Key takeaways:

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

Introduction

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

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

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

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

The outdated federal minimum wage and extent of low pay

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

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

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

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

A new standard: Two-thirds of the median wage

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

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

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

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

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

The state of minimum wage research and new policies

Minimum wages and job losses

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

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

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

How high is too high?

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

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

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

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

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

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

Existing proposals and policies reaching two-thirds of the median

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Figure C

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

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

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

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

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

Conclusion

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

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

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

Appendix

State benefits

Methodology

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

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

Notes

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

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

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

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

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

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

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

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

References

Banks, Nina. 2019. “Black Women’s Labor Market History Reveals Deep-Seated Race and Gender Discrimination.” Working Economics Blog (Economic Policy Institute), February 19, 2019.

Bernstein, Jared. 2013. “If Increasing the Minimum Wage Doesn’t Cost Jobs, How Does It Get Absorbed?” Huffington Post, August 14, 2013.

Bivens, Josh, and Ben Zipperer. 2018. The Importance of Locking in Full Employment for the Long Haul. Economic Policy Institute, August 2018.

Bureau of Labor Statistics (BLS). 2025. “Occupational Employment and Wage Statistics (OEWS) Tables, May 2024” [Excel file], Occupational Employment and Wage Statistics. Accessed May 13, 2026. 

Clemens, Jeffrey, Olivia Eduwards, Jonathan Meer, and Joshua D. Nguyen. 2026. “The Effects of Calfornia’s $20 Fast Food Minimum Wage on Prices.” National Bureau of Economic Research Working Paper no. 34990, March 2026.

Congressional Budget Office (CBO). 2026a. The Budget and Economic Outlook: 2026 to 2036. February 11, 2026.

Congressional Budget Office (CBO). 2026b. The Demographic Outlook: 2026 to 2056. January 7, 2026.

Cooper, David, Zane Mokhiber, and Ben Zipperer. 2019. Minimum Wage Simulation Model Technical Methodology. Economic Policy Institute, February 2019. 

Coviello, Decio, Erika Deserranno, and Nicola Persico. 2022. “Minimum Wage and Individual Worker Productivity: Evidence from a Large US Retailer.” Journal of Political Economy 130, no. 9: 2315–2360.

Derenoncourt, Ellora, and Claire Montialoux. 2021. “Minimum Wages and Racial Inequality.” Quarterly Journal of Economics 136, no. 1 (February): 169–228.

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Key takeaways:

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

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

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

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

Why do prices dominate today’s affordability debates?

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

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

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

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

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

Policy can target incomes more effectively and precisely than prices

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

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

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

Boosting public benefits is affordability policy

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

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

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

Policy can boost affordability through higher wages as well

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

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

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

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

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

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

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

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

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

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

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

Figure A

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

Figure B

Reducing inequality is the key to improving affordability

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

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

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

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

Since the second Trump administration swept into office in January 2025, it has undertaken a range of damaging and destabilizing actions that have weakened the economy, undermined workers, hurt businesses and consumers, and threatened core elements of our democracy. While Trump has targeted numerous Democratic-led states and cities, the Washington, D.C., region has faced acute and prolonged harms since day one. From the first set of executive actions signed on Inauguration Day, the Trump administration has attacked people and businesses in the capital region repeatedly and intensely. These initial actions announced the president’s dubious claims of authority to fire large segments of the federal workforce, eliminate long-standing federal agencies and programs, and begin a campaign of illegal and inhumane mass deportations.  

The Trump administration’s damaging actions have been enabled and abetted by Republican members of Congress. Their passage of H.R. 1, the bill that the White House has referred to as the “One Big Beautiful Bill Act” (OBBBA), amplifies the administration’s mass deportation agenda and shreds critical health care and food supports for lower-income families to finance tax cuts for the wealthy. This funding bill will only cause more pain in the years ahead for Washington, D.C.-area households and throughout the country.

Congress also passed a federal spending bill that constrained the District of Columbia’s ability to spend its own tax revenue (Koma 2025) and a resolution that may force the district to adopt local tax code changes that match the OBBBA, whether the city wants to or not—changes that will jeopardize hundreds of millions of dollars for city programs (D.C. Fiscal Policy Institute 2026).

In this report, we assess the early indicators of the damage of Trump’s actions and their effects on the Washington, D.C., regional economy, with particular attention to effects on workers and the labor market. We focus on this region due to its prominence as an early target of the Trump administration, in part due to its large federal workforce. Additionally, the district’s unique status as a non-state means that its leaders have far less legal authority to resist Trump’s interference than other target areas do.

Throughout this report, unless otherwise indicated, the data describe economic conditions for the Washington, D.C., metropolitan statistical area (MSA), which includes the District of Columbia, four nearby counties in Maryland, six cities and 11 counties in northern Virginia, and one county in West Virginia. We also refer to this region as the DMV (Washington, D.C.; Maryland; and Virginia). While we do not yet have the requisite data to fully and precisely document all the effects of the administration’s actions, we can see clear signals that the regional economy is already struggling, with more severe impacts likely to register in the data soon.

We then explore some of the factors that make other regions particularly vulnerable to significant economic harm from the Trump administration’s agenda. These include counties with large concentrations of federal workers, areas where federal transfer income (such as Medicaid and Social Security) makes up a significant portion of the region’s economic base, and places with significant immigrant populations. Though Trump has largely targeted prominent, Democratic-led areas, many of the regions most susceptible to the harmful economic consequences of the administration’s actions are rural counties, frequently represented in Congress by Republicans.

Trump’s actions in Washington, D.C., have led to reduced employment and rising unemployment

The clearest sign of the harm that the Trump administration’s actions have done to the Washington, D.C., regional economy is the substantial drop in the region’s employment rate. Based on EPI analysis of Current Population Survey data from the Bureau of Labor Statistics, from December 2024 to December 2025, the share of the regional working-age population with a job fell by 3.2 percentage points.1 As shown in Table 1, this compares with a decline of just 0.4 percentage points for the country over the same period. Among prime-age workers (those ages 25–54), the share employed in the DMV fell by 2.7 percentage points, compared with a decline of just 0.1 percentage points for the country overall.

This dramatic drop in regional employment is a direct result of the Trump administration’s relentless attacks on federal government workers, cuts to federal programs and agencies, and their cascading effects on connected regional industries. Prior to Trump’s taking office, federal employees made up 11.2% of the metro area’s total workforce (BLS-CES-SAE 2025).2 Between the end of 2024 and 2025, federal employment in the DMV region fell by more than 53,800 jobs (-14.2%) (BLS-CES-SAE 2026).3 These losses reverberated through the regional economy as affected households pulled back on spending, and many may have even opted to move, as data show the DMV region had the largest increase in home sale listings of any major metro last year (Brookings Institution 2026).

These significant cuts to federal employment, though highly damaging on their own, are only the first layer of the administration’s harm on the regional labor market. The DMV has a non-federal workforce of over three million people (BLS-CES-SAE 2026), many of whom work at firms that consult with, contract with, are funded by, or are otherwise connected to the government.4 The Trump administration has terminated thousands of grants to scientific research institutions (Kozlov, Tollefson, and Garisto 2026) and frozen or delayed funding for tens of thousands of nonprofit organizations, causing those targeted to limit operations or lay off staff (Tomasko et al. 2025). These cuts have also shrunk the funding pool for nonprofit groups, causing budget challenges even for those not previously receiving federal funding, as they must compete with groups previously funded through federal programs that are now scrambling to fill gaps with private support (Barrett 2025). The administration has also moved to cancel contracts with any company that maintains a commitment to DEI standards (Singh 2026). Although these cuts affect organizations everywhere, the DMV is disproportionately vulnerable to the economic harms of attacks on this sector as it has one of the highest concentrations of nonprofits in the country (Friesenhahn 2025). This is evident in the region’s slight dip (-0.3%) in private-sector employment from December 2024 to December 2025, a change from the consistent, albeit slowing, growth that had marked the years following the COVID-19 pandemic. At the national level, private-sector employment experienced slow but still positive change (0.5%) over the same period (BLS-CES-SAE 2026).5

The widespread impact of the administration’s actions can be seen in the breadth of employment declines across racial, ethnic, gender, and age groups in the region. As shown in Table 1, the employment rate fell by at least 2 percentage points for every demographic category of workers in the DMV. Notably, young workers under age 25 (-4.3 percentage points), workers age 55 and older (-3.3 percentage points), men (-3.5 percentage points), and Black workers (-5.9 percentage points) all experienced drops in their employment rates larger than the regional average. For older workers, the above-average decline likely reflects, at least in part, the firings and retirements of many federal employees, including many who had been near retirement age and opted into the so-called “Fork in the Road” deferred resignation program. For young workers, the administration’s funding and programmatic cuts directly reduced many traditional Beltway early-career opportunities (internships, fellowships), while weakness in the broader regional economy simultaneously forced area employers to pull back on entry-level positions.

Still, not all groups have been equally affected by Trump’s actions. As Table 1 shows, Black workers in the DMV region have suffered the largest employment declines, with the share employed falling by 5.9 percentage points in 2025. This is nearly triple the employment drop experienced by white workers (2.0 percentage points) in the region and, notably, more than seven times the employment drop of Black workers throughout the country overall (0.8 percentage points). Again, this is a direct consequence of the administration’s attacks on the federal workforce. Black workers have long tended to make up a larger share of the public sector than they do in the private sector—both in the DMV and across the country. This is because the public sector has historically been a pathway to the middle class for workers of color who face labor market discrimination in the private sector (Maye and Marvin 2025).

Trump’s massive cuts to federal employment have also rapidly undone what had been considerable progress in shrinking the regional Black-white employment gap. Figure A shows the employment rate of DMV workers, overall and by race/ethnicity, since the end of 2018. The rapid drop in the Black employment rate since the start of President Trump’s second term is striking, bringing the regional Black employment rate back down to its pandemic-era low. It is also notable that before that drop began, Black workers in the region were employed at essentially the same rate as their white counterparts—the only time in the last two decades when that occurred. These losses in employment will exacerbate existing racial and gender inequity across wages, poverty, and unemployment (Markoff and Zielinski 2026; Zielinski 2025; Busette and Elizondo 2022).

Recent increases in the DMV’s overall unemployment rate underscore the damage Trump is doing to the region. The non-seasonally adjusted unemployment rate jumped more than a full percentage point, from 3.1% in January 2025 to 4.4% in January 2026—more than four times the increase in the national figure. (Importantly, this increase understates the weakening of the area labor market, as the BLS estimates the DMV labor force shrank by 3% over the same period—meaning that many workers who would have been counted as unemployed simply left the area labor force.) For comparison, the national non-seasonally adjusted unemployment rate increased by less than half a percentage point, moving from 4.4% in January 2025 to 4.7% in January 2026 (BLS-LAUS 2026).

These numbers do not capture the full extent of the economic downturn in the DMV area, nor can they give us precise insight into where the pain has been most acutely felt. The administration’s violent deportation agenda, for example, will lead to a drop in immigrant and U.S.-born Hispanic workers’ employment, but resulting changes in Hispanic employment rates may be muted by the corresponding shrinking of the overall Hispanic population (Zipperer 2025). In other words, while the overall Hispanic population in the U.S. may fall dramatically in coming years, the ratio of remaining employed workers to remaining total population may stay somewhat consistent. This will mask the true scale of the economic and social harm being done to immigrant communities in the DMV and across the country.

It is also difficult to fully quantify how the deployment and continued presence of National Guard troops, violent immigration actions, and other authoritarian, fear-inducing tactics have impacted D.C.-area businesses, workers, and families, particularly in neighborhoods with predominately Black and Latino populations. Early data show regional declines in tourism, consumer spending, and foot traffic; harder to capture are the emotional and long-term economic consequences (Montgomery 2025; Hadden Loh and Haskins 2025; Sachs and Cocco 2025). Other recent analyses estimate similar economic harms in cities where targeted federal immigration enforcement actions have been aggressively deployed (Rosenthal and Sojourner 2026). A full accounting of the Trump administration’s harms on the Washington, D.C., region will take years to document.

Other localities should brace for similar consequences

Some of the Trump administration’s actions and their acute consequences are unique to the DMV, a function of the region’s high concentration of federal employees and government contractors, as well as the District of Columbia’s lack of statehood and full constitutional rights. However, the anti-government attacks the administration has unleashed on DMV-area households, workers, and businesses will have cascading consequences for communities throughout the country. The effects of the administration’s authoritarian attacks on the civil service, democratic institutions, and immigrants (Human Rights Watch 2026) that first registered across the DMV should be viewed as a preview of the consequences that will be felt in other regions. While no locality will be spared, regions particularly at risk include those with large shares of government workers (especially federal workers, but state and local government workers too), localities in which federal funding and social safety net programs make up a large portion of total area income, and those with large immigrant populations.

Trump’s attacks on the federal workforce will harm communities that rely on their employment

The day Trump returned to power in January 2025, he began attacking the federal workforce, first by moving to reclassify tens of thousands of federal employees to make it easier to fire and replace them with political loyalists (EPI 2026c), and then by stripping more than one million federal workers of their collective bargaining rights (EPI 2025a). The Trump White House subsequently worked feverishly to slash federal employment, attempting large and chaotic reductions in force, shuttering entire agencies, and coercing tens of thousands of staff to resign, among many other attacks (Poydock 2025). As of March 2026, the administration’s actions have reduced nationwide federal government employment by over 350,000 (11.7%) since January 2025 (Gould 2026).

Though federal workers make up a sizeable share of the DMV’s workforce, over 80% of federal workers live outside the region (Partnership for Public Service 2024). For instance, in Alaska, Hawaii, and New Mexico—states that are home to large swaths of federal and Native land, military bases, and federal research institutions—federal workers make up at least 4.5% of total employment (EPI 2025c). Within states, federal workers tend to be concentrated in specific localities. For instance, in Apache County, Arizona, which is largely made up of the Navajo Nation and the White Mountain Apache Reservations, lands that extend beyond county lines, the federal government employs 12% of the county’s workers, more than double the next most significant county for federal worker employment in the state (EPI 2025c). There are 22 U.S. counties, spread across the South, Midwest, and West Census regions, where federal workers comprise at least 10% of the county’s workforce (see Table 2).

In these counties and elsewhere, federal workers are the backbone of the regional economy, both through the essential services they provide and through their contributions to the local economy. Trump’s attacks simultaneously threaten federal workers’ livelihoods and the economic health of communities in which these workers’ spending on goods and services makes up a large share of economic activity in the region. In Apache County, Arizona, civilian government workers’ earnings comprise 11.7% of total economic activity in the county (see Table 3)—roughly the same as their share of overall county employment. However, in some counties, federal employees’ earnings are a disproportionate share of the regional economic base. For instance, in Leavenworth County, Kansas, where federal employees make up 10.0% of employment (Leavenworth has a large federal prison), federal civilian earnings comprise 22.1% of total income in the county.

The effects from lost federal jobs and income in these regions could be devastating. Some of these communities are places that have already faced historic disinvestment and in which there are few local employment opportunities that can match the quality of federal government jobs. These jobs are historically stable, good quality, union jobs that offer a pathway to the middle class, particularly for workers without a college education.6

Regions highly dependent on federal revenue will also suffer from a reduction in services and a loss of income

Beyond the harm to localities from reductions in the federal workforce, localities that are particularly reliant on federal government revenue and services will bear the consequences of Trump’s actions most acutely, though no locality will be spared from harm. For example, the Trump administration has announced or considered $23 billion in cuts to federal clean energy projects in nearly every state (CATF 2025) and $8 billion in cuts to colleges and universities that will impact every state’s economy (Bedekovics and Ragland 2025). Trump’s 2025 budget bill also made massive cuts to federal safety net programs that millions of low-income households rely on in order to finance tax cuts for the wealthiest households and corporations.

Funds from federal programs such as SNAP, Medicaid, and other social programs not only help struggling families make ends meet, they also comprise a significant share of a locality’s “economic base,” the amount of money circulating in that region, as shown by sociologist Robert Manduca in a recent working paper (2025). Indeed, an often-overlooked benefit of Medicaid coverage is its role as a source of income for low-income households (money they would have had to spend on medical care in the absence of Medicaid). For the bottom 20% of households in the U.S., Medicaid comprised 70% of their total money income, based on recent data from the Congressional Budget Office (Bivens, Wething, and Morrissey 2025). In fact, government transfers such as Social Security, Medicare, and Medicaid collectively made up 40% of the economic base of U.S. regions in 2022 (Manduca 2025). Substantial cuts to government social programs that support low-income households could reduce the economic base of these localities, at a scale equivalent, in many cases, to the loss of entire private industries in those areas.

Without deliberate intervention by state lawmakers to offset lost federal revenues, localities in every state face dire economic losses, but states particularly reliant on government transfers will suffer most. For instance, take Clay County, West Virginia, which is represented in Congress by Rep. Carol Miller (R-WV01), who voted in support of Trump’s budget bill (Miller 2025). Clay County’s poverty rate is more than double the national rate, and its per capita income is half the national amount (U.S. Census 2024a). Of the 10 U.S. counties that rely most on each of the largest federal social insurance programs (Medicare, Medicaid, SNAP, and Social Security) as a share of their economic base, Clay is the only county in the country to show up three times (see Table 4). Federal government transfers in the form of Medicare, SNAP, and Social Security payments comprise 57% of Clay County’s economic base, 20 times the share comprised by the earnings of every private industry in the county combined. Alaska, Arizona, Florida, Georgia, Kentucky, Tennessee, and West Virginia all have at least three counties that are ranked in the top 10 in the country for their reliance on a given social safety net program as a share of the county’s economic base (see Table 4).

Localities that have significant shares of federal workers and rely heavily on federal government transfers may face particularly significant consequences as a result of Trump’s attacks on the federal workforce and the Republican budget bill’s cuts to essential social safety net programs. For example, in Rio Arriba County, New Mexico, and Apache County, Arizona, federal government workers make up 16.1% and 12.0% of all workers in the county, respectively (EPI 2025b). At the same time, both counties are ranked in the top-10 counties most reliant on federal government transfers—Apache is #2 for Medicaid, and Rio Arriba is #10 for SNAP. In Apache County, federal government transfers account for three-quarters (76.9%) of the county’s economic base, and the earnings of federal government civilian workers account for 11.7%—the Navajo Nation Tribal Government is the county’s largest employer (NACOG 2023). Meanwhile, private earnings account for a mere 2.8% of the county’s economy. In Apache, Trump’s cuts to both the federal workforce and federal government programs mean that the federal government may be unable to fulfill its legal obligations to tribal communities (Brown 2025) that have faced decades of disinvestment and depressed economic outcomes resulting from historic land theft and forced assimilation. Apache County’s poverty rate of 31.2% (AZ Economics 2026) is nearly triple the national rate of 11.1% in 2023 (Shrider 2024).

Trump’s anti-immigrant crackdown and deportation agenda hurt localities with large immigrant populations

Trump has launched a campaign of terror against immigrant communities, communities of color, and those who stand with them. Last summer, Trump federalized local police and deployed thousands of federal troops to diverse cities with large immigrant populations (Kim 2025). Though Washington, D.C., may have experienced the most visible federal troop presence, a function of the district’s lack of statehood and the president’s unchecked authority to mobilize the National Guard there (Dallas 2025), Los Angeles was the first city Trump targeted after public opposition to aggressive immigration raids (Kim 2025). It was soon followed by Washington, D.C.; Memphis, Tennessee; Portland, Oregon; New Orleans, Louisiana; Minneapolis, Minnesota; and Portland, Maine.

These attacks are characteristic of an authoritarian playbook that includes forcing the leaders of diverse, opposition-led communities to bend to the strongman government’s will (McManus, Benson, and Herman 2024). Minneapolis, home to a large immigrant population, was subjected to an unprecedented immigration crackdown that drew widespread protests (Boone 2026). During “Operation Metro Surge,” as it was called, federal immigration enforcement officials made 4,000 arrests and killed two U.S. citizens. Though the true toll of this violent operation may never be fully quantified, initial economic data show clear cause for concern. A recent analysis estimated that Trump’s immigration crackdown has led to a 2.9% decline in consumer spending in Minnesota over a single month—the equivalent of the state’s economy losing $626 million (Rosenthal and Sojourner 2026). Relative to overall consumer spending, the food and accommodation sector (which employs a large share of immigrant workers) saw the most significant decline in January 2026—3.8% or a $46 million reduction in economic activity. Researchers also estimated that nearly 3% of workers in the Minneapolis-Saint Paul region were unable to work during the occupation, resulting in a loss of over $100 million in wages (Sojourner and Rosenthal 2026).

Trump’s deportation agenda will continue to destabilize local communities and result in job losses for immigrant and U.S.-born residents alike (Zipperer 2025). Though immigrants live in counties across the U.S., coastal urban areas tend to have the largest shares of foreign-born residents. Counties with the largest foreign-born populations include Miami-Dade, Florida; Queens, New York; Aleutians, Alaska; and Hudson, New Jersey (see Table 5). Counties with relatively large shares of immigrants may see particularly acute harms from aggressive immigration enforcement.

Communities face overlapping economic threats from attacks on federal workers, the social safety net, and immigrants, but state and local lawmakers can resist them.

The Trump administration’s attacks on the federal workforce, the social safety net, and immigrant communities are designed to exacerbate economic precarity in many communities that are already struggling (Bivens 2026). The implementation of Trump’s authoritarian agenda in the DMV region may be the first, clearest, and in some cases most direct manifestation of its harms, but other localities across the country—particularly those with large federal workforces, those that are heavily dependent on federal revenue and those with sizeable immigrant populations—are far from immune, and many will suffer as much, if not more, from this agenda.

While state and local leaders cannot stop federal attacks, they do have the power to resist Trump’s agenda by improving state labor standards (EPI 2026b), advancing protections for immigrant workers (Díaz and Whitaker 2026), investing in the public-sector workforce (Bivens and Shierholz 2026), and using progressive tax policies (Austin and Davis 2025) to stabilize funding for critical social programs and other investments that workers, families, and communities need.

Notes

1. Throughout this report, unless explicitly noted, the source for all employment rate data is the authors’ analysis of Current Population Survey data (EPI 2026a). We compare an average of calendar year 2025 with calendar year 2024 in order to have adequate sample sizes for the noted demographic groups.

2. Employment level by industry and sector data come from the authors’ analysis of the Bureau of Labor Statistics’ Current Employment Statistics (CES) State and Metro Area (SAE) data.

3. These numbers are calculated using monthly totals rather than annual averages. A quarterly comparison of 2025Q4 to 2024Q4 finds roughly the same results—employment fell by 52,600 jobs (13.9%). The quarterly analysis omits October in both years to maintain an apples-to-apples comparison, accounting for missing data due to the government shutdown that began in October 2025 and the subsequent lapse in Bureau of Labor Statistics funding.

4. The non-federal workforce includes private sector workers as well as state and local government employees.

5. These numbers are calculated using monthly totals rather than annual averages. Quarterly comparisons of 2025 Q4 to 2024 Q4 produce similar results—private sector employment fell by 0.1% in the DMV and grew by 0.7% nationally. The quarterly analysis follows the methodology outlined in note 2.

6. On average, federal workers with advanced degrees typically earn less in wages and total compensation than their private-sector counterparts. Federal workers without an advanced degree typically earn more than their private-sector counterparts and have access to retirement benefits that have become less common in the private sector (CBO 2024).

References

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Daniel Navarrete, Director
Division of Regulations, Legislation, and Interpretation
Wage and Hour Division
U.S. Department of Labor, Room S-3502
200 Constitution Avenue NW
Washington, D.C. 20210

Comments on RIN 1235-AA46: Employee or Independent Contractor Status under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act

Dear Director Navarrete:

We submit these comments from the Economic Policy Institute (EPI) on the Department of Labor’s (“Department” or “DOL”) Notice of Proposed Rulemaking (“NPRM”) regarding the standard for determining who is an employee and who is an independent contractor under the Fair Labor Standards Act (“FLSA”), the Family and Medical Leave Act (“FMLA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”).

The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI conducts research and analysis on the economic status of working America, proposes public policies that protect and improve the economic conditions of low- and middle-income workers, and assesses policies with respect to how well they further those goals.

We strongly oppose the Department’s rule as proposed. We urge the Department to withdraw this rule and instead allow the long-standing test for determining employee status under the FLSA to stand.

EPI has conducted extensive research and analysis over the years on the harms of worker misclassification. As we have outlined, workers classified as independent contractors have no right to earn the federal minimum wage, or to earn overtime pay. They lose eligibility for unemployment insurance if they lose their work, and to workers’ compensation if they are injured on the job. They are less likely to receive employer-provided job benefits, such as health insurance and retirement benefits. They lose the right to paid sick or family leave in states and localities that extend those rights, and they would lose the right to even unpaid, but job-protected, family and medical leave under FMLA. Workers classified as independent contractors also must assume the full financial cost of Social Security and Medicare contributions, rather than split it evenly with their employer.

We attach here an April 2026 EPI report1 estimating the concrete economic costs of misclassification for 11 commonly misclassified types of jobs, among those most likely to be negatively affected by this rule. These include lower-wage, labor intensive jobs such as call center workers, landscaping workers, janitors and cleaners, home health aides, truck drivers, delivery workers, manicurists, housekeeping cleaners, retail sales workers, security guards, and construction workers. Workers in these and other occupations stand to lose wages, benefits, and the basic labor protections they should be owed under the FLSA.

The FLSA has a plain-language definition of “employ,” which “includes to suffer or permit to work.” This is a deliberately broad definition that was intended to provide the FLSA’s protections to most workers. The NPRM also seeks to once again upend the clear, long-standing “economic reality” test, which examines multiple factors to get to the central issue of worker classification: is the worker truly in business for themselves, or do they depend economically on finding work in the business of others, under the control and terms of the employer?

Instead of examining all of the relevant factors in a worker’s situation, the NPRM proposes elevating the factors of the level of control the employer exerts, and the worker’s opportunity for profit or loss, above all others in making a determination about whether someone is truly in business for themselves.

This would fail to account for the economic realities of many working relationships: for instance, would the primary work of the employer be able to get done without the worker? How permanent or exclusive is the work being performed—is there a fixed ending date? Does the worker invest in their own tools and equipment, marketing, or business plan, or is it the employer making those investments? Does the worker rely on the employer for training on how to get the job done? All of these questions fall under the factors that the NPRM would deprioritize—even though they provide important information about whether or not someone is truly in business for themselves, and thus that the employer doesn’t have an obligation to them under the FLSA.

This would narrow the definition of who is a covered employee under these three statutes. DOL’s NPRM will encourage misclassification schemes and a race to the bottom, where employers will be able to reclassify their employees as independent contractors and evade their obligations under these laws. Further, because of occupational segregation and other labor market disparities, people of color, women, and immigrants—and people at the intersections of these categories—are more likely to be in occupations where misclassification is common.

An analysis of the proposed rule’s potential costs to workers

In the proposed rule, the Department egregiously fails to estimate the transfers between employers, workers, and the social insurance system that would occur if this proposal were finalized. The requirements that agencies must follow as a part of the rulemaking process are very clear, and among them is the requirement that agencies must assess all quantifiable costs and benefits “to the fullest extent that these can be usefully estimated.”2 There is no question that DOL could have produced estimates; in what follows, we show that it is straightforward to produce estimates using data researchers routinely use and taking a methodological approach that is in the spirit of estimates the Department of Labor undertakes on a regular basis. One plausible explanation for why DOL left out the required estimate is that any good-faith estimate would have shown this rule will result in a substantial transfer from workers and the social insurance system to employers.

The Department only briefly touches on potential benefits to workers from their proposal. DOL estimates a 1-3% increase in the total number of independent contractors as a result of their proposed rule.3 However, DOL appears to assume that this increase will come entirely from people who were otherwise not engaging in paid work entering the workforce anew as independent contractors. This means the Department also assumes that there will not be significant reclassification of workers who are currently employees to independent contractor status. Given what we know about the scale of misclassification already occurring under current law, this seems to be, at best, a woefully naive understanding of what employers might do when faced with a weaker standard sanctioned by DOL. Further, our analysis of commonly-misclassified occupations shows that the independent contractor version of paid work actually has less value for the worker than the employee-status version that the same worker could find – in other words, the worker still bears costs because the independent contractor version of the work likely offers lower pay, fewer benefits, and fewer protections.

In this comment we will estimate these transfers from workers and the social insurance system to employers. The basic structure of this analysis is to take (1) the estimated change in the value of a job to a worker if they are classified as an independent contractor instead of an employee, and (2) the estimated change in payments to social insurance funds if a worker is classified as an independent contractor instead of an employee, and then multiply these figures by the estimated number of workers who will shift to independent contractor status if this rule is finalized. This approach will yield the aggregate impact of the rule on workers and on social insurance system coffers.

In a recent publication, EPI estimated (1) and (2) above for workers in lower-wage, labor intensive occupations most likely affected by the rule, such as call center workers, landscaping workers, janitors and cleaners, home health aides, truck drivers, delivery workers, manicurists, housekeeping cleaners, retail sales workers, security guards, and construction workers.4

The cost to workers in these occupations of being classified as an independent contractor instead of a payroll employee ranges from $6,294 annually for retail sales workers (under extremely conservative assumptions), to $23,266 annually for truck drivers (under less conservative assumptions). Similarly, the annual cost to social insurance funds if a worker is classified as an independent contractor instead of an employee ranges from $600 for manicurists (again under extremely conservative assumptions), to $3,046 for construction workers (again under less conservative assumptions).

Given that we do not have a way to determine where the average impact for those affected by the proposed rule falls in those broad ranges, we simply take the lower bound in both cases, to be extremely conservative. Thus, we assume that the cost to workers is $6,294 annually, and the cost to social insurance programs is .

It should be noted that these lower-bound estimates assume that workers classified as independent contractors are paid not just the full regular pay of a W-2 employee, but also are fully compensated for the value of health insurance and retirement benefits. This is, however, highly unlikely in these occupations. The theory that businesses will not be able to pay less in total compensation to workers if their status shifts from employee to independent contractor—that their base pay will rise to make up for a reduction in benefits—is based on the assumption of perfectly competitive labor markets. There is broad and growing evidence that perfect competition is rare, and that most labor markets do not function competitively—particularly low-wage labor markets like those under consideration here, where workers are more likely to lack the power to bargain for higher wages to compensate for their loss of benefits and increase in taxes when they become independent contractors.5 Further, very low-wage employees whose wage is elevated by the minimum wage could easily see their wage drop when, as independent contractors, they no longer legally must be paid the minimum wage.

How will the share of the workforce who are payroll employees and the share of the workforce that are independent contractors change as a result of this rule?

To begin to answer that question, we need to know how many independent contractors there currently are. There is a great deal of uncertainty around this number (the Department notes that “there are a variety of estimates of the number of independent contractors, and these span a wide range based on methodologies and how the population is defined”).6 The July 2023 Contingent Worker Supplement finds that there were 11.9 million workers who are independent contractors in their main job. This number, however, drastically underestimates the total number of independent contractors by not including workers who do independent contracting on the side, in addition to a payroll job. The Department makes a correction for this issue and estimates that there are 24.8 million individuals working as contractors at a given time. For the sake of the calculations in this comment, we will limit the analysis to the 11.9 million workers the CWS finds are independent contractors in their main job, since workers who do independent contracting as a side job likely work fewer hours and therefore may lose less than the $6,294 we are conservatively assuming workers whose status changes as a result of this rule lose annually. It should be noted that this means we are leaving out many millions of independent contractors and our estimates will, as a result, be extremely conservative for this reason as well. 

How much will independent contracting increase as a result of this rule?

The Department’s proposal would potentially allow companies to legally argue that workers who are now misclassified as independent contractors, or who are working “off the books,” would be legitimately classified as independent contractors under the narrow terms of the proposal. As such, one approach would be to use the percentage of workers misclassified or working off the books under current law to estimate the number of workers who could be reclassified as independent contractors under the proposed rule. However, due to severe data constraints, estimates of the share of workers who are misclassified as independent contractors or working off the books are limited. A 2020 paper estimates that between 12.4% and 20.5% of workers in the construction industry are either misclassified as independent contractors or working off the books.7 Conservatively assuming that the bottom of this range applies more broadly to the lowest-paid quartile of the U.S. labor market, that is 5.1 million low wage workers who may be affected by this rule.8 Of course, these are workers who are already not getting the benefit of being a payroll employee, so the economic impacts described above would not apply. However, this exercise does provide a broad sense of the potential scope of workers affected. Further, even these workers lose something of value under this rule given the current enforcement regime, namely the legal right to the wages and benefits they would receive if they were properly classified. We do not attempt to quantify this effect.

To be exceedingly conservative, we will simply assume that there will be an increase as a result of this rule of 5% in the number of workers who are independent contractors in their main job.9 This translates into an increase of just 595,000 workers who are independent contractors at their main job, given the conservative CWS estimate of 11.9 million workers who are independent contractors in their main job. Multiplying that by our conservative estimate that these workers would lose $6,294 per year yields an aggregate loss to workers of over $3.7 billion annually. Further, social insurance funds would lose at least $357 million annually (595,000 times $600) in the form of reduced employer contributions, meaning this rule also results in a transfer of at least $357 million annually from social insurance funds to employers.10

The NPRM would also have ripple effects in lost benefits and protections that employees are entitled to under other statues. The proposed rule would also extend the weakened definition of employee status to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Worker Protection Act (MSPA). Farm workers are already among the most vulnerable, low-paid workers in the U.S., and often face challenges at worksites including poor workplace safety conditions. If farm employers and farm labor contractors have the ability to offload more of their basic responsibilities under MSPA, more farm workers will be at risk of classification as independent contractors and lose even their basic rights under MSPA11, such as to be paid on time or have their working conditions disclosed. More workers would also be at risk of losing access to the right to take job-protected, unpaid family and medical leave under FMLA, which also references the definition of “employee” under the FLSA to determine eligibility for FMLA coverage. The National Partnership for Women and Families has estimated that 15 million workers took advantage of FMLA leave in 2025 alone.12 Protections for break time for nursing mothers—recently expanded under the PUMP Act—are also tied to FLSA employee status. Losing the right to take job-protected time off for illness or the birth of a child, the right to take a break to pump milk, the right to know when you will be paid and to be paid on time—these all specifically conflict with DOL’s stated interest in improving flexibility and satisfaction for workers. This is false flexibility.

The reality of flexible work

The Department focuses on “flexibility and satisfaction” as important non-pecuniary attributes that workers may trade income to receive. However, it is difficult to imagine that there are a meaningful number of workers who would get more satisfaction from doing the same job for substantially less compensation as an independent contractor than for substantially more compensation as a payroll employee. Many workers indeed may value flexibility, but notably, employers are able to provide a huge amount of flexibility to payroll employees if they choose to; the “inherent” tradeoff between flexibility and payroll employment is greatly exaggerated. Workers also highly value other factors, like income stability, which are much less prevalent among independent contractors and are not taken into account here.

In 2024, EPI published a report reviewing the available research and survey data on worker preferences regarding flexibility, stability, and predictability.13 While workers do often prefer flexibility and control over their own schedules, they also want stable, full-time work with predictable pay and benefits.

Employers often incorrectly claim that the FLSA prevents flexible scheduling, but employers control scheduling decisions and can organize work schedules to meet FLSA’s requirements. Employers have long been able to provide flexible schedules and comply with wage and hour laws, and flexible schedules have been negotiated by employers and unions in compliance with the law. Scheduling decisions are the employer’s prerogative (in negotiation with their workers’ union, if there is one), and they can and do set and change schedules in accordance with production demands. Independent contractor status is hardly needed for employers to provide their workers with flexibility.

In conclusion, we urge DOL to withdraw this rule as proposed. The Department should not be in the business of weakening labor protections standards, and should instead seek to vigorously enforce laws against misclassification.

Sincerely,

Samantha Sanders
Director of Government Affairs & Advocacy
Economic Policy Institute

Heidi Shierholz, Ph.D.
President
Economic Policy Institute

Valerie Wilson, Ph.D.
Director, Program on Race, Ethnicity, and the Economy
Economic Policy Institute

Endnotes

1. Ismael Cid-Martinez et al., Misclassifying workers as independent contractors is costly for workers and social insurance systems, Economic Policy Institute, April 2026.

2. Maeve P. Carey, Cost-Benefit and Other Analysis Requirements in the Rulemaking Process, Congressional Research Service, December 9, 2014.

3. 91 Fed. Reg. 9967.

4. Ismael Cid-Martinez et al., Misclassifying workers as independent contractors is costly for workers and social insurance systems, Economic Policy Institute, April 2026.

5. Alan Manning Monopsony in Motion: Imperfect Competition in Labor Markets (Princeton, NJ: Princeton University Press, 2003); Anna Sokolova and Todd Sorensen, Monopsony in Labor Markets: A Meta-Analysis, Washington Center for Equitable Growth, February 2020; Arindrajit Dube, Jeff Jacobs, Suresh Naidu, and Siddharth Suri, “Monopsony in Online Labor Markets,” American Economic Review: Insights 2, no. 1 (March 2020): 33-46, https://www.aeaweb.org/articles?id=10.1257/aeri.20180150.

6. 91 Fed. Reg. 9962. 

7. Russell Ormiston, Dale Belman, and Mark Erlich, An Empirical Methodology to Estimate the Incidence and Costs of Payroll Fraud in the Construction Industry, Institute for Construction Economics Research, January 2020. 

8. Data from the Current Population Survey from the Bureau of Labor Statistics find that there were 163.0 million workers in the U.S. in the first quarter of 2026; 5.1 million = 163.0 million * .25 * .124. 

9. A 5% increase is a conservative assumption, given that the Department is proposing to amend the five-part economic realities test—which has always been interpreted by the Supreme Court in its totality, not weighing any one factor more than another—in a way that will place undue weight on two factors and then narrows those two factors further, making it more likely that workers will be classified as independent contractors and as a result likely leading to a substantial increase in the number of independent contractors. 

10. Some might argue that social insurance funds wouldn’t be hurt by not having employers pay into unemployment insurance and workers’ compensation because independent contractors aren’t eligible for those benefits. However, low-paid independent contractors who lose their contracts and are without work, or get hurt on the job, will be likely to need to depend on safety net programs to survive, so the social insurance system as a whole would still be depleted. 

11. Wage & Hour Division, U.S. Department of Labor, “Fact Sheet #35: Joint Employment and Independent Contractors Under the Migrant and Seasonal Agricultural Worker Protection Act,” revised January 2020. 

12. National Partnership for Women & Families. 2026. Key Facts: The Family and Medical Leave Act (fact sheet), January 2026.

13. Margaret Poydock, Lynn Rhinehart, and Celine McNicholas, Flexible Work: What Workers, Especially Low-Wage Workers, Really Want And How Best To Provide It, Economic Policy Institute, July 2024.

Key takeaways:

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

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

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

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

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

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

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

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

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

Figure D

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

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

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

Division of Humanitarian Affairs
Office of Policy and Strategy
U.S. Citizenship and Immigration Services
Department of Homeland Security
5900 Capital Gateway Drive
Camp Springs, MD 20746

Re: DHS Docket No. USCIS-2025-0370, Employment Authorization Reform for Asylum Applicants, Notice of Proposed Rulemaking (Feb. 23, 2026) ¹

To whom it may concern:

The Economic Policy Institute (EPI) submits this comment strongly opposing the Department of Homeland Security’s (DHS) Notice of Proposed Rulemaking (NPRM) titled Employment Authorization Reform for Asylum Applicants, published February 23, 2026. and assigned DHS Docket No. USCIS-2025-0370 (i.e. the proposed rule).

About EPI and organizational interest

The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank established in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI conducts research and analysis on the economic status of working America, proposes policies that protect and improve economic conditions and raise labor standards for low- and middle-income workers—regardless of immigration status—and assesses policies with respect to how well they further those goals.

EPI has researched, written, and commented extensively on the U.S. system for labor migration, including on temporary immigration protections and Employment Authorization Documents (EADs), and on labor standards enforcement for both the low-wage and professional workforce. EPI has also provided expert testimony about the U.S. immigration system to both the U.S. Senate and House of Representatives, as well as state legislatures.

Summary of the comment

The proposed rule is designed to force asylum applicants seeking haven in the United States to live in the country without being able to work or support themselves and their families. Among other changes, the proposed rule introduces extreme and potentially indefinite delays to obtain a work permit, as it proposes to extend the waiting period to apply for work authorization from 150 days to 365 days, increase the mandatory processing timelines once an initial work permit application is received from 30 days to 180 days, and pause initial work permit processing completely when average affirmative asylum processing times exceed an average 180 days.1 The proposed rule also imposes many new eligibility barriers for both initial and renewal work permits, and would make approval of both applications completely discretionary, meaning asylum-seekers may be denied employment authorization for no reason at all.2

This proposed rule would be acutely harmful to asylum-seekers, but also to employers, coworkers, and spouses and children who rely on asylum-seekers’ employment and income. From the perspective of worker rights, labor standards, and growth in the overall economy, this NPRM raises at least four significant concerns that should be avoided by withdrawing the proposed rule in full.

First, DHS ignores the true value and impact of work authorization on the workforce, and fails to estimate the negative economic impacts that will result from the NPRM. In addition, the proposed rule would impact many workers already participating in the U.S. workforce, including individuals the NPRM classifies as “initial” asylum applicants who previously held lawful employment authorization through programs such as Temporary Protected Status (TPS), humanitarian parole, or deferred action. By focusing on deterrence of future migration while overlooking these workforce impacts, the NPRM substantially understates both the disruption the rule would cause and the reliance interests at stake.

Second, the NPRM rests on the flawed assumption that employers can easily replace asylum-seeking workers who lose employment authorization, and that such replacement can happen quickly and without disruption to the economy. In reality, sudden workforce losses that result from the NPRM terminating or putting in jeopardy the work authorization of roughly 2 million current workers would disrupt operations across multiple industries, forcing employers to increase mandatory overtime, heightening workplace safety risks, and creating significant operational instability that would impact not only asylum-seekers but also their coworkers. Employers would also lose the experience and job-specific skills that many asylum applicants already possess.

Third, by making it far more difficult for asylum-seekers to obtain or renew work authorization, the proposed rule would eviscerate the workplace rights of millions of current and future workers, pushing many into the informal economy, increasing the risk of wage theft, retaliation, and other forms of worker exploitation. This shift would also undermine labor and employment law enforcement by making workers less likely to report violations or cooperate with investigators, weakening workplace protections and lowering labor standards for all workers. The NPRM fails to acknowledge the scope of these enforcement and labor-standards consequences for U.S.-born citizens and foreign-born workers, half of whom are U.S. citizens.

Fourth, the NPRM fails to consider the substantial reliance interests that workers have developed around a predictable system of asylum-based employment authorization, which the NPRM would upend.

Far from streamlining the regulation of asylum-related employment authorization, the proposed rule would harm workers across the board. For these reasons, DHS should withdraw the proposed rule.

The worker rights of millions are protected by EADs

The role that Employment Authorization Documents (EADs) play when it comes to protecting worker rights and uplifting workplace standards should not be ignored and cannot be overstated. For workers who lack a permanent or more durable immigration status, obtaining a temporary EAD can mean having enforceable workplace rights that an individual would otherwise not have. While all workers have some labor and workplace rights under U.S. law—regardless of immigration status—enforcing them in practice becomes virtually impossible because of the threat of deportation, which prevents workers who lack an immigration status or an EAD from calling out lawbreaking employers and demanding that they comply with the law, or from reporting workplace violations to labor enforcement agencies. But having an asylum-based EAD, or protection from deportation through temporary administrative immigration protections like parole, Temporary Protected Status, deferred action—accompanied by an EAD—means that, in practice, workers can report workplace violations to government officials without fear of retaliation that can lead to deportation. It also means that a worker with an EAD can be employed by just about any U.S. employer and change jobs or employers, unlike, for example, migrant workers employed with temporary visas who can only be employed by the sponsor of their visa.

Altogether, nearly 5.6 million people in the U.S. held a temporary but precarious immigration status in 2024, including over 2 million people who are asylum-seekers. (see Table 1 below).

Table 1

While these statuses and protections are only a band-aid for a flawed immigration system that is deeply in need of reform,3 they have been shown to protect millions of workers from some of the worst forms of employer lawbreaking. Employers also greatly benefit from workers having a protective status and a work permit because it allows them to lawfully employ millions of people who would otherwise not be eligible to work, leading to billions in economic contributions to the U.S. economy and generating demand that stimulates growth.

DHS ignores the positive value and impact of work authorization on the workforce and economy, and the negative impacts of terminating and delaying work authorization

In the NPRM, DHS does not estimate and consider the true value and impact that EADs have on the workforce and economy, not even specifically for asylum-seekers. There are examples of existing research showing the important economic contributions that workers with temporary immigration protections and EADs are able to make thanks to being work-authorized. These estimates are relevant because parole, TPS, and DACA recipients are likely to see similar wage gains associated with having an EAD, due to gaining the ability to work lawfully, which brings with it the practical ability to enforce workplace rights and standards. In addition, may persons with protections like TPS and DACA may also be asylum applicants.

One estimate from the American Immigration Council estimated that when the TPS population was approximately 354,000 in 2021, “TPS holders contributed more than $2.2 billion in taxes, including almost $1 billion to state and local governments,” as well as “held $8 billion in spending power.”4 Another estimate by Moriarty found that TPS-eligible individuals “annually contribute some $31 billion in wages to the national GDP.”5

Research has also quantified some of the contributions made by persons who have an EAD because they qualified for Deferred Action for Childhood Arrivals (DACA). DACA was created by DHS in 2012, and recipients are eligible for protections from deportation and EADs that are valid for two years and renewable. More than 835,000 persons have benefitted from DACA, and more than 500,000 were enrolled as of 2024.6 Svajlenka and Truong found that DACA recipient households “pay $6.2 billion in federal taxes and $3.3 billion in state and local taxes each year,” and “after taxes, these households hold $25.3 billion in spending power,” and that DACA recipient families “own 68,000 homes, making $760 million in mortgage payments and $2.5 billion in rental payments annually.”7

When it comes to measuring the workplace impact and economic benefits of workers being issued an EAD, there are a few examples that are worth citing here. One is an annual survey of DACA recipients that was conducted in 2024 for the ninth time. The most recent survey, conducted by Wong et al. and published by the Center for American Progress, showed that DACA has been an essential tool to improve the economic and educational outcomes of recipients.8 In terms of the impact that deferred action and an EAD have had on the employment of DACA recipients: 59.1% of respondents moved to a job with better pay; 47.3% moved to a job with better working conditions; 47.5% moved to a job that “better fits [their] education and training”; 49.6% moved to a job that “better fits [their] long-term career goals”; 57.3% moved to a job with health insurance or other benefits; and 19.6% of respondents obtained professional licenses.

Wong et al. also measured the impact of EADs on DACA recipients’ wages, finding that “[d]ata from the past nine years show that DACA has had a significant and positive effect on wages: Recipients’ average hourly wage more than doubled from $11.92 to $31.52 per hour—an increase of 164.4 percent—after receiving DACA.” These significant wage increases are no doubt a result of the labor and workplace rights and stability that DACA recipients gain from having an EAD.

Orrenius and Zavodny examined the wage and employment impact of TPS9—which allows those who are eligible to also be granted an EAD. They looked specifically at migrants from El Salvador, finding that having TPS increased employment rates, and that less-educated Salvadoran men who were employed earned 13% more if they had TPS. They note that “As a whole, the results suggest that less-educated Salvadoran men who receive TPS are able to move into better jobs and become more selective about the jobs they hold, increasing their earnings but also their job search and unemployment incidence.”

One other analysis comes from Kallick,10 looking specifically at asylum-seekers in New York and nationwide, assesses the wage impact of being issued an EAD. Relying on previous methodologies for measuring the impact of a lawful immigration status being granted to unauthorized immigrants, Kallick estimates that asylum-seekers who are granted EADs increase their wages by 10%.

While the relative benefits of precarious and temporary immigration protections and EADs to migrant workers and the broader economy are clear, it is important to note here that because of the NPRM’s new provisions and pauses in processing, a significant share of the 2 million EADs held by asylum-seekers are unlikely to be renewed, or at a minimum, will be substantially delayed—and initial applications will not be granted—despite meeting the statutory requirements for issuance. This violates the statute and will leave hundreds of thousands of workers at least, and possibly millions, unemployed and without the ability to feed and house themselves, causing them to rely on homeless shelters and food banks, which are already overstretched given the current state of the economy and the affordability crisis. Thus, DHS through this NPRM will intentionally hurt the economy and eliminate the economic benefits for workers and employers that EADs held by asylum-seekers create—and exacerbate a crisis among social safety net providers—a fact that the NPRM does not grapple with or address.

In the meantime, EADs obtained through the asylum process, like those obtained through TPS, parole, and DACA, can mean the difference between having rights on the job or being extraordinarily vulnerable to the worst abuses by employers. While the current administration has claimed they want to help U.S. workers, actions like the mass detention and deportation of millions of workers and canceling EADs reveal they are willing to degrade conditions and standards for all workers, as well as kill jobs and shrink the economy, in order to carry out their extreme immigration enforcement agenda.11

If the NPRM is not withdrawn, millions of workers will be more easily exploited by their bosses and driven into the informal economy. That, in turn, will reduce their tax contributions that support the social safety net and lower their wages significantly12—ultimately hurting U.S workers in low-wage industries and the U.S. economy writ large by driving down demand for goods and services. It will also leave employers without millions of reliable employees in industries like construction, hospitality, childcare, agriculture, food processing and production, and more.

The NPRM underestimates the economic harm to initial asylum applicants who are already employed in the U.S. workforce

The NPRM rests heavily on the premise that restricting access to asylum-based work authorization will deter future asylum applicants by reducing the perceived “pull factor” of employment opportunities in the United States given the lengthy asylum backlog.13 While briefly referenced above, it is worth highlighting that this premise overlooks that many “initial” asylum employment authorization applicants are workers who are already here, including many who are gainfully employed.

Since January 2025, the federal government has terminated or moved to dismantle legal immigration programs that provided work authorization to hundreds of thousands of individuals, including several countries’ TPS designations, the CBP One parole program, the parole program for Cubans, Haitians, Nicaraguans, and Venezuelans (CHNV), multiple family reunification parole programs, and DACA.14 Many workers whose work permits have been terminated or threatened by these changes—and who are also eligible for asylum—are filing asylum applications and seeking initial employment authorization based on their pending applications.

The NPRM acknowledges this trend in passing,15 but largely sidesteps its implications—namely, that the NPRM’s sweeping restrictions on employment authorization for “initial asylum applicants” will largely fall on individuals who are already integrated into the lawful workforce. These workers are not hypothetical future entrants; they are experienced employees currently working in hospitals, manufacturing facilities, construction sites, hotels, schools, and public services. The NPRM therefore risks removing from the workforce hundreds of thousands of workers who have already been performing essential roles in the U.S. economy.

By focusing on speculative deterrence effects for future migrants while overlooking the proposed rule’s immediate impact on workers already embedded in the U.S. economy, the NPRM fails to accurately assess the scope of the disruption the proposed rule would cause. This flawed premise permeates the NPRM’s analysis and projected impacts and, on its own, warrants withdrawal of the proposed rule.

The NPRM incorrectly assumes that asylum-seekers who lose employment authorization can easily be replaced and ignores the resulting disruption to the economy

The NPRM suggests that asylum-seeking workers who lose employment authorization may be replaced and that the resulting shifts may lead to increased hours or compensation for currently employed workers.16 Although the NPRM acknowledges that restrictions on asylum-based employment authorization may lead employers to rely more heavily on currently employed workers through increased hours or overtime, it largely treats these effects as a potential transfer of compensation rather than as a source of workforce disruption.17 These assumptions simply do not reflect the realities in which many asylum applicants work.

A) The NPRM would shrink the legal workforce, exacerbating staffing issues in key industries

Asylum applicants are employed in a number of key industries, such as construction, transportation, manufacturing, food preparation and service, and building and grounds maintenance.18 Employers in sectors such as health care, long-term care, hospitality, education, and logistics frequently report difficulty recruiting and retaining sufficient numbers of workers.19 In these and other industries, the loss of experienced workers cannot easily be offset by replacement hiring. This is the case, in part, because of the Trump administration’s immigration enforcement policies, which are resulting in stagnant population and workforce growth, leaving fewer available workers to fill positions previously held by asylum-seekers.20

The NPRM as a result will exacerbate staffing issues in key industries, by pausing, terminating, or simply not adjudicating EAD applications. Further, the NPRM provides no empirical analysis demonstrating that employers will be able to replace workers who lose asylum-based employment authorization. Instead, the proposed rule rests on speculative assumptions that are inconsistent with the experience of the industries most affected.

B) The NPRM would increase mandatory overtime and workload pressures on remaining workers

Across unionized industries, abrupt workforce losses rarely produce the seamless labor substitution envisioned in the NPRM. Instead, employers often struggle to recruit qualified replacements, leaving operations understaffed for extended periods. In some cases, employers may scale back operations or lay off additional workers when they can no longer meet production or service demands due to the loss of experienced personnel.21 These dynamics are particularly severe in rural areas and specialized industries where the available labor pool is already limited and recruiting new workers can take months or even years.

When employers cannot quickly replace lost staff, the burden falls on the remaining workforce. Workers may be required to work extended shifts, mandatory overtime, or intensified production schedules to maintain operations. These conditions increase worker fatigue and place significant strain on the remaining workforce.22

C) The NPRM would increase workplace safety risks by disrupting experienced workforces

Staffing shortages and excessive overtime can also create significant safety risks. In many safety-sensitive workplaces, such as construction sites, manufacturing facilities, warehouses, and healthcare settings, the sudden loss of experienced workers can create immediate hazards for the remaining workforce. Short-staffing often forces employees to perform additional tasks or work at faster production speeds, increasing the likelihood of fatigue-related injuries and other workplace incidents. Efforts to rapidly replace experienced workers with new or inexperienced hires can further heighten safety risks for the entire workforce. Unionized workplaces have reported increased injury rates, higher stress levels, and exacerbated turnover and burnout following sudden staffing reductions tied to immigration policy changes.23

D) The NPRM would weaken bargaining power in unions and organizing capacity

Many asylum-seekers and other immigrant workers are union members, and their ability to work lawfully is critical to the stability of union bargaining units. By severely restricting asylum-seekers’ access to employment authorization, the NPRM would harm not only individual workers but also the unions that represent them by disrupting membership, weakening collective representation, and undermining unions’ capacity to maintain stable bargaining relationships with employers.

Labor history and modern labor-market research confirm the central role immigrant workers play in sectors where unions organize and represent workers.24 Immigrant workers are disproportionately employed in high-turnover, demanding industries where unions depend on workforce stability to sustain membership and bargaining strength.25 As immigrant employment has grown, so too has immigrants’ share of union membership, making them an increasingly important source of union participation and organizing.

By sharply curtailing asylum-seekers’ access to employment authorization, the NPRM would destabilize the workforce in industries where unions are building and maintaining collective representation. Denying or delaying work authorization would force many workers out of lawful employment or prevent workers from entering lawful employment relationships and joining unions, weakening existing bargaining units and reducing unions’ membership base. It would also disrupt organizing efforts by removing workers from the workforce before they can participate in union campaigns or collective bargaining.

The NPRM’s restrictions on asylum-seekers’ work authorization would significantly impair unions’ ability to represent and grow their membership.

The NPRM would push workers into the underground economy, increase labor and employment violations, weaken labor standards enforcement, and lower wages in numerous industries

The proposed rule would significantly restrict asylum-seekers’ ability to work legally while their asylum claims—often pending for years—are adjudicated, effectively forcing many asylum-seekers to support themselves and their families for extended periods of time without lawful employment.

The NPRM does not meaningfully analyze how individuals in this situation are expected to sustain themselves during those years, nor how effectively eliminating asylum-seekers’ access to employment authorization will impact the enforcement of labor standards, including wage and hour laws, labor laws, and workplace safety laws. In practice, without work authorization, many people will turn to informal or off-the-books employment arrangements in order to support themselves and their families. And we know from existing research that employees who lack work authorization are more than twice as likely to be victims of wage theft for minimum wage violations than U.S.-born citizens.26 Workers in these circumstances are significantly more vulnerable to exploitation. Employers may take advantage of workers’ immigration status to suppress wages, deny overtime pay, ignore workplace safety standards, or retaliate against workers who attempt to assert their rights.

When workers are pushed into informal employment, the resulting labor violations extend beyond those workers themselves—to all workers—regardless of immigration status or the country where they were born. Employers who exploit vulnerable workers not only depress wages and benefits for authorized workers in the same workplace, but they also gain a competitive advantage over law-abiding employers that comply with labor laws and collective bargaining agreements.27 In this way, the NPRM’s restriction of lawful employment authorization would distort workplace competition by rewarding employers that exploit vulnerable workers while disadvantaging those that comply with labor laws and collective bargaining agreements, thus lowering wages for all workers in the many industries where asylum-seekers are employed.

These consequences would reverberate across workplaces and industries. When employment moves into the informal economy, labor violations become harder to detect and enforce, enabling exploitative employers to undercut law-abiding competitors and driving down wages and working conditions for other workers. The NPRM does not meaningfully analyze these foreseeable effects. By failing to account for the predictable expansion of informal employment created by the proposed rule, the NPRM substantially understates its impact on labor standards and the broader labor market.

The NPRM disregards the significant reliance interests created by the existing system of asylum-based employment authorization

Under the Administrative Procedure Act (APA), agencies must consider the reliance interests that regulated parties have developed under existing policies before adopting regulatory changes that would disrupt those settled expectations.28 The NPRM fails to meaningfully account for the reliance interests that workers and unions have developed around the current system of asylum-based employment authorization.

For years, asylum-seekers and labor organizations have relied on a predictable regulatory framework under which individuals who meet the criteria for employment authorization can obtain a work permit within a defined timeframe. Workers make critical life decisions—including housing, transportation, and family support—based on the expectation that, if they satisfy the applicable requirements, they will be able to work lawfully while their asylum claims are pending. By introducing sweeping delays, additional eligibility barriers, and broad discretionary authority to deny applications, the proposed rule would upend these settled expectations and inject profound uncertainty into a system on which workers have long depended.

These reliance interests are particularly significant because many individuals the NPRM characterizes as “initial” asylum employment authorization applicants are not new entrants to the labor market. As described above, many have already been participating in the lawful workforce through programs such as TPS, humanitarian parole, deferred action, or other programs that allow for employment authorization. When those programs are terminated or curtailed, many workers eligible for asylum turn to the asylum system in order to maintain lawful employment authorization—relying on claims for asylum that are almost certainly valid given the circumstances that allowed them to qualify for temporary protections like TPS and parole—but which they did not assert sooner because of their eligibility for other programs which could be approved more quickly. Closing off this pathway for these current lawful employees in the U.S. labor market who also have valid asylum claims will eliminate the only remaining pathway for them to continue working lawfully in jobs they already hold. Their coworkers, employers, and entire workplaces depend on their continued participation in the labor force.

By imposing new eligibility barriers and expanding the circumstances under which renewal applications may be denied, along with creating unjustified lengthy bureaucratic pauses in adjudication, the proposed rule would significantly slow the renewal process and increase the likelihood that workers will lose lawful employment authorization while their applications remain pending. Given the scale of the existing asylum backlog, these changes threaten to create widespread gaps in work authorization for workers who have already been lawfully employed for years.

The NPRM would bring the asylum-based employment authorization system to a functional standstill. Workers who have relied on timely adjudication of work authorization applications would face prolonged periods without lawful employment authorization, while co-workers who depend on those workers would face sudden and unpredictable staffing disruptions. The NPRM does not meaningfully engage with these reliance interests or the systemic consequences of destabilizing an employment authorization framework on which hundreds of thousands of workers and employers have come to depend.

Because the proposed rule disregards these substantial reliance interests and fails to evaluate the disruptive consequences of overturning longstanding expectations about the availability and timing of employment authorization, the NPRM fails to consider an important aspect of the problem before the agency.

Conclusion and recommended action

The NPRM rests on a chain of flawed assumptions that do not reflect the realities of the modern U.S. labor market. It ignores the positive economic benefits and value of Employment Authorization Documents for asylum-seekers, and fails to estimate the many negative impacts that will result, harming not only asylum-seekers, but also U.S. employers and U.S.-born citizen workers. It mischaracterizes who will be impacted by the proposed rule, failing to recognize that many “initial” asylum applicants who would face the harshest aspects of the proposed rule are already embedded in the workforce. It disregards the substantial reliance interests that workers and employers have developed around a predictable system of asylum-based employment authorization. It ignores the predictable expansion of informal employment that will result from leaving asylum-seekers without lawful means of supporting themselves for years. And it assumes—without evidence—that employers will be able to easily replace workers who lose employment authorization.

In practice, the proposed rule would not streamline the administration of asylum-based employment authorization. Instead, it would destabilize workplaces, disrupt established workforces, weaken labor standards enforcement—leading to lower wages for workers in many industries—and impose significant costs on workers, employers, and the broader labor market.

For these reasons, the Economic Policy Institute urges DHS to withdraw the proposed rule.

Comment submitted by:

Daniel Costa
Director of Immigration Law and Policy Research
Economic Policy Institute

Endnotes

1. See Employment Authorization Reform for Asylum Applicants, 91 Fed. Reg. 8616, 8618–20 (Feb. 23, 2026).

2. See id. at 8618–19.

3. Daniel Costa, Josh Bivens, Ben Zipperer, and Monique Morrissey, The U.S. benefits from immigration but policy reforms needed to maximize gains: Recommendations and a review of key issues to ensure fair wages and labor standards for all workers, Economic Policy Institute, October 4, 2024.

4. American Immigration Council, The Contributions of Temporary Protected Status Holders to the U.S. Economy (fact sheet), September 19, 2023.

5. Andrew Moriarty, “Temporary Protected Status (TPS): 5 Things to Know,” Policy Brief, FWD.US, February 29, 2024.

6. President’s Alliance on Higher Education and Immigration (President’s Alliance), Breakdown of Dreamer Populations—Both with and Without DACA, Updated May 23, 2024.

7. , Nicole Svajlenka and Trinh Q. Truong, “The Demographic and Economic Impacts of DACA Recipients: Fall 2021 Edition,” Center for American Progress, November 24, 2021.

8. Tom Wong, Ignacia Rodriguez Kmec, Diana Pliego, Karen Fierro Ruiz, Silva Mathema, Trinh Q. Truong, and Rosa Barrientos-Ferrer, 2023 Survey of DACA Recipients Highlights Economic Advancement, Continued Uncertainty amid Legal Limbo, Center for American Progress, March 25, 2024.

9. Pia Orrenius and Madeline Zavodny, “The Impact of Temporary Protected Status on Immigrants’ Labor Market Outcomes,” Federal Reserve Bank of Dallas Working Paper no. 1415, December 2014.

10. David Dyssegaard Kallick, “’Let Us Work’: The Wage Gain When Asylum Seekers Gain Work Authorization,” Immigration Research Initiative, September 7, 2023.

11. See for example, Ben Zipperer, Trump’s deportation agenda will destroy millions of jobs: Both immigrants and U.S.-born workers would suffer job losses, particularly in construction and child care, Economic Policy Institute, July 10, 2025.

12. See for example, Carl Davis, Marco Guzman, and Emma Sifre. 2024. Tax Payments by Undocumented Immigrants, Institute on Taxation and Economic Policy, July 30, 2024.

13. This rationale—the validity of which is beyond the scope of this comment—is repeated throughout the NPRM. See, e.g., Employment Authorization Reform for Asylum Applicants, Notice of Proposed Rulemaking, 91 Fed. Reg. 8616, 8620 (Feb. 23, 2026) (“[T]he affirmative asylum application backlog serves as a magnet pulling aliens into the U.S. illegally.”); id. at 8664 (same); id. at 8629 (“filing fraudulent, frivolous, or otherwise meritless asylum cases primarily to access employment authorization” is a “pull factor for illegal immigration,” such that the NPRM “should decrease the number of illegal border crossers”); id. at 8659 (proposing new eligibility bar on asylum-based work permits to “curb the pull-factor of employment authorization for those who have been present in the United States for more than 1 year”); id. at 8660 (“This rule will prioritize the safety and security of the American people by disincentivizing illegal migration and criminal conduct for [sic] aliens who would like to obtain employment authorization.”); id. at 8669 (“tethering (c)(8) EAD application acceptance to asylum processing times . . . will permanently eliminate the possibility that asylum backlogs may serve as a magnet attracting illegal immigration”).

14. See Temporary Protected Status (TPS): Fact Sheet, Forum (Feb. 4, 2026), https://forumtogether.org/article/temporary-protected-status-fact-sheet/ (listing recent TPS termination announcements, including TPS protections for Venezuela, Haiti, Nepal, Honduras, Nicaragua, Syria, Afghanistan, Cameroon, South Sudan, Burma, Ethiopia, Somalia, and Yemen); Dep’t of Homeland Sec., DHS Issues Notices of Termination for the CHNV Parole Program, Encourages Parolees to Self-Deport Immediately (June 12, 2025), https://www.dhs.gov/news/2025/06/12/dhs-issues-notices-termination-chnv-parole-program-encourages-parolees-self-deport; U.S. Citizenship & Immigr. Servs., Termination of Family Reunification Parole Processes for Colombians, Cubans, Ecuadorians, Guatemalans, Haitians, Hondurans, and Salvadorans, 90 Fed. Reg. 58032 (Dec. 15, 2025); Gregory Royal Pratt & Laura Rodríguez Presa, DACA delays lead to lost jobs, less stability and anxiety over potential deportation under Donald Trump, Chicago Tribune (Mar. 15, 2026), https://www.chicagotribune.com/2026/03/15/daca-delays-trump-immigration/.

15. See 91 Fed. Reg. at 8652-53, 8658 (acknowledging former TPS, parole, and DACA holders often apply for asylum).

16. 91 Fed. Reg. at 8620–21, 8664-65.

17. See id. (noting that lost compensation may be transferred to currently employed workers through additional hours or overtime).

18. See, e.g., fwd.us, People seeking asylum are contributing to the workforce (Jan. 31, 2026), https://www.fwd.us/news/people-seeking-asylum-are-contributing-to-the-workforce/.

19. See, e.g., Brief of Amici Curiae AFL-CIO and Ten Affiliated Labor Unions, Lesly Miot v. Trump, No. 26-5050 (D.C. Cir. Feb. 17, 2026) (“AFL-CIO and Affiliated Labor Unions Haiti TPS Brief”), at 16–17.

20. See, e.g., Julia Gelatt, “Trump Restrictions on Legal Immigration Could Sharply Reduce U.S. Population Growth,” Migration Policy Institute (April 2026), https://www.migrationpolicy.org/news/trump-legal-immigration-cuts-us-population-growth; and Chair Jerome Powell, “Transcript of Chair Powell’s Press Conference, March 18, 2026,” Federal Reserve, https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20260318.pdf (March 18, 2026).

21. See, e.g., Brief of Amici Curiae AFL-CIO and Affiliated Labor Unions, Svitlana Doe et al. v. Noem et al., No. 25-1384 (1st Cir. July 7, 2025) (“AFL-CIO and Affiliated Labor Unions Parole Brief”), at 13.

22. See, e.g., id. at 8–17 (discussing the chaos and harmful fallout that union members and employers experienced when DHS abruptly ended work authorization through the CHNV parole program); Andrea Hsu, Factories from GE to Kraft Heinz lose immigrant workers, stressing those who remain, NPR (Aug. 11, 2025), https://www.npr.org/2025/08/11/nx-s1-5496335/trump-immigration-workers-parole-tps.

23. See, e.g., AFL-CIO and Affiliated Labor Unions Haiti TPS Brief at 36 (noting that “[a]s a direct result of DHS’s actions [in terminating TPS for Haiti], nurses and other healthcare workers will feel pressure to work longer hours to attend to more patients, exacerbating the turnover and burnout that is endemic to the industry”).

24. See, e.g., Mae M. Ngai, Impossible Subjects: Illegal Aliens and the Making of Modern America (2004) (discussing historical links between immigrant labor and industrial unionization); Joint Econ. Comm. of the U.S. Cong., Unions Protect Employment and Raise Earnings, Including for Workers Who Are Immigrants (June 14, 2023) (finding unionization increases wages, benefits access, and workplace protections for immigrant workers); Andrea Hsu, Factories from GE to Kraft Heinz lose immigrant workers, stressing those who remain, NPR (Aug. 11, 2025), https://www.npr.org/2025/08/11/nx-s1-5496335/trump-immigration-workers-parole-tps.

25. See, e.g., Kevin Appleby, The Importance of Immigrant Labor to the US Economy, Center for Migration Studies (Sept. 2, 2024), https://cmsny.org/importance-of-immigrant-labor-to-us-economy/ (noting foreign-born workers were mainly employed in service occupations, construction, transportation, and material moving occupations); Dorothy Neufeld, Ranked: Union Membership by Industry in America, Visual Capitalist (Nov. 7, 2024), https://www.visualcapitalist.com/union-membership-by-industry-in-america/ (listing top industries with union membership based on Department of Labor statistics, including construction and transportation); Migration Policy Institute, Immigrants and Union Membership in the United States (2004) (demonstrating rising absolute numbers of immigrant workers in unions despite lower overall union density among foreign-born workers).

26. Annette Bernhardt et al., Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities, Center for Urban Economic Development, National Employment Law Project, and UCLA Institute for Research on Labor and Employment, 2009.

27. See, e.g., AFL-CIO and Affiliated Labor Unions Parole Brief at 15–16 (when the hotel industry is faced with labor shortages, employers often use temporary labor agencies to supply workers, which not only “undermin[e] the wages and working conditions” for U.S. citizen workers employed by the hotel “by paying substandard wages and benefits,” but also “often violate immigration law by hiring undocumented workers”).

28. See FCC v. Fox Television Studios, Inc., 556 U.S. 502, 515–16 (2009) (noting that an agency must sufficiently explain its decision when it departs from a previous position, which requires a “reasoned explanation” as to why it is “disregarding” any “factual findings . . . which underlay its prior policy” and “contradict” the factual findings underlying its new policy).

1. The proposed rule includes multiple reference numbers, which are listed here out of an abundance of caution: No. 2799-25; DHS Docket No. USCIS-2025-0370; DHS Docket No. 2025-0370; and RIN 1615-AC97.

Workers misclassified as independent contractors lose out on critical protections, benefits, and labor rights including the minimum wage, overtime pay, unemployment insurance, the right to form a union, and anti-discrimination protections in most states. Additionally, these workers must bear the full financial costs of Social Security and Medicare contributions, rather than split it evenly with their employer.  

Construction workers, truck drivers, and home health aides are some of the commonly misclassified jobs analyzed in the report. A typical construction worker misclassified as an independent contractor would lose as much as $20,399 in annual income and job benefits compared with what they would have earned as an employee. A typical truck driver, if misclassified as an independent contractor, would lose as much as $23,266 annually. 

Lost compensation due to misclassification varies by state. Estimated annual per-worker costs in lost compensation are as high as $31,326 for truck drivers in New Jersey. On average, misclassified workers stand to lose more in higher-wage states and occupations because W-2 earnings are greater, but losses are substantial in all states—as accompanying state fact sheets show.

Misclassification does not just shift the full burden of social insurance to workers—it also reduces the total revenues received by the social insurance system. The report estimates that social insurance systems can lose up to roughly 30% of per-worker revenue when workers are misclassified as independent contractors. This is because independent contractors do not contribute to unemployment insurance and workers’ compensation systems, and because they may earn less than they would as employees (and lower pay translates directly into lower contributions).

Embedding strong legal definitions—like the ABC test—in state and federal law is fundamental to ensuring that employees are not improperly classified as independent contractors. These strong legal tests must also be paired with strong enforcement mechanisms to uphold workers’ rights and deter employers from violating the law. 

“Illegal misclassification of employees as independent contractors deprives workers of their labor rights, slashes their pay, and undermines funding for crucial social safety net programs,” said Nina Mast, EPI economic analyst and co-author of the report. “Policymakers at the federal, state, and local levels should act to curb misclassification and enforce the rights to which all workers should be entitled.” 

Key findings:

• This analysis estimates the cost to workers of being misclassified as an independent contractor for 11 commonly misclassified jobs. We find, for example, that a typical construction worker misclassified as an independent contractor would lose as much as $20,399 in annual income and job benefits compared with what they would have earned as an employee. A typical truck driver, if misclassified as an independent contractor, would lose as much as $23,266 annually.
• Lost compensation due to misclassification varies by state. Estimated annual per-worker costs in lost compensation are as high as $31,326 for truck drivers in New Jersey. On average, misclassified workers stand to lose more in higher-wage states and occupations because W-2 earnings are greater, but losses are substantial in all states.
• Misclassification can happen in any occupation. However, because of occupational segregation and other labor market disparities, people of color, women, and immigrants—and people at the intersections of these categories—are more likely to be in occupations where misclassification is common, like most of the 11 occupations analyzed in this report.
• Misclassification shifts the full burden of social insurance—like Social Security and Medicare—to workers, while also reducing the total revenues received by the social insurance system. We estimate that social insurance systems can lose up to roughly 30% of per-worker revenue when workers are misclassified as independent contractors.
• In 2025 and 2026, lawmakers in at least 12 states proposed or passed legislation to address worker misclassification. Most recent state efforts have focused on increasing accountability of employers that misclassify workers, bolstering remedies for workers subject to illegal misclassification, and strengthening enforcement capacity.

Read fact sheets by state here.

What is misclassification?

The type of misclassification addressed in this report occurs when an employer wrongly classifies an employee as an independent contractor. The problem of workers being misclassified as independent contractors is pervasive and widespread. An analysis from the National Employment Law Project focusing on state-level reports on misclassification estimated that as many as 10–30% of employers misclassify their workers.1

The way a worker is classified has serious implications for their labor rights and economic security. Federal, state, and local labor laws provide extensive protections for employees that are not available to independent contractors. For example:

• When a worker is misclassified as an independent contractor, they are stripped of minimum wage and overtime protections.
• These misclassified workers are no longer eligible for unemployment insurance or workers’ compensation.
• They do not qualify for paid sick or family leave, even in places where those benefits are statutorily prescribed for employees, and they are extremely unlikely to receive employer-provided health insurance or retirement benefits.
• They are no longer protected by the National Labor Relations Act, which ensures workers’ rights to form unions and bargain collectively to improve their working conditions.
• In most states, misclassified workers are not covered by anti-discrimination and sexual harassment protections.2
• Workers misclassified as independent contractors also must assume the full financial cost of Social Security and Medicare contributions, rather than split it evenly with their employer.

Losing these benefits and protections leaves independent contractors in a far more vulnerable position than employees when it comes to their basic rights on the job. Employers have argued that many workers prefer being classified as independent contractors because they value “flexibility” over fundamental labor rights. But this so-called flexibility is often illusory, given the degree of control many employers retain over workers and their schedules.3

Misclassification remains pervasive in part because its costs to individual workers can be hard to quantify and thus easy to obscure. Prior research has estimated the costs of misclassification by quantifying the number of workers misclassified; the amount of wage theft experienced by misclassified workers; and the loss in federal and state tax revenues resulting from employers not paying payroll taxes and workers’ compensation insurance.4 This report presents estimates of two types of costs caused by misclassification for 11 commonly misclassified occupations:

1. What workers lose when they are misclassified—that is, the difference in the value of a job to a worker if the worker is classified as an independent contractor rather than as an employee; and
2. What social insurance funds lose when workers are misclassified—that is, the difference in payments to social insurance funds if a worker is classified as an independent contractor rather than as an employee.

Misclassification can happen to any worker. However, because of occupational segregation and other labor market disparities, people of color, women, and immigrants—and people at the intersections of these categories—are more likely to be in occupations where misclassification is common, such as most of the 11 occupations investigated in this analysis (see Appendix Table 1). Any policy conversations about worker classification status should center these types of occupations, as workers classified as independent contractors in these occupations are often not genuine independent contractors with full control over their work conditions and are more likely to be exposed to the harms of reduced earnings and loss of labor protections.

The cost to workers

Table 1 presents estimates of the cost to workers of being misclassified as an independent contractor for 11 occupations that are highly prone to misclassification.5

For example, when classified as an employee, the typical construction worker had annual earnings of $58,360 in 2025 (column 1, top row of Table 1). This includes the average value of supplemental pay—overtime, shift differentials, and paid time off. When we also include the value of health insurance and retirement plans and subtract the worker contribution to Social Security and Medicare, the full value of the job to the worker when classified as an employee rises to $62,567 (column 2, top row). But when the typical construction worker is misclassified as an independent contractor—and therefore loses access to legal protections, supplemental pay, and employer contributions to Social Security and Medicare—we estimate that the value of that job falls to between $42,169 and $49,382 (columns 3 and 4, top row). That estimated range depends on the assumptions we make about the degree to which the employer increases the base pay of independent contractors, if at all, to offset the fact that the worker does not have access to many rights and benefits.

The estimates in columns 3 and 4 are based on two scenarios, described below, that together define the endpoints of this range and establish plausible estimates of the cost of misclassification to workers. It should be noted, however, that this range is conservative because it does not account for the loss independent contractors face of many rights associated with being an employee—for example, it excludes the impact of the loss of rights guaranteed by the National Labor Relations Act, such as the right to union representation.

In both scenarios, we assume that the worker—if classified as an independent contractor—receives the full regular pay of a W-2 employee but does not receive supplemental pay (like overtime or paid time off), must pay the full combined employer and employee contribution to Social Security and Medicare (15.3% of earnings), and must cover paperwork costs like invoicing, bookkeeping, and small business tax filings.

Scenario 1: No compensation for health and retirement benefits

In the first scenario, we assume employers do not compensate independent contractors for the value of health insurance and retirement benefits. This generates our low estimate of the value to workers of independent contractor jobs—along with the high estimate of the cost to workers of independent contractor jobs—in Table 1.

Under this assumption, we conservatively estimate the net value of a construction job done as an independent contractor falls to $42,169 per year. This is $20,399—or 32.6%—less than if that worker were a W-2 employee ($62,567 in column 2). Notably, misclassified truck drivers also see a massive decline in net value of the job. As a W-2 employee, a truck driving job is worth $64,474, while an independent contractor receiving the same wage, but no supplemental pay or benefits, earns $41,208, which is $23,266 less.

Table 1

Scenario 2: Full compensation for health and retirement benefits

In the second scenario, we assume employers fully compensate independent contractors for the value of health insurance and retirement benefits. This generates our high estimate of the value to workers of independent contractor jobs, along with the low estimate of the cost to workers of independent contractor jobs, in Table 1.

Access to these benefits increases the annual earnings of an independent contractor, but not to the level of a W-2 employee. For a construction worker, the net value of the job as an independent contractor is only $49,382, or more than $13,000 below the net value of the same job done as an employee. For a truck driver, the switch to independent contractor status would cost $13,760.

Table 1 also shows estimates for nine other occupations with lower annual earnings than construction workers and truck drivers. As W-2 employees, these workers had median annual earnings between $33,690 and $44,140. Under the estimates in scenario 1 (no compensation for health and retirement benefits), being misclassified as an independent contractor would cost between $8,858 (retail sales workers) and $17,939 (light truck delivery drivers). Under scenario 2 (full compensation for health and retirement benefits), the costs would be $6,294 and $10,634, respectively.

Mapping cost to workers by state

See fact sheets by state.

Because worker pay varies meaningfully across states, we also estimate the cost of misclassification to workers by state. We follow the same methodology we used for our national-level estimates but incorporate state-level data where available.

Figure A maps the financial penalty that workers face when wrongfully misclassified as independent contractors. This figure uses estimates from scenario 1, where we assume employers do not compensate independent contractors for health and retirement benefits. (See Appendix Table 2 and Appendix Table 3 for a detailed breakdown of costs to workers by occupation and state for independent contractors with and without compensation for health and retirement benefits.)

The cost of misclassification ranges from $5,774 annually for housekeeping cleaners in Mississippi to $31,326 for truck drivers in New Jersey. This range of estimates reflects the fact that misclassified workers stand to lose more in higher-wage states and occupations where the W-2 earnings of employees are greater. Even so, losses are substantial across all states.    

Figure A

The cost to social insurance

Social insurance consists of government programs funded by dedicated payroll taxes paid by workers and/or employers, which entitle workers to benefits when they experience qualifying events—such as reaching retirement age (Social Security and Medicare), being laid off (unemployment insurance), or being injured on the job (workers’ compensation). When a worker is misclassified as an independent contractor, the entire cost of Social Security and Medicare contributions is shifted to the worker.6 Misclassification also renders workers ineligible for participation in state and federal unemployment insurance and workers’ compensation programs.

Misclassification does not just shift the full burden of social insurance to workers—it also reduces the total revenues received by the social insurance system. This occurs for several reasons. First, unemployment insurance and workers’ compensation systems receive no contributions from independent contractors—though it is worth noting that this in no way ensures that these workers will not need to rely on public safety net programs if they are laid off or injured on the job. Second, independent contractors in the occupations we analyze may earn less than they would as employees, because, for example, they are no longer legally entitled to the minimum wage, overtime protections, and are highly unlikely to receive any paid time off. Because Social Security contributions are a percentage of earnings (and the taxable maximum is not binding in these occupations), lower pay translates directly into lower contributions.

Table 2 illustrates the impact of worker misclassification on payments to social insurance funds in the 11 occupations analyzed above. For example, the typical construction worker classified as an employee and their employer jointly contributed a total of $10,663 toward these social insurance programs in 2025. When misclassified as an independent contractor, total payments toward social insurance programs fall to between $7,617 and $8,920 per construction worker (using the same two scenarios described above). This represents a decline in social insurance revenues between $1,743 and $3,046 per construction worker per year.

Under our scenario 1 assumptions (where employers do not increase pay to compensate independent contractors for their lack of employer-provided health and retirement benefits), total contributions to social insurance fall from between 21% ($1,220) for manicurists/pedicurists and 29% ($3,046) for construction workers. Under our scenario 2 assumptions (where employers increase pay enough to fully compensate independent contractors for health and retirement benefits), payments to social insurance drop by somewhat less—10% ($601) for manicurists/pedicurists and 16% ($1,743) for construction workers—due to the higher base pay.

Table 2

Mapping the cost to social insurance funds by state

Expanding this methodology to states reveals how misclassification deprives social insurance funds of crucial dollars needed to maintain crucial programs, such as unemployment insurance and workers’ compensation. Figure B maps the difference in contributions to social insurance funds between W-2 employees and independent contractors under scenario 1, where we assume employers do not compensate independent contractors for health and retirement benefits. The median cost to social insurance funds ranges from $654 per person annually for housekeeping cleaners in Mississippi to $4,008 for construction workers in Hawaii. See Appendix Table 4 and Appendix Table 5 for a detailed breakdown of costs to social insurance funds by occupation and state for the full range of estimates for independent contractors with and without compensation for health and retirement benefits.

Figure B

Recent state and federal policy changes

Strong statutory language, like the ABC test, provides the legal foundation for identifying misclassification 

Given the high stakes of misclassification for workers’ access to fundamental rights and protections, embedding strong legal definitions in state and federal law is fundamental to ensuring that employees are not improperly classified as independent contractors.  

The ABC test is the strongest, most protective test for determining employee status. The test establishes a presumption that an individual performing services for an employer is an employee—not an independent contractor—unless the employer can establish three factors: 

1. The work is done without the direction and control of the employer; 
2. The work is performed outside the usual course of the employer’s business; and 
3. The work is done by someone who has their own, independent business or trade doing that kind of work. 

The ABC test differs from other “tests” of employee status such as the National Labor Relations Act (NLRA) “common law” test and the Fair Labor Standards Act (FLSA) “economic realities” test because the ABC test shifts the presumption to one of employee status, places the burden on the employer to prove independent contractor status, and provides a clear, narrow definition of independent contractor status. In turn, this reduces the likelihood that workers are misclassified and lose protections they should be guaranteed under the law as employees.  

The strength of frameworks used to determine employee status is highly varied across states. At least 18 states and the District of Columbia currently use the ABC test for determining employee status for certain workplace laws. Some states have taken action recently. In addition to pursuing strong, innovative enforcement strategies to combat misclassification, New Jersey’s labor department proposed a new administrative rule in 2025 to codify into state law the agency’s existing ABC test for preventing independent contractor misclassification (the rule has since been paused). This year, a West Virginia bill proposed establishing a new ABC test into state law. 

However, the number of states with ABC tests has decreased in the past decade, with some states weakening or repealing their statutory definitions as a result of lobbying efforts by digital platform companies (e.g. Uber) and other industries whose business models depend on designating large numbers of workers as “independent contractors.” While most states with ABC tests apply them to determine workers’ eligibility for unemployment insurance benefits, only a few states apply them to wage and hour standards like the minimum wage and overtime compensation, and some states have them in place only for workers in certain occupations.

Strong enforcement mechanisms allow lawmakers to protect workers and hold employers accountable 

While strong legal tests provide a basis for determining whether an employee has been misclassified as an independent contractor, they must be paired with strong enforcement mechanisms to uphold workers’ rights and deter employers from violating the law. Many states are taking steps to strengthen enforcement. In 2025 and 2026, lawmakers in at least 12 states proposed or passed legislation to address worker misclassification. For example, Delaware passed a law in 2025 to hold contractors liable when their subcontractors misclassify workers, Colorado enacted a law to penalize employers that willfully misclassify workers, and Minnesota enacted a law requiring the state labor agency to study the impact of misclassification on workers and state revenue. In 2026, lawmakers in at least eight additional states7 have proposed legislation to address worker misclassification, and two states (Virginia and Washington) have sent approved legislation to the governor. 

At the same time, attacks also continued in 2026. Bills in several states proposed weakening existing ABC tests and excluding certain occupations from being subject to the tests. Other bills proposed establishing corporate-backed sham “portable benefits” schemes that promise some limited (but often inaccessible) benefits for gig workers while locking them out of full coverage under standard state programs and protections by treating them as “independent contractors.”8

Strong enforcement is important, and whether a given situation will be subject to enforcement depends on the strength of a state’s statutory definitions of employment. Both strong legal tests and enforcement are critical to protecting workers from being misclassified.  

Policy recommendations 

Policymakers at the federal, state, and local levels should act to curb misclassification and enforce the rights to which all workers should be entitled. Unfortunately, federal protections from misclassification are limited, and recent progress to address misclassification has been undermined. For example, the ABC test is not currently part of any federal workplace laws. In 2024, the Department of Labor finalized a rule to combat misclassification by adopting a six-factor test to determine worker classification under wage and hour laws. However, the Trump administration stopped enforcing the 2024 rule and recently proposed replacing it with a weaker standard. Given federal retrenchment, state lawmakers have an opportunity and responsibility to strengthen existing state standards.

State and federal policymakers should:

• Establish or expand the use of a strong, uniform protective legal test for determining employee status, such as the ABC test;9
• Strengthen enforcement and increase penalties to deter the misclassification of workers as independent contractors; 
• Pass the Protecting the Right to Organize (PRO) Act,10 which would make it harder for employers to misclassify employees in order to prevent them from forming a union and bargaining collectively;
• Strengthen enforcement of wage theft and misclassification, and fully fund the federal and state agencies responsible for enforcing workers’ wage and hour rights;
• Require employers to provide workers with transparent statements of their employment status and a justification for their classification;
• Extend basic wage and hour protections, workplace health and safety protections, paid sick leave, and other protections to independent contractors to discourage misclassification as a “race to the bottom” for workers’ rights; and
• Improve coordination among state and federal tax and labor enforcement agencies by establishing interagency misclassification task forces with dedicated resources and staff and strong co-enforcement partnerships capable of effectively cracking down on misclassification in targeted industries.11

Methodology

Since there are no comprehensive private or public data sources on workers misclassified as independent contractors, we apply a methodology that makes use of available employee total compensation and earnings data to estimate the costs of misclassification. For each of the 11 occupations included in our analysis, we begin with the average compensation profile drawn from the Bureau of Labor Statistics’ (BLS) Employer Costs for Employee Compensation (ECEC) database. This profile provides a breakdown of average employer costs for employee compensation in the private sector. As an example, Table 3 presents the average hourly compensation profile for construction workers broken into its component parts. We take the ratio of the individual compensation components to regular pay—which includes wages, salaries, supplemental pay, and paid leave—to estimate the ratio of compensation to pay.

Table 3

Next, we apply the ratios of total compensation to pay to median annual earnings obtained from the BLS’ Occupational Employment and Wage Statistics data (OEWS). This gives us estimates of the regular pay, supplemental pay, paid leave, and insurance and retirement benefits for a W-2 employee. We then calculate the net value to the worker as an employee based on the sum of all pay, paid leave, insurance and benefits, minus Social Security and Medicare taxes.

From here, we model two possible ways that the value of a job to a worker can change if the employee is misclassified as an independent contractor. In both scenarios, we assume that the worker, if classified as an independent contractor, receives the full regular pay of a W-2 employee, does not receive supplemental pay (like overtime or paid time off), must pay the full employer and employee contribution to Social Security and Medicare (15.3% of earnings), and must cover paperwork costs like invoicing, bookkeeping, and small business tax filings. We calculate paperwork costs by updating the methodology used in 2020 comments on independent contractor status under the Fair Labor Standards Act.12 The difference in the two scenarios is in our assumptions about the degree to which the employer increases the base pay of independent contractors, if at all, to offset the fact that the worker does not have access to many rights and benefits.

1. In the first scenario, we assume employers do not compensate independent contractors for health and retirement benefits. This generates our low estimate of the value to workers of independent contractor jobs—along with the high estimate of the cost to workers of independent contractor jobs.
2. In the second scenario, we assume that employers fully compensate independent contractors for the cost of health insurance and retirement benefits that employers would have paid to the same worker working as an employee. This generates our high estimate of the value to workers of independent contractor jobs, along with the low estimate of the cost to workers of independent contractor jobs.

State estimates

Estimates of the cost of misclassification by state and occupational group are produced similarly to national estimates, using compensation data from the BLS’ ECEC data and state earnings data from the BLS’ OEWS data.

Compensation profiles can be obtained from the ECEC that detail the total hourly cost of compensating a worker, including the share of total compensation derived from regular pay, insurance and retirement benefits, and legally required benefits. A ratio of compensation to pay can be calculated from these profiles by dividing each compensation component by regular pay, as in Table 3.

The ECEC does not have compensation profiles for occupational groups at the state level. They do, however, have compensation profiles for all workers, for all workers by occupation, and for all workers by census division, which we combine to estimate compensation profiles for occupational groups at the census division level. Table 4 illustrates this procedure using construction workers in New England as an example. First, we create compensation to pay ratios for private-sector workers at the national level, for each occupational group (e.g. construction workers), and for each census division (e.g. New England). Next, we divide the occupation-specific ratio by the national ratio and multiply this quotient by the census division ratio. This yields a unique compensation to pay ratio for New England construction workers, which is then mapped onto all states within this respective census division. This procedure is followed for all occupational groups and census divisions to produce compensation to pay ratios for all 50 states and the District of Columbia.

Table 4

We apply the state- and occupation-specific compensation to pay ratios to state and occupation median annual earnings obtained from BLS’ OEWS data. This gives us estimates of total compensation that comes from regular pay, supplemental pay, paid leave, and insurance and retirement benefits for W-2 employees across all states and occupations.

As in the national estimates, the cost of misclassification to both workers and to social insurance funds is calculated by comparing the net value of a job for a W-2 employee with that of an independent contractor under two scenarios: with and without compensation for health and retirement benefits. Appendix Tables 2–5 provide detailed breakdowns of these costs in both net dollar amounts and percentage differences relative to W-2 employees.

Notes

1. National Employment Law Project, Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries, October 2020.

2. Meghan Racklin, Molly Weston Williamson, and Dina Bakst, “State Leadership on Anti-Discrimination Protections for Independent Contractors,” Future of Work Blog (A Better Balance), April 22, 2020.

3. Margaret Poydock, Lynn Rhinehart, and Celine McNicholas, Flexible Work: What Workers, Especially Low-Wage Workers, Really Want And How Best To Provide It, Economic Policy Institute, July 2024.

4. Françoise Carré, (In)dependent Contractor Misclassification, Economic Policy Institute, June 2015; Government Accountability Office, Employee Misclassification: Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention, GAO-09–717, August 2009.

5. For discussions of occupations where workers are particularly vulnerable to misclassification as independent contractors, see Annette Bernhardt, Sarah Thomason, Chris Campos, Allen Prohofsky, Aparna Ramesh, and Jesse Rothstein, Independent Contracting in California: An Analysis of Trends and Characteristics Using Tax Data, UC Berkeley Labor Center and California Policy Lab, March 2022; Françoise Carré, (In)dependent Contractor Misclassification, Economic Policy Institute, June 2015; National Employment Law Project, Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries, October 2020; and Lisa Xu and Mark Erlich, Economic Consequences of Misclassification in the State of Washington, Harvard Labor and Worklife Program, December 2019.

6. When workers are employees, they pay the employee share of Social Security and Medicare (7.65% of W-2 earnings). Their employers also make identical payments to Social Security and Medicare.

7. Arizona HB 2463, Illinois HB 2794, Iowa HB 2385, Kentucky HB 449, Virginia SB 644, Washington SB 6302, West Virginia HB 4571, and Wisconsin AB 1160.

8. See, for example, New Jersey A 1184, California SB 527, and Georgia HB 987.

9. Lynne Rhinehart et al. Misclassification, the ABC Test, and Employee Status, Economic Policy Institute, June 2021.

10. Celine McNicholas, Margaret Poydock, and Lynne Rhinehart, Why Workers Need the Protecting the Right to Organize Act, Economic Policy Institute, February 2021.

11. For more on interagency misclassification task forces, see Rebecca Smith, Public Task Forces Take on Employee Misclassification: Best Practices (policy brief), National Employment Law Project, updated August 2020. For more on co-enforcement partnerships, see Janice Fine, Daniel Galvin, Jenn Round, and Hana Sheperd, “Strategic Enforcement and Co-enforcement of U.S. Labor Standards Are Needed to Protect Workers Through the Coronavirus Recession,” Boosting Wages for U.S. Workers in the New Economy series, Washington Center for Equitable Growth, January 2021.

12. Heidi Shierholz, “EPI comments on independent contractor status under the Fair Labor Standards Act,” comments submitted on behalf of the Economic Policy Institute to Division of Regulations, Legislation, and Interpretation (Wage and Hour Division) Director Amy DeBisschop, October 26, 2020.

The IRS estimates that business taxpayers spend 13 more hours than nonbusiness taxpayers doing their taxes. If we conservatively assume that independent contractors spend 30 minutes per week on other (non-tax) paperwork costs that they wouldn’t have to spend if they were a payroll employee, that, plus the additional 13 hours spent on taxes, is an additional 39 hours of paperwork per year. This is equivalent to 1.8% of pay, or $880 annually for an independent contractor who earns $48,887 in regular pay annually.  

Additionally, we estimate these paperwork costs as the annual purchase of basic bookkeeping software ($114 on the lowest end, using FreshBooks, see https://www.freshbooks.com/pricing, accessed October 16, 2024), self-employed tax filing software for federal taxes ($129, using TurboTax, https://turbotax.intuit.com/personal-taxes/online/live/, accessed October 16, 2024) and state taxes ($64, using TurboTax).

Data appendix

Appendix Table 1

Appendix Table 2

Appendix Table 3

Appendix Table 4

Appendix Table 5

Table 1

The benefits of raising the minimum wage

Raising the minimum wage is a research-backed policy that increases earnings for low-wage workers without causing increases in unemployment or other negative economic side effects. A strong wage floor is also a powerful tool for making a more equitable economy. Almost two-thirds of the workers who would be affected by SQ 832 are women (63.3%). The policy would also disproportionately benefit workers of color. Hispanic workers make up 18.2% of the affected workers, compared with 11.0% of the total Oklahoma workforce. Black workers would be 10.6% of affected workers, while only making up 7.1% of the workforce (see Table 3).

The policy would also provide critical support to workers experiencing significant economic insecurity. Nearly three-fifths (59.3%) of the affected workers have incomes below 200% of the poverty line. Research shows that raising the minimum wage significantly reduces poverty, even as higher wages simultaneously reduce some workers’ and families’ eligibility for, and reliance on, public assistance programs.

A higher minimum wage would help combat the affordability crisis

While dozens of states and cities have passed minimum wage increases over the past 15 years, Oklahoma is one of 20 states that still uses the dismally low federal minimum wage of $7.25 an hour. Policymakers have not raised the federal minimum wage since July 2009, meaning that as prices throughout the economy have risen, the buying power of a paycheck at the federal minimum wage has fallen—substantially. Adjusting for inflation, the federal minimum wage is worth 30% less than it was in 2009. In fact, since 2025, the federal minimum wage has officially been a poverty-level wage under the Department of Health and Human Services’ guidelines. The stagnant federal minimum wage is one example of how economic policy in recent decades has suppressed workers’ wage growth, squeezing them as prices have continued to rise and creating the affordability crisis.

Fortunately, SQ 832 would not only raise the state minimum wage to more adequate levels, but also automatically adjust it for inflation beginning in 2030. Twenty-one states already use these automatic increases to ensure that low-wage workers don’t lose ground over time as prices rise.

SQ 832 would go a long way toward improving conditions for the lowest-paid workers in the state as they contend with rising housing, energy, and health insurance costs. However, the reality is that most Oklahoma workers face higher living costs than can be supported by a $15-per-hour wage. Figure A shows estimates of a living wage for a single adult in different Oklahoma metro areas using EPI’s Family Budget Calculator. All Oklahoma metro areas have living wages above $16 an hour. Workers in Tulsa, Oklahoma City, and Lincoln County must earn at least $18 an hour to meet the Family Budget Calculator threshold. Even the lowest-cost county in the state (McIntosh County, not shown) has a living wage greater than $15 an hour.

Figure A

SQ 832’s $15 target would help hundreds of thousands of Oklahoma workers earn closer to a living wage and put Oklahoma’s wage standards more in line with many other states. As of January 2026, 17 states and the District of Columbia had at least a $15 minimum wage—including states such as Arizona, Missouri, and Nebraska.

Lawmakers and voters in many states have adopted higher state and local minimum wages both in response to federal inaction and because economic research has reached a strong consensus that raising the minimum wage, at least to levels attempted thus far, has not caused any measurable harm to employment.  

A $15 minimum wage in Oklahoma is not an outlier compared with policies in other states, even after accounting for differences in the labor markets of different jurisdictions. Economists use the minimum-to-median wage ratio (sometimes called the Kaitz index) to assess the “bite” or strength of the wage floor relative to wage levels in the area where the policy is taking place. This measure allows us to see how a $15 minimum wage compares in New York and Oklahoma, where the overall distribution of wages is substantially different. Most minimum wage research has studied policies with minimum-to-median wage ratios of .67 or less (i.e., a minimum wage raised as high as two-thirds the median wage in the same jurisdiction.) Table 2 shows the current and projected path of Oklahoma’s minimum-to-median wage ratio if SB 832 passes. The ratio would grow as the policy goes into effect, but it would likely never exceed 60%—meaning it is solidly in the range of policies that economists have studied and found no negative effect on employment.

Table 2

Oklahoma’s current minimum wage suppresses pay for workers

Establishing and periodically raising a strong wage floor is necessary to counteract employers’ excess market power over workers, which keeps wages lower than they would be in a truly competitive market. Workers face a multitude of barriers which provide wage-setting leverage for employers. Workers often have limited information about wages and work policies at alternative employers and can be constrained in their job choices by limited transportation options or the need to maintain specific schedules for child care and other family needs. Low-wage workers typically have less financial ability than higher-wage workers to overcome these obstacles, and are more likely to encounter take-it-or-leave-it wage offers that prevent them from negotiating pay. These challenges (sometimes called “frictions”) add up, providing leverage for employers to pay lower wages than workers need—and lower than what is optimal for the local economy.

Oklahoma’s weak wage floor suppresses pay for hundreds of thousands of workers. The state has the third-highest share of workers earning less than $15 an hour (21%). Although there are relatively few workers who earn exactly $7.25 an hour, one undervalued benefit of a strong wage floor is that it supplies upwards pressure on the wages of low-wage workers who earn more than the minimum wage. These “spillover effects” mean that workers above the new minimum wage threshold also see wage increases as employers adjust other workers’ pay to maintain wage ladders and preserve seniority.

Oklahomans have a consequential opportunity to strengthen the wage floor and deliver a meaningful raise to hundreds of thousands of workers. A $15 minimum wage is evidence-backed, both by rigorous economic research and the recent experience of many other states. SQ 832 would support families as they struggle with the affordability crisis and generate lasting improvements to the health and equity of the economy.

Table 3