.

These data show another reason why an investment in and trade policies that support revitalizing manufacturing are critical to improving the lives of U.S. workers. By supporting the creation of more manufacturing jobs, more workers will have access to high-quality, company-provided health insurance, which will also reduce the demand for Medicaid and other forms of publicly subsidized health insurance, including American Care Act plans.

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Unionized workers are much more likely to have employer-provided pensions in all sectors: Share of workers with pension coverage, by union status

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Unionized workers are also much more likely to have employer-provided pensions than non-union workers—more than twice as likely in construction, 39% more likely in manufacturing (59.8%/43.0%), and 74.3% more likely in services (65.0%/37.3%). As is the case for health insurance, even nonunion manufacturing workers are much more likely to receive employer-provided pensions than nonunion construction or service industry workers. This is likely a spillover effect from higher rates of union membership among manufacturing workers (as shown in Chart 8). Employer-provided pensions and health insurance are valuable benefits that contribute significantly to workers’ total compensation and family economic security.

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Construction and manufacturing jobs offer higher wages for women as well as men: Average weekly earnings in three selected industries, by gender, 2017–2020

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Women employed in manufacturing earn $183 more per week (22.1%) than women employed in service industries, on average. And, though not shown, women working in manufacturing are paid much higher wages than women in rapidly growing service subsectors such as accommodations and food services and retail trade, where average weekly earnings for all workers are $480 and $715 respectively, compared with $1,215 in manufacturing, according to Appendix Table 1). Women in construction earn $105 more per week (12.7%) on average than women in service industry jobs. Men in manufacturing also earn more than men in services, while male construction workers make about the same a male service workers. (Data on average weekly earnings for all workers by industry are reported in Appendix Table 1.)

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Women are much less likely to be in the higher-wage jobs found in manufacturing and construction: Shares of employment in select industries, by gender, 2017–2020

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While women employed in the construction and manufacturing industries earn more than women employed in services, they are severely underrepresented in these higher-paying sectors. Women make up only 10.6% of workers in construction and 29.2% of manufacturing employment. The underrepresentation of women in construction and manufacturing industries is a missed opportunity for women without a college degree to earn a middle-class income comparable to that of similarly educated men.

Women’s limited access to good jobs in manufacturing and construction contributes to the gender pay gap. Though not shown in the chart, past EPI research shows that on average, in 2019 women were paid 22.6% less than men with comparable backgrounds (that is, adjusting for differences in education, age/experience, and region of the country). Given the gender pay gap and the potential of manufacturing and construction employment to close that gap, gender equity should be considered alongside racial equity when developing and implementing public policies to create more good jobs in manufacturing and construction.

For more on the gender pay gap, see Appendix Table 1 in Gould 2020.

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Nearly half of the jobs supported by climate and infrastructure investment and rebalancing trade would be good middle-class jobs in manufacturing and construction: Industry shares of jobs supported by trade rebalancing and by infrastructure and climate investments

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Low-wage service industry employment replaced good manufacturing jobs over the last two decades, accounting for all of net jobs added to the U.S. economy from 1998 to 2019, as shown in Chart 2. In contrast, investing in climate and infrastructure at the scale of the need, coupled with trade and financial policies that make U.S. goods competitive on global markets, and thereby eliminating U.S. goods trade deficits, would support a much higher share of good jobs in manufacturing and construction, helping reverse two decades of declining job quality. Nearly half (45.7%) of the jobs supported by investing in climate and infrastructure and 40.8% of the jobs supported by rebalancing trade would be in manufacturing and construction.

These estimates are based on EPI analysis in Scott, Mokhiber, and Perez 2020 of the job-creation potential of a two-pronged strategy for rebuilding the economy that includes $2 trillion of investments in infrastructure, clean energy, and energy-efficiency improvements over four years combined with trade and industrial policies that eliminate the U.S. trade deficit.

See Appendix Table 2 for an industry breakdown of jobs that would be supported by climate and infrastructure investments and rebalancing trade and average wages in those jobs.

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Jobs created by rebuilding the U.S. economy around high-wage jobs and manufacturing support much higher pay than service sector work: Average weekly earnings in jobs supported by trade rebalancing and by infrastructure and climate investments compared with services jobs, by race and ethnicity

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Jobs gained through rebalancing trade and expanding public investments in infrastructure, clean energy, and energy efficiency would offer higher average earnings than average service-sector jobs for workers in all major racial and ethnic groups. The average earnings shown in each bar are weighted average earnings for rebalancing trade and for infrastructure and climate investments versus weighted average earnings in service industries only, as shown on the services bar for each group.

Black workers in the new jobs supported by trade rebalancing and infrastructure and climate investment would earn roughly $100 per week more than in the service industry jobs, an earnings gain of 12.2% in jobs from new investments and 13.4% in trade rebalancing jobs. Hispanic workers would earn $145 to $149 more per week (from 19.9% to 20.4% more). Asian American/Pacific Islander workers would earn $93 to $166 per week more (from 8.3% to 14.7% more), and white workers would earn $146 to $212 more per week (from 14.4% to 20.8% more). Though not shown in the chart, gains in could push wages up throughout the economy. That’s because the types of jobs created by infrastructure and clean-energy investments and boosting U.S. exports include higher-paying manufacturing and construction jobs historically open to non-college-educated workers. Raising demand for these workers raises their pay. When combined with a strong emphasis on ensuring that Black, Hispanic, and other workers of color can access these jobs, the rebuilding plan would contribute to greater racial equity in the economy.

See Appendix Table 3 for an industry breakdown of the potential jobs gained, average earnings in those jobs, and the shares of jobs held by workers in different ethnic and racial groups. Detailed sectors that employ above-average shares of Black workers and/or other workers of color are bolded in the table.

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Supplemental chart notes

Chart 1

As shown in Chart 2, the U.S. lost 4.7 million manufacturing jobs between 1998 and December 2019. Chart 1 extends the data through the first quarter of 2021, an additional 388,000 manufacturing jobs were lost, for a total loss of 5.1 million jobs (BLS-CES various years). 

For readers familiar with our previous factory-loss estimates (more than 91,000 manufacturing establishments lost between 1997 and 2018, as reported in Scott 2020c), it is important to note that those estimates were based on earlier data from the U.S. Census Bureau’s Business Dynamic Statistics (BDS) through 2016, supplemented with County Business Patterns data on manufacturing establishment counts. Updated BDS statistics were released in September 2021 (U.S. Census Bureau 2021), which used NAICS-based industry definitions for the 1978–2019 period. The new NAICS-based establishment data reduced the total number of manufacturing plants by 23,2019 establishments in the base year of 1997 (a decline of 6.4%). The earlier BDS statistical series was based on a combination of Standing Industrial Classification (SIC) and NAICS (or census industry codes). In addition, the peak year in the number of manufacturing establishments in the 2021 BDS data occurred in 1998 (rather than 1997, as in the earlier data series). As a result of these changes and adjustments in industry coverage, the overall loss of manufacturing establishments between 1998 and 2019 declines to slightly less than 70,000 total establishments (from 91,000 in our earlier estimates). The switch from SIC- to NAICS-based industry definitions moved about 500,000 workers (and an unknown number of establishments) from manufacturing into service industries, in part through reclassification of contract manufacturing into the service sector. 

Our colleague Josh Bivens points out that failure by U.S. policymakers to ensure U.S. competitiveness abroad was not the only thing that suppressed demand for U.S. exports over the past two decades. Japan and the European Union did too little to support their own economic growth in the early 2000s and in the wake of the Great Recession, and their resulting slow aggregate demand growth suppressed potential demand for U.S. exports (see Bivens 2013a).

Finally, it is important to note that workers employed by staffing agencies, which subcontract workers to manufacturing establishments, are not counted as part of manufacturing employment in the BLS establishment surveys. Thus, about 11% of the decline in manufacturing employment shown in Chart 1 is explained by the rising numbers of workers paid by staffing and other temporary-help agencies that work in manufacturing establishments. These workers typically receive much lower pay and benefits than workers directly employed by manufacturing firms (Mishel 2018, Table 6). 

Chart 9

The chart reports the coefficient on union status from a regression of the log of the hourly wage on union status and a quintic polynomial in age (used as a measure of experience), and it uses dummies for race and ethnicity, education, citizenship, major industry, major occupation, state, and year. We exclude observations with imputed wages because the imputation process does not take union status into account and therefore biases the union premium toward zero. This analysis does not account for nonwage benefits.

To understand why wage premiums are larger in construction than in manufacturing, several factors should be considered. First, the charts only reports hourly wage premiums (excluding benefits). As shown in Chart 3, the average hourly value of employer-provided benefits in manufacturing ($10.78) is greater than those in construction ($9.89). The higher dollar value of nonwage benefits would compensate manufacturing workers for relatively lower wage premiums in manufacturing.

On the other hand, the construction industry employs a much larger share of workers with a high school diploma or less than the manufacturing industry (59.2% versus 43.0%, respectively) as shown in Chart 4, and yet the union wage premium in construction is clearly higher than in manufacturing, as shown in Chart 9. Thus, the fact that the wage premium for construction workers is larger than in manufacturing is particularly remarkable, since the wage premium for workers with a high school diploma or less would otherwise tend to be much smaller than that of a more educated pool of workers, such as manufacturing workers. Thus, something else is clearly sheltering construction workers from the competitive pressures felt by workers in manufacturing. Workers with a high school diploma or less would earn much less in service industry jobs, where two thirds of workers have higher levels of education (Chart 4, above), than they do in either manufacturing or construction.   

Exposure to international competition is clearly the most important factor exerting downward pressure on manufacturing wages. While construction workers are largely insulated from competition with low-wage workers in other countries, manufacturing workers are directly exposed to international competition, via massive and rapidly growing imports of manufactured goods from low-wage countries such as China, Vietnam, and Mexico. Total goods imports, which are dominated by trade in manufacturers, will reach nearly $2.9 trillion in 2021, an increase of 21.9% over import levels in 2020. Unfair foreign trade policies—along with currency manipulation and excessive foreign capital inflows, which together are responsible for the 25% to 30% overvaluation of the U.S. dollar—are the most important causes of soaring imports and U.S. goods trade deficits. In addition to boosting the cost of U.S. exports, an overvalued dollar makes the wages of foreign workers artificially cheap and increases the cost of U.S. labor relative to workers in countries with undervalued currencies. See EPI 2018, Scott 2020a, and Scott 2020b for more; this section is based on EPI analysis of U.S. Census Bureau 2021b.  

Acknowledgments

The authors thank Josh Bivens, and Riley Olson for comments, and Lora Engdahl for editing assistance. This research was made possible by support from the Alliance for American Manufacturing.

Appendix Table 1

Appendix Table 2

Appendix Table 3

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Autor, David H., David Dorn, and Gordon H. Hanson. 2016. “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade.” National Bureau of Economic Research Working Paper w21906, January 2016.

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Bivens, Josh. 2013b. Using Standard Models to Benchmark the Costs of Globalization for American Workers Without a College Degree. Economic Policy Institute, March 2013.

Bivens, Josh. 2017. Adding Insult to Injury: How Bad Policy Decisions Have Amplified Globalization’s Costs for American Workers. Economic Policy Institute, July 2017.

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Here, we update a previous analysis to reflect the latest state of the legislation and assess its potential impact on U.S. labor markets. Overall, we estimate that the Build Back Better Act (BBBA) will provide support for 2.3 million jobs per year in its first five years, shown in detail in Table 1, below. Add to this an estimated 772,000 jobs per year supported by the bipartisan infrastructure deal, also referred to as the Infrastructure Investment and Jobs Act, passed last Friday in the House, and you get more than 3 million jobs supported per year.

With the U.S. economy still running at least 5.5 million jobs short relative to its pre-pandemic trajectory, sustained support for job creation is a key benefit of the plan, but the economic impact will be much farther reaching. For example, roughly half of the jobs supported by BBBA result from new and expanded caregiving initiatives for universal pre-K (332,000 jobs per year), child care (574,000), and long-term care (238,000). Good jobs in these industries—where workers are deeply undervalued and underpaid—are just the tip of the iceberg that will also help get more parents back into the workforce and relieve the exorbitant financial burdens of child care and long-term care weighing on working families.

As 17 Nobel Prize winners in economics recently highlighted, BBBA is a supply-side economic plan that enables more working-age people to participate productively in the U.S. economy and invests in the long-term achievement of younger generations. Such policies provide a countervailing force against current inflationary pressures and provide insurance against the economic recovery faltering under too little policy support—a costly mistake made during the Great Recession of 2007-2009.

With the plan fully paid for, transforming the U.S. economy to be more equitable, efficient, sustainable, and prosperous should be a no-brainer. Yet there is still more work to be done to meet all of America’s pressing social and economic challenges, and more fiscal policy space available for Congress to pursue those goals.

Table 1

Alabama prisons are decrepit, dangerous, and massively overcrowded to such an extent that the U.S. Department of Justice (DOJ) has sued the state over the unconstitutional conditions. Raiding funds designed to help people and communities recover from pandemic-related economic distress will do nothing to make Alabama more humane and inclusive, particularly when Black Alabamians are three times more likely to be incarcerated than white Alabamians due to discriminatory practices in policing and incarceration.

The state has a better path to build a more sensible criminal justice system and avert a potential federal takeover. New buildings to house the same old problems won’t get us there. Real change will require meaningful changes to sentencing and reentry policies.

Sentencing reform is vital to build a more humane criminal justice system in Alabama

Alabama’s sentencing scheme still relies on outdated ideas about punishment and limits availability of services shown to improve reentry. One example is the state’s Habitual Felony Offender Act (HFOA), which increases sentences for even minor offenses. Like other mandatory minimum laws, it is a relic of earlier racially motivated “tough on crime” practices and leads to higher rates of incarceration throughout the South.

The state legislature made minor improvements to the HFOA in 2015 but refused to make them retroactive. That failure has left hundreds of Alabamians still serving sentences for convictions that today would result in less time under current presumptive sentencing guidelines.

Those of us at Alabama Arise support full repeal of the broken HFOA. Until then, the state—at minimum—should ensure people aren’t serving wildly different sentences for the same conviction.

Those efforts have proved to be an uphill battle for reform advocates. During September’s special session, lawmakers failed to pass a bill to allow some people to petition for resentencing under current standards. Legislators also have failed in recent years to expand medical release and releases for elderly people who have aged out of reasonable likelihood of recidivism. Efforts to expand and improve diversion programs have stalled as well.

All these policies would save Alabama money in the long run. They also would demonstrate respect for the humanity of incarcerated people. But legislators have chosen not to act.

This persistent refusal to engage in meaningful reform could severely cost Alabama. Failure to take even small steps to reduce overcrowding and improve atrocious conditions may spur DOJ to conduct a wholesale takeover of the state’s prison system. If that happens, the legislature will have only its own inaction to blame.

How federal aid should help Alabamians

The consequences of prioritizing bad spending go beyond federal intervention in the broken prison system. ARPA relief funds represent an opportunity to move Alabama forward in many areas that would increase opportunity and stability for people across the state.

Provide health care to hundreds of thousands of uninsured Alabamians

More than 220,000 Alabamians live in a Medicaid coverage gap. They make too much to qualify for Medicaid under the state’s bare-bones eligibility limits but too little to qualify for subsidized coverage through the Affordable Care Act. Another 120,000 Alabamians have stretched their finances to pay for coverage they can’t truly afford.

Federal ARPA funds would allow Alabama to expand Medicaid. Alabama could use these dollars to meet other critical spending priorities. This would free up state funds to pay for the startup of an expanded Medicaid program to cover adults left out of coverage.

Update infrastructure and invest in equity

Alabama should use ARPA funds to update and expand infrastructure and support services. Economic fallout from the COVID-19 pandemic has placed a disproportionately heavy burden on women, Black Alabamians, and communities with few resources upon which to fall back. Investments in child care, expanded early childhood education, and long-term postpartum health coverage would deliver major improvements in quality of life for people hit hardest during the pandemic.

Federal relief should be used both to lessen the pandemic’s immediate harm and to break the pattern of long-term, intentional disinvestment in the Black Belt and other areas. Community-based organizations offer valuable connections and expertise to guide investment to where it is needed. The state should ensure these groups have the capacity and pathways to provide input on best uses for relief money.

Finish implementing solutions on housing and public transportation

ARPA funds also represent an opportunity to take steps forward where lack of political will has hindered full implementation of state solutions. Within the past decade, the legislature created both the Public Transportation Trust Fund and the Affordable Housing Trust Fund (AHTF). But it has failed to provide a single dollar for either.

Transportation investment would improve quality of life for everyone. Robust public transit creates long-term, high-wage jobs and enables people to travel to work reliably and inexpensively. It is a vital public good that helps the elderly and people with disabilities fully participate in public life.

Housing investment would help alleviate the state’s severe affordable housing shortage. State AHTF funding would increase community resilience by allowing struggling families to spend less of their incomes to keep a roof over their heads. It also could help speed up rental assistance and prevent evictions during future recessions.

Increase transparency and modernize technology

Alabama’s technological infrastructure has lagging contemporary standards. Early in the pandemic, this resulted in major delays of unemployment insurance payments. The patchwork of IT systems at all levels of state government has contributed to public confusion and delays. Technology investments would reduce duplication of effort and increase access to public information.

A new path forward

ARPA funds provide a generational opportunity to begin remedying policy shortcomings that have held back progress and perpetuated inequality in many states. For example, advocates in other Southern states such as Oklahoma and West Virginia are developing proposals to use the unprecedented number of resources to address the over-policing and incarceration of Black and Brown communities. For Alabama, now is an opportunity to undo some of the damage of the state’s history of racist policy choices. This chance is too valuable to waste by doubling down on past failures like overly punitive criminal justice policy.

The legislature’s recent misuse of $400 million is inexcusable, but this bad decision has not blocked the path forward. The remaining ARPA funds are a chance to invest in adequate resources and transparent, responsive government. Our state must seize this opportunity to improve life significantly for every Alabamian.

Children whose parents couldn’t find decent work? Underserving of a modest unconditional tax credit. Millionaire heirs? Deserving of maintenance of a zero tax rate on inherited capital gains. 2

— Josh Bivens (@joshbivens_DC) November 2, 2021

The essence of the new complaint is that the revenue increases in the BBBA are permanent, but a number of the spending provisions and tax credits sunset before the end of the 10-year budget window. Hence, the bill is not really “paid-for” and will increase budget deficits. 4

— Josh Bivens (@joshbivens_DC) November 2, 2021

The BBBA negotiations landed in a spot where it is funded with revenue instead of debt – and that’s great! The tax provisions are genuinely valuable in and of themselves, and, they will not neutralize any of the macroeconomic benefits of the spending. 6

— Josh Bivens (@joshbivens_DC) November 2, 2021

The inevitable comparisons credulous commenters will make are to the tax cuts passed under George W Bush and Donald Trump. All of these tax cuts contained at least some provisions which sunsetted over the 10-year budget window, aiming to make their deficit impact look smaller. 8

— Josh Bivens (@joshbivens_DC) November 2, 2021

It seems odd to need to say more about this, but the BBBA critics make a further claim that sunsetted provisions in fiscal bills never really get sunsetted. Future Congresses, in this claim, will be unwilling to reduce BBBA spending. Hence, shell game. 10

— Josh Bivens (@joshbivens_DC) November 2, 2021

On the logic – if future Congresses think the spending provisions of the BBBA are so popular with the public that they can’t be sunsetted, won’t they also think these provisions are popular enough to ask the public to support them with some revenue increases? 12

— Josh Bivens (@joshbivens_DC) November 2, 2021

On the empirical claim that provisions are never sunsetted – a non-trivial portion of the Bush tax cuts were indeed allowed to sunset – roughly 20%. Importantly, these were a much larger share of the cuts these delivered to high-income households. 14

— Josh Bivens (@joshbivens_DC) November 2, 2021

And yes, I would’ve rolled back more – but the simple fact is that tax cuts on the rich went up non-trivially under the Obama administration. It was a fight, but, provisions not-loved by the majority can be rolled back or allowed to sunset. 16

— Josh Bivens (@joshbivens_DC) November 2, 2021

The real fear here is obviously not about the size of deficits. If it was, today’s critics would simply support any number of sensible and progressive measures to raise more revenue.18

— Josh Bivens (@joshbivens_DC) November 2, 2021

The fear instead seems to be that the BBBA might really deliver enough to alert U.S. families about what is possible for a decent government to do, and remind them that ours has done so little for them for so long. 19

— Josh Bivens (@joshbivens_DC) November 2, 2021

How much will such compromise cost the U.S. economy? We crunched the numbers to find out what compromising on the BBB plan will mean for every state and congressional district in the United States. If the budget reconciliation package is cut from $3.5 trillion to $1.5 trillion—as Sen. Joe Manchin (D-W.V.) has called for—nearly 2 million fewer jobs per year would be supported.

In a previous analysis, we showed that the BBB agenda—combining the Bipartisan Infrastructure Framework and the proposed $3.5 trillion budget reconciliation package—would support more than 4 million jobs annually. It would also make critical investments that would deliver relief to financially strained households, raise productivity, and dampen inflation pressures to enhance America’s long-term economic growth prospects. David Brooks, the center-right New York Times columnist, recently captured the significance of these initiatives when he wrote that these are “economic packages that serve moral and cultural purposes. They should be measured by their cultural impact, not merely by some wonky analysis. In real, tangible ways, they would redistribute dignity back downward.”

Sen. Manchin and Sen. Kyrsten Sinema (D-Ariz.) are intent on scaling back Build Back Better’s purpose. While Sen. Sinema has not publicly staked a position outlining her objections, Sen. Manchin has telegraphed a top-line spending figure of $1.5 trillion as the maximum he would support.

The $2 trillion gap left by Manchin’s proposal cuts far deeper than any of the policy specifics he proposes eliminating. Even if he succeeded in eliminating all climate-related funding in the BBB agenda budget resolution, for example, Manchin’s plan would still fall nearly $1.8 trillion short. Thus, for the purpose of our analysis, it makes most sense to assume that hewing to Sen. Manchin’s demands would mean a proportional cut across all of the BBB agenda’s individual initiatives (more on the methodologies used here and here).

Besides delivering fewer tangible benefits to typical families, scaling back Build Back Better also severely compromises the package’s value as macroeconomic insurance against recovery waning in the coming years.

Absent the Build Back Better package, there is no guarantee of robust growth once the provisions of the American Rescue Plan—enacted in March of this year—begin fading out in earnest in mid-2022. The U.S. economy is not out of the woods yet. In past instances, policymakers have too often erred on the side of withdrawing fiscal support too early, resulting in protracted recoveries and prolonged spells of elevated unemployment, which ultimately undercut America’s future economic potential. The BBB package would counter a potential slump and effectively support millions of jobs, especially if a host of plausible scenarios occur, including:

• if private spending fails to sustain growth after the American Rescue Plan fades;
• if the pandemic evolves and continues weighing on economic activity; or
• if other unforeseen shocks to the economy emerge and threaten a robust recovery.

Scaling back the plan now, as Sens. Manchin and Sinema would like, will support millions fewer than the original package. In total, Sen. Manchin’s proposal would support nearly 1.9 million fewer jobs per year than the Build Back Better agenda. Full results for each state and congressional district can be downloaded here and viewed in the figures and table below.

• Every state and Washington, D.C., would see fewer jobs supported under Sen. Manchin’s proposal than the BBB agenda. The largest states would experience the largest absolute losses in jobs potential. California would see 211,853 fewer jobs per year, while Texas, New York, and Florida would see 149,050, 116,584, and 106,205 fewer jobs per year, respectively.
• West Virginia would see 9,880 fewer jobs annually under Manchin’s plan, equivalent to 1.33% of the state’s overall employment. West Virginia would be no better off in terms of jobs in fossil fuel industries, but would see 900 fewer manufacturing jobs, 400 fewer construction jobs, and 3,800 fewer health care and social assistance jobs.
• Arizona would see 35,564 fewer jobs per year, equal to 1.17% of state employment, including 2,500 fewer manufacturing jobs, 1,600 fewer construction jobs, and 11,400 fewer health care and social assistance jobs.
• Alaska would be most impacted by fewer jobs under Manchin’s proposal relative to the size of its economy, losing out on jobs equivalent to 1.39% of its total employment, but all states and D.C. would forgo more than 1% of total employment.
• All congressional districts would see fewer jobs supported under Manchin’s proposal than under the BBB plan, ranging from 0.9% to 1.5% fewer jobs supported as a share of overall district-level employment.
• Districts represented by so-called moderate House Democrats would take material hits to jobs under Manchin’s plan relative to the BBB reconciliation plan. Rep. Josh Gottheimer’s (D-N.J. 5th) would see support for 7,700 fewer jobs per year in his district under Manchin’s proposal and Rep. Stephanie Murphy (D-Fla. 7th) would see 7,600 fewer jobs. Altogether, the bloc of 10 moderate Democratic members would see 70,700 fewer jobs supported across their districts relative to the BBB plan.
• Manchin and Sinema have become linchpins in this legislative negotiation to a large extent because of an ideological hollowing out of the “center” of Republican party officials. Supposedly moderate Senate Republicans would not even entertain engagement over the broader Biden-Harris economic agenda, but their constituencies, too, would be worse off under Sen. Manchin’s proposal to cut the BBB agenda.
  • Maine would see 8,300 fewer jobs supported per year, or 1.3% of state employment.
  • Utah would see 16,600 fewer jobs per year.
  • Ohio would miss out on economic support for an additional 71,900 jobs annually.

Figure A

Figure B

Table 1

The proposal also calls on Congress to develop comprehensive legislation to strengthen and extend protections against the abusive practice of misclassifying employees as independent contractors and uses federal housing grants to incentivize inclusionary zoning practices to alleviate the nation’s housing shortage.

On the tax side, it raises taxes on realized capital gains and on corporate income, and it closes loopholes and tightens enforcement in an effort to raise revenue through greater tax compliance.

About 18 months ago, we at EPI released a blueprint for guiding fiscal policymakers. In this blueprint, we identified the main targets of fiscal policy as: ensuring high-pressure labor markets and low unemployment, reducing inequality, and then (and only then) reducing the economic obligations incurred by the public debt.

The Biden administration’s budget (particularly given the passage of the American Rescue Plan earlier this year) scores extremely high on these marks. Specifically:

• The mix of spending and progressive tax increases would provide a large expansionary boost to aggregate demand in coming years. This provides a powerful backstop for efforts to push unemployment to very low levels and to generate high-pressure labor markets that boost wages, with the goal of eventually reaching full employment. For example, the budget forecasts an unemployment rate at 4.1% or below as soon as 2022 and persisting for the rest of the 10-year budget window.
• The budget would unambiguously reduce inequality, mostly through its taxes on capital income—income accruing to households simply by virtue of them owning wealth. However, the spending side of the budget also ensures a more equitable distribution of the benefits of economic growth, even if many of them would not show up directly in measures of household income. The care investments included in the budget, for example, may not boost household income directly, but it would remove a large cost item from the household budgets of families.
• The budget’s debt targets focus on a much more sensible measure than previous budgets: the inflation-adjusted interest payments on public debt (or, the real debt service ratio). This indicator is a far better metric for measuring the burden of public debt. It should replace the ratio of public debt to gross domestic product (GDP) as the standard measure used in fiscal debates. This real debt service ratio shows historically low burdens from public debt today.
  • This ratio tells us something clear about upcoming fiscal debates: As useful as the tax increases in the Biden budget are, if the legislative process does not allow the full amount of these tax increases to become law, this does not mean that the spending proposals should be scaled back. Instead, they should simply be financed with debt.

Below, we expand a bit on each of these points.

A budget that will support high-pressure labor markets

As we noted in our fiscal policy blueprint from 2019, achieving high-pressure labor markets with very low rates of unemployment should be the first priority of fiscal policymakers. This doesn’t just mean bumping up spending when recessions hit (though it does mean that)—it means that these spending boosts should be reeled back in very slowly so long as the economy is operating below potential. There may have been a time in recent decades when the fiscal support needed to generate recovery from recessions could be relatively short-lived, but The Great Recession and its prolonged recovery should have alerted policymakers that this is not the case today (if it ever was).

For example, in the last business cycle before the COVID-19 shock, the pre-recession unemployment rate low (achieved in 2007) was only reattained a full decade later in 2017. This was despite the fact that monetary policymakers—the Federal Reserve—tried throughout this entire period to generate a more rapid recovery with unprecedented policy maneuvers to spur recovery. The lessons of this episode should be clear: The Fed’s ability to generate rapid recoveries has always been a bit overstated by policymakers, and it has been especially constrained in recent years as interest rates have hovered barely above zero (providing very little potential room to cut them). This implies that fiscal policy will have to shoulder much more of the burden of bringing the economy all the way back to full recovery following negative shocks.

People often equate fiscal stimulus with larger deficits. This does not always have to be the case. During the recessionary phases of business cycles, both discretionary rescue packages and automatic stabilizers should be debt-financed. But a budget that includes spending increases and progressive tax increases can be expansionary. Because rich households save more than they spend of each extra increment of income, taxing some of this income away does not reduce economywide spending dollar-for-dollar. Financing public spending with tax increases from these rich households hence provides a “balanced budget multiplier” that can support growth.

The Biden administration budget does even better than a “balanced budget multiplier” on this score—it staggers the spending increases ahead of the tax increases, making the budget deficit-reducing in the long run but allowing deficits to rise in the near term. This is near-optimal for supporting high-pressure labor markets.

A budget that will reduce inequality

The Biden administration calls for large tax hikes on capital income. Currently, such income is taxed far more lightly than income generated through work. This gap in tax rates between income accrued from wealth versus work is the greatest failure of our tax code to keep inequality in check. The Biden budget includes both increases in corporate tax rates and increases in the tax rates on capital gains. Both of these taxes fall overwhelmingly on owners of corporate stock—and this ownership is highly concentrated among the very wealthy. In the latest data from the Federal Reserve, for example, the wealthiest 1% of households alone own more than half of corporate equity, while the wealthiest 10% own more than 85%.

Further, the Biden budget includes traditional infrastructure, green, child, and elder care investments. Such investments will not show up mechanically as income in the pockets of typical U.S. families (aside from the millions of workers directly providing these investments), but they will provide public goods and services that are at least as good as income. Transit investments will reduce costs of commuting; school facilities investments will increase the quality of schooling; child and elder care investments will provide huge cost relief for household budgets, and they will additionally free up parents and unpaid care providers to provide more work to paid labor markets if they choose. In short, these investments will not only make us richer as a country, but they will also produce economic growth that is by its nature more broadly shared across U.S. families.

A budget that is clear-eyed about fiscal burdens

Traditionally, the most common metric summarizing the nation’s fiscal burden has been the ratio of public debt to GDP. But this measure never made a lot of sense. For one thing, it is purely backward-looking—it tells us nothing about the current policy stance or future prospects; instead, it tells us what past budget deficits accumulated to. Further, the measure is inherently an apples-to-oranges measure, dividing a static stock measure (the value of the public debt at a single point in time) with an income flow (GDP—national income generated over a year).

The Biden administration budget introduces a much more useful metric to inform these debates: the real (inflation-adjusted) cost of interest payments on the public debt, divided by GDP. This is known as the real debt service ratio. You can see this on the last line of Table S-1 (page 37) here.

This measure does tell us about the current policy stance and future prospects. Interest rates are informed not by today’s budget deficits (or those of a decade ago), but by projected future deficits—which are driven by the current policy stance. Further, this measure compares a flow of income (interest payments to holders of U.S. debt) with another flow of income (GDP). It hence avoids the apples-to-oranges conceptual problem of the debt-to-GDP ratio.

These measures can tell us dramatically different things about the state of the public debt burden. In 2020, the debt-to-GDP ratio is at its highest level since the 1940s or 1950s (depending on the precise measure used). Yet the real debt-service-to-GDP ratio for the current year is negative, meaning that today’s borrowers in financial markets are effectively paying the U.S. government for the privilege of financing the public debt. In short, there is less than zero burden today. This real debt service ratio is forecast to stay negative for most of the next decade.

This more sensible measure of the debt burden tells us something very clearly in the coming debate over the Biden administration’s spending and tax plans: As useful as the tax increases are in these plans, they should not cap the ambition on the spending side. If not enough senators can be convinced to raise taxes as much as the Biden budget calls for, this should not mean compromises need to be made on the spending side. Instead, the real debt service ratio tells us there’s plenty of room to borrow to do this spending—particularly the parts that are temporary investments.

In this post, we highlight—in very broad strokes—what is needed to build an economy that generates faster, more sustainable, and more equitably distributed growth. We then identify where the administration has made progress in the first 100 days and where more forceful action is needed.

Building an economy that works for everyone requires the following:

• Pursuing a “go-for-growth” approach to macroeconomics that aims for labor markets where jobs are plentiful and employers have to work hard (including offering higher wages) to attract workers, so-called “high-pressure” labor markets.
• Crafting and enforcing fairer rules for markets, particularly through labor market institutions and standards that provide workers a more level playing field when bargaining with employers for better pay and working conditions.
• Constructing deeper and more protective social insurance systems that use a larger public role in providing unemployment benefits, health coverage, and retirement income security— including long-term care for older adults and people with disabilities.
• Undertaking ambitious public investments in both people and physical capital, including physical infrastructure, early child care and education, higher education, and green investments.
• Reforming taxes in a way that helps finance the needed fiscal spending in this program, curbs growing inequality, and discourages the economic “bads” of greenhouse gas emissions and financial speculation.

Below, we expand on these points and assess the Biden-Harris administration’s progress in the first 100 days. The brief summary is:

• A comprehensive $1.9 trillion relief and recovery bill—the American Rescue Plan (ARP)—has passed that will secure a go-for-growth approach to macroeconomics for most of its first term—a very large accomplishment.
• One proposed plan—the American Jobs Plan (AJP)—calls for investments in traditional infrastructure, green investments, and long-term care—all financed with progressive taxes. But this plan has not yet passed, and the labor standards included in it have no real enforceable mechanism yet.
• Another plan just released today—the American Families Plan (AFP)—proposes large investments in children and higher education and is financed by progressive taxes on capital incomes accruing to the richest households.
• Decent first steps in improving administration of unemployment insurance (UI) and affordability of health care have been made in the ARP and AFP, but concrete plans for permanently deepening crucial social insurance programs are yet to be done.
• Tough-minded but realistic strategies to pass transformative policies like the Protecting the Right to Organize (PRO) Act and Raise the Wage (RTW) Act remain to be formulated.

“Go-for-growth” macroeconomics

The first 100 days of the Biden-Harris administration deserve very high marks on this front. In the face of loud voices declaring that their plans for macroeconomic rescue would lead to economic “overheating” (inflation and interest rate spikes), the administration held firm and secured passage of the American Rescue Plan (ARP). If measures to suppress the coronavirus work and it is safe to return much closer to economic normality in coming months, the ARP will drive rapid and large reductions in unemployment. This is in stark contrast with the too-small efforts at fiscal rescue following the Great Recession of 2008.

A go-for-growth approach to macroeconomics can never be secured forever with one piece of legislation—it requires consistent monitoring of macroeconomic trends and requires an evidence-based Federal Reserve to buy into it. But the ARP is a great start, and the Fed has so far been admirably supportive. The benefits of high-pressure labor markets are large, and they accrue disproportionately to workers facing historic discrimination in labor markets, making them a powerful tool for fostering both economic and racial equality. This solid macroeconomic approach is a superb first achievement for the administration.

Crafting and enforcing fairer markets—especially through labor standards and institutions

The two most important changes to labor standards and institutions currently being proposed are the Protecting the Right to Organize (PRO) Act and the Raise the Wage Act (RTW). The PRO Act is a comprehensive reform of labor law which would significantly improve the prospects of U.S. workers trying to organize unions in the face of growing employer hostility and abusive union-busting tactics. The RTW Act would raise the federal minimum wage to $15 per hour by 2025 and index it thereafter to growth in typical workers’ wages. Combined, these two pieces of legislation would rebuild two of the most important bulwarks to wage growth for the large majority of U.S. workers. Further, collective bargaining and large expansions of the federal minimum wage have in the past been two of the most powerful measures we’ve ever seen for fostering greater equality by both race and income class.

The Biden administration has admirably expressed support for both measures. The fact that the Biden administration has issued an executive order establishing a White House Task Force on Worker Organizing and Empowerment is particularly welcome, as is their Statement of Administration Policy (SAP) in support of the PRO Act. (In contrast, the Obama administration never issued a SAP in support of the labor law reform effort made in its first term.)

But the U.S. Senate remains the principal roadblock to both the PRO Act and the RTW Act. A serious strategy is needed to move these vital pieces of legislation past this roadblock, and the White House is the most obvious place for such a strategy to originate. In particular, the Senate filibuster imposing an implicit 60-vote threshold on most legislation means that a significant modification of Senate norms is likely needed to pass these bills. Either filibuster reform is needed, or the budget reconciliation process (which provides an end run around the filibuster for budget-related legislation) needs to be stretched further than it has been in the past, even in the face of unfriendly opinions from the Senate parliamentarian.

Much of the progressive agenda can pass through budget reconciliation if 50 votes can be found in the Senate. Under current Senate norms (and that’s all they are—norms—which have been broken repeatedly by Republican-run Senates), the PRO and RTW Acts could not be passed with 50 votes. If the current Biden administration ends with no progress on these fronts, the upward march of inequality in the U.S. is near guaranteed to continue. Rhetorical support from the administration is a good first start on these vital bills—but more is needed, and soon.

While labor standards that apply economywide, like the PRO and RTW Acts, are the really transformational changes to the economy’s rules, there are smaller measures in the labor standards space that could still help groups of workers in nontrivial ways that remain to be secured. For example, in a following section, we discuss the administration’s proposals for ambitious public investments which, if enacted, would be important steps down a path toward broadly shared prosperity. One key way to make these investments even more impactful in supporting high-quality jobs would be to make sure that the labor standards associated with them are strong. Much like their rhetorical support of the PRO and RTW Acts, the Biden administration has called for strong project-specific labor standards to accompany the investments in the American Jobs Plan (AJP), but a legislative and regulatory strategy to ensure they do is yet to come forth and is crucial.

The administration also yesterday issued an executive order requiring federal contractors to pay a minimum wage of $15 per hour. This is a very welcome step and will increase the earnings of up to 390,000 low-wage workers on federal contracts. We encourage the administration to go further to help ensure that the estimated two million total jobs held by federal contract workers are good jobs. This would include steps like ending practices that allow low-road contractors to win bids that are so low they are inconsistent with decent pay and working conditions, and banning federal government contractors from requiring contract workers to sign forced arbitration and class action waivers.

More generous and accessible social insurance

During the COVID-19 pandemic, huge but temporary changes were made to the U.S. unemployment insurance (UI) system to make it more protective and generous to jobless workers. But decades of disinvestment in state-run UI systems meant that this aid was fraught with administrative problems and took too long to reach millions. Worse, the more generous aid “turned off” for months due to congressional inaction. While the ARP extended the more generous pandemic UI provisions through September of this year, no structural reform has happened yet. Going forward, a comprehensive reform of UI that makes it more generous, more automatically responsive to economic conditions, and easier to access should be a key priority. The American Family Plan (AFP) provides money for states to invest in their delivery systems and calls for more fundamental reform, but it does not contain policy specifics, so more work on this front is needed.

The job losses spurred by the pandemic also cost millions access to health insurance they received through their employer-based plans. Moving to a U.S. health system with a much larger public role is needed to provide real economic security to jobless Americans. A larger public role would also greatly increase economic flexibility and opportunities for workers and for aspiring business owners. The ARP included a welcome and large increase in subsidies provided for health insurance purchased in the marketplace exchanges created by the Affordable Care Act (ACA), and the proposed American Family Plan (AFP) would make more generous subsidies permanent. Encouraging Medicaid expansion into states that have not yet adopted the ACA provisions on this and allowing a lower age of eligibility for Medicare (including perhaps a “buy-in”) are other key priorities that the administration and Congress should take up in coming months.

Finally, the pandemic has highlighted that the primary constraint keeping people who would otherwise like to work out of paid labor markets is caregiving responsibilities. Public investment in early child care and education (which we discuss below) could help families meet many of these caregiving responsibilities, but expansions of public caregiving for older adults and those with disabilities that is proposed in the administration’s American Jobs Plan (AJP) could also help many. These investments would allow everybody—not just the rich—to afford decent care for loved ones who are elderly or have disabilities and would improve the job quality of caregiving jobs.

Both the vital services provided by the increased caregiving spending as well as the boosts to job quality of caregiving employment will provide disproportionate benefits to women. In particular, women bear a hugely disproportionate burden in providing unpaid eldercare, and women (and particularly women of color) make up a very large majority of paid care workers. Given the large and progressive benefits of this expansion of public caregiving spending, it is encouraging to see these investments included in the AJP proposal.

Ambitious public investments

The U.S. clearly could benefit from large public investments in traditional infrastructure, but large investments in decarbonization strategies and in people are also needed.

The case for traditional infrastructure is well understood. The case for a large public role in financing and directing green investments is even more vital. Until the price of emitting greenhouse gases (GHGs) is raised significantly by policy (like a carbon tax or direct regulations), private investment in GHG mitigation (like building weatherization or installing solar panels) will remain far below efficient levels.

This green investment is optimally financed directly through the public sector, and most of it should be financed with debt, even if the economy has largely recovered. After all, our children and grandchildren will be far better off inheriting an economy with a higher debt ratio but lower stock of GHGs in the atmosphere than inheriting an economy with low debt but higher temperatures.

With regards to investment in people, besides the expansions in care investments for older adults and those with disabilities highlighted above, early child care and education and higher education could be made much more affordable and higher quality for U.S. families. This would not only benefit the receiving families directly, but would also have large spillover effects in building a more productive economy overall. Further, anything that improves the resources available to poorer families with children has been shown to have large effects down the road in boosting their productivity as adults. This includes direct provision of health and nutrition assistance, but also cash. Finally, since these investments also call for higher pay and better training for the early child care and education workforce, they will provide disproportionate benefits to women (and disproportionately women of color), who make up the large majority of workers in this sector currently.

The American Jobs Plan (AJP) includes many of the investments in traditional infrastructure and green investments, while the American Family Plan (AFP) has excellent provisions to make both early child care and education as well as higher education more affordable for families. The AFP also extends the large increases in the Child Tax Credit included in the ARP until 2025. These are big steps in the right direction.

Tax reform for the common good

Much of the spending proposed so far by the Biden administration—particularly those meant for macroeconomic stabilization and one-time investments—can and should be financed with debt, not taxes. But expansions of permanent programs should be mostly financed with more revenue. The U.S. can certainly afford this—we are among the most lightly taxed rich nations in the world. The first tranches of increased tax revenue to finance permanent spending expansions should be raised from high-income households, either through increases in the progressivity of the tax code or through greater and more progressively targeted tax enforcement. Other areas of tax reform should aim to correct economic “bads” like GHG emissions and financial speculation.

So far, the Biden administration’s proposed taxes are clearly progressive. The AJP includes increases in taxes paid out of corporate income (essentially repealing large chunks of the most egregious bits of the Tax Cuts and Jobs Act (TCJA) from 2017), and the AFP is said to include tax increases on capital gains accruing to the highest-income households. This includes the elimination of an egregious loophole (“step-up basis”) that allows large intergenerational transfers of wealth to happen untaxed. All these taxes affect high-income households while barely touching low- and middle-income households.

The administration has also made several welcome and concrete steps in moving toward greater tax enforcement, particularly on high-income households and corporations. This includes a multilateral effort to crack down on abusive tax havens.

Taxes on economic “bads” like GHG emissions and financial speculation have not yet been mentioned. We hope further progress on these fronts is made.

Conclusion

The administration deserves praise for what has happened so far and much of what they have proposed. And normally one would want to cut a little slack for strategies yet formed on passing key bills. After all, it has only been 100 days. But the economic challenges facing U.S. families are huge and time is ticking. As hard as it is to believe, every 100 days going forward into 2022 need to be just as productive as the first in meeting these challenges.

• The bulk of these tax provisions undo some of the worst parts of the Tax Cuts and Jobs Act (TCJA) passed in the first year of the Trump administration. Given this, to make the case that rolling back these parts of the TCJA will harm the U.S. economy, one has to believe that the passage of the TCJA benefited the U.S. economy. There is no evidence this is the case.
• The entire case for corporate tax cuts benefiting the U.S. economy hinges on the effects on business investment. But business investment growth in the two years following the TCJA’s passage (even before the COVID-19 shock) was cratering, not rising.
• The vast majority of new revenue that will be raised from the AJP tax provisions will come from taxing “excess profits”—profits accrued by virtue of monopoly or other privileged market positions. As such, this extra revenue will have little to no effect on economic decision-making and hence will not reduce business investment or economic growth more generally.
• Two “model-based” analyses of the AJP find very different things: Moody’s Analytics forecasts strong positive effects on economic growth over the next 10 years, while the Penn Wharton Budget Model forecasts very slight negative growth effects by 2030. The finding that the AJP might reduce economic growth rests on a number of bad assumptions: that the corporate tax changes will significantly affect economic decision-making and reduce investment; that the productivity gains stemming from public investment are small; that budget deficits will crowd out large amounts of private capital formation over the next decade; and that AJP’s care investments will reduce labor supply. None of these assumptions are likely to be correct.

Ignoring the sad lessons of the Tax Cuts and Jobs Act

The signature economic policy achievement of the Trump administration (at least before the COVID-19 shock) was the TCJA, which was largely a corporate tax cut (among other things, it reduced the corporate income tax rate from 35% to 21%). In the run-up to passage of the TCJA, a long debate about the likely effects of corporate tax cuts was waged. The Trump administration made bold claims that the passage of the TCJA would lead to immediate and large wage increases for U.S. workers.

The textbook argument linking corporate tax cuts to wage increases rests on a long series of causal links. First, the lower corporate rate increases the post-tax return to investment and hence makes a larger number of potential investment projects profitable. Second, the higher post-tax return to capital also leads to increased savings (either domestic or foreign) and this increase provides the financing for the increase in desired investment. Third, these two previous influences in turn allow for a greater volume of investments in the capital stock of the business sector—leading to the purchase of more structures, equipment, and research and development services. Fourth, this larger capital stock gives U.S. workers more and better tools with which to do their jobs, increasing their productivity. Fifth, the productivity gains are seamlessly translated into wage gains.

As we noted during this previous debate, most of the links of this causal chain are clearly broken. Over the past decade, profit rates and margins in the U.S. corporate sector reached record highs, yet investment was extraordinarily weak. Clearly it was not too-low rates of return muffling investment. This weak investment was almost surely driven overwhelmingly by weak growth of aggregate demand (spending by households, businesses, and governments), and anything that boosted savings would just depress demand even further. Predictably, the passage of the TCJA did not see an investment surge. Instead, business investment in the two years following the TCJA (but before the COVID-19 shock) was notably weak—and getting weaker even before the recession began in March 2020 (see Figure A).

Figure A

Finally, it is always worth noting that the primary impediment to decent wage growth in recent decades has not been a lack of productivity growth, but instead a failure to translate the productivity growth the economy did see to higher wages for the vast majority. Cutting corporate income tax rates likely would make this translation of productivity growth to wage growth even harder, as these cuts would incentivize efforts for capital owners and corporate managers to suppress wages even more than they had been (because these capital owners and corporate managers would get to retain more of every dollar in post-tax income they managed to keep from going to wages for rank-and-file workers).

Taxing excess profits doesn’t affect economic decision-making

The weak growth of demand over the past decade explains a good part of why high profitability didn’t translate into strong investment. But another key point as to why the TCJA failed so spectacularly is that a growing share of corporate income over time represents “excess profits.” A 2016 paper by the U.S. Treasury’s Office of Tax Analysis (OTA) estimated that three-quarters of corporate profits represented “excess profits.” One illustrative piece of evidence confirming this is that the high corporate profit rates that characterized the post–Great Recession recovery came during a time when “risk-free” interest rates (those paid on U.S. Treasury debt) were historically low. If corporate profits represented just the return to financing normal business investments in structures and equipment, then they should follow these risk-free rates more closely.

Additionally, the current corporate income tax includes generous depreciation allowances for new investments. This essentially guarantees that taxes fall only on profits in excess of the cost of these new investments—that is, they fall only on “excess” profits. These excess profits are essentially by definition those that are protected against being eroded away through normal economic competition. As such, if you tax a share of these excess profits away, there is still no reason why the owners of the capital generating the profits will have any incentive to do less investment—they’re still earning returns higher than they would if they invested anywhere else, and they’re still earning more than the cost of financing these investments at the going interest rate. This in turn means that raising taxes should not affect economic decision-making and should specifically not lead to reductions in business investment. This growing importance of excess profits likely explains why there is also no correlation between changing corporate tax rates and investment in cross-country evidence as well.

In short, if the TCJA did not lead to an investment boom—in significant part because it just cut taxes on excess profits—then there is no reason to think rolling back much of its worst provisions and collecting more revenue from corporate income taxes will lead to an investment bust.

Two competing estimates of the AJP forecast different economic outcomes, but critiques of the Biden plan are less convincing

Recently, two “model-based” estimates of the AJP were released, one by Moody’s Analytics and one by the Penn Wharton Budget Model (PWBM). The Moody’s analysis finds strongly positive net effects on macroeconomic performance in coming years, forecasting that GDP would be higher by just under 3% by 2030. The PWBM analysis concluded that the AJP would actually reduce overall growth very slightly, forecasting GDP that is lower by 0.25% by 2031.

It is clear that the Moody’s analysis is more convincing. The differences between the two studies center on a number of points of contention: the strength of the AJP tax provisions in affecting business investment; the strength of “crowding out” of business investment due to the near-term (next 10 years) effect of the AJP on federal budget deficits; the productivity-enhancing effects of public investments; and the effect of care investments on labor supply.

On the effect of corporate income tax increases, both model-based studies see some effect of higher corporate income taxes in depressing business investment. But in the Moody’s model, the effects are small enough that they get swamped quickly by the benefits of public investment. In the PWBM model, the negative effects are strong and persist. We think this gives far too much credence to theories that business investment responds robustly to corporate income tax changes. As we’ve discussed above, since the TCJA did not boost business investment, it is hard to see how a reversal of it and further efforts to raise revenue from the corporate income tax will harm investment. It’s worth noting that the PWBM did indeed predict an increase in investment resulting from the TCJA. Yet despite a highly favorable macroeconomic environment for business investment in 2018 and 2019, this investment was weak (and falling over that time).

Oddly, some of the tax provisions in the AJP that the PWBM indicate are the most damaging to U.S. growth are essentially those that clamp down on the flagrant tax avoidance engaged in by U.S. corporations in recent decades—specifically by reforming the taxation of corporate profits earned abroad. However, it makes little sense to think that stopping this kind of financial engineering for tax avoidance purposes will actually lead to less economic activity within the United States. If anything, the corporate income tax status quo actually incentivizes the shifting of both paper profits and actual productive activity abroad. Clamping down on international tax havens—and hopefully beginning a multilateral process that clamps down even more—is the most promising part of the provisions. There is even evidence that the shifting of paper profits out of the United States to tax havens in recent decades has reduced measured growth in U.S. gross domestic product (GDP). All else equal, ending this shift should boost measured GDP.

On the issue of federal budget deficits, both analyses allow for some effect of larger budget deficits over the next 10 years in “crowding out” business investment. The Moody’s analysis assumes such effects are modest, with the larger deficits over the next 10 years pushing up 10-year Treasury interest rates by just 0.05%. The larger PWBM estimates on “crowding out” are implausible, for a number of reasons. For one, the economy still has quite a bit of slack left from the COVID-19 shock. Until this slack is taken up and labor and other inputs into production become scarce, it is hard to see how upward pressure on interest rates will begin. Typically, this upward pressure begins largely because the Federal Reserve begins raising the short-term “policy” interest rates it controls, which in turn feeds through to higher longer-term interest rates that might slow business investment. But the Fed has made it clear it thinks it will be some time before it will be impelled to raise its policy interest rates.

Further, even in models of full-employment economies, it is supposed to be projections of future deficits, not contemporaneous deficits, that drive interest rates in financial markets. Over the long run, the AJP tax provisions are larger than the spending provisions, so projected future deficits are smaller. Very strong “crowding out” effects from a wholly temporary boost to public investment accompanied by permanent tax increases starting in the context of a still deeply depressed economy just aren’t credible.

On the productivity-enhancing effects of public investments, the PWBM analysis uses estimates from the Congressional Budget Office (CBO). These estimates are far too conservative. In a review of more than 30 studies examining the productivity of public investment, Bom and Ligthart (2017) found that the average rate of return was well over three times as high as the CBO estimates, and the median return well over double. If one restricts the Bom and Ligthart sample to just studies of the United States, the results remain essentially the same. The conservativeness of CBO estimates of the rate of return to public investment has been pointed out by Larry Summers a number of years ago as well. Moody’s explicitly notes (in footnote 1 of their study) that they are using a higher estimate than what is used by the CBO.

The last difference between the two model-based estimates concerns their treatment of the AJP care investments. The Moody’s analysis does not explicitly mention them, but it does highlight strong potential effects on labor force participation stemming from the overall package (it is slightly unclear whether there is a specific care investment effect being measured or if it is just assessing the physical infrastructure investments). PWBM asserts that the spending on care work in the AJP is simply a “transfer” payment that will unambiguously reduce labor supply, as “transfers to working-age households let individuals work less without consuming less, reducing overall labor supply.” This misses a large potential effect of the caregiving investments: They allow a huge number of working-age people (overwhelmingly women) who are currently providing unpaid work to care for loved ones to return to paid work if this care becomes more affordable and higher-quality. Compelling research shows that large caregiving investments made over the next decade could significantly boost, not reduce, labor supply and hence GDP growth. For example, Shen (2020) finds that for every 2.4–3 women whose parents receive formal home care as a result of expansions of public financing on home care, one of them will join the paid labor force full time.

Both the spending and tax provisions of the AJP are solid investments in the future

Again, the spending provisions of the AJP will successfully target many pressing social needs and are clearly investments—they will spur overall growth in coming years even over and above any useful effect they have in increasing spending and alleviating current shortages of aggregate demand. The tax provisions of the AJP will fix decades of corporate gaming of the U.S. tax code—most spectacularly with the TCJA of 2017. It will also provide a much more solid foundation to approach other countries around the world in an effort to build a united front against race-to-the-bottom tax competition and abusive tax havens. Being able to tax rich households and corporations for the social good is a key part of a decent society, and tax havens and global tax avoidance are key impediments to this ability. Fixing this would be a huge investment indeed in the future of the United States.