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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Figure A

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

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

Figure B

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

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

Figure C

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

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

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

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

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

The construction phase and Project Labor Agreements (PLA)

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

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

Removing obstacles to unionization: Neutrality and labor peace agreements

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

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

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

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

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

Importance of unionization to improve manufacturing jobs and wages

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

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

Table 1

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

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

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

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

Living wage floor

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

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

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

Figure D

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

Table 2

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

Local and/or targeted hire policies

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

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

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

Figure E

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

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

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

Equitable workforce development through apprenticeships and pre-apprenticeships

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

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

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

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

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

Child care

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

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

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

Table 3

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

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

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

Affordable housing

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

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

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

Figure F

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

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

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

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

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

Environmental standards, funding, and monitoring

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

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

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

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

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

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

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

Conclusion

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

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

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

Acknowledgements

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

Appendix

Appendix Table 1

Notes

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

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

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

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

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

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

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Walton, Douglas, Karen Gardiner, and Burt Barnow. 2022. Expanding Apprenticeship to New Sectors and Populations. Prepared for the U.S. Department of Labor, Employment and Training Administration. Rockville, MD: Abt Associates, August 2022.

Wiley, Jonathan. 2015. The Impact of Commercial Development on Surrounding Residential Property Values. J. Mack Robinson College of Business, April 2015.

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Zessoules, Daniella, and Olugbenga Ajilore. 2018. Wage Gaps and Outcomes in Apprenticeship Programs. Center for American Progress, December 2018.

Key takeaways:

• The U.S. is the only OECD country that does not provide a national paid family and medical leave program, leaving it to states to ensure workers are protected when they need to take time off from work to care for themselves or a family member. 
• Some states—including eight across the South—have adopted voluntary private insurance models of paid leave that allow private insurance companies to sell insurance policies directly to employers and/or workers themselves. 
• But this approach provides less coverage, covers fewer workers, widens already large disparities in access, and is likely to be more expensive than comprehensive state paid family and medical leave (PFML) plans. 
• Other states should follow the model of proven success from 13 states and Washington, D.C. that have implemented comprehensive PFML programs. 

Comprehensive, universal Paid Family and Medical Leave (PFML) programs are powerful tools to safeguard and improve the economic well-being and overall health of workers and their families. Research shows that PFML improves health for both mothers and infants, reduces poverty and economic insecurity for low-income families, and increases labor force participation rates for mothers for up to five years after the birth of their child. In states that do not have a PFML program, workers lose an estimated $34.3 billion annually in wages due to leave-related absences from work, including $18.8 billion lost by women. 

PFML programs also benefit employers and the broader economy, in part by improving recruitment of talented workers, especially among small businesses, reducing turnover, and increasing worker productivity. The National Partnership for Women and Families estimates that U.S. women’s lower labor force participation—due in part to a lack of paid leave—has cost the broader U.S. economy more than $6.7 trillion in economic activity over the last decade. This is economic activity the U.S. economy would have experienced if American women’s labor force participation rates were the same as those of women in Canada.

Despite PFML’s clear benefits, the U.S. is the only OECD country that does not provide a national paid family and medical leave program—leaving it to states to ensure workers are protected when they need to take time off from work to care for themselves or a family member. 

Lawmakers in 13 states and D.C. have met this responsibility by passing comprehensive paid family and medical leave programs that guarantee coverage. Lawmakers in 10 other states have chosen weaker, much less effective voluntary approaches that defer to employers, leaving many workers uncovered. Vermont and New Hampshire, for example, have implemented public-private voluntary paid leave models where the state contracts with private insurance companies to provide paid leave for public-sector workers and private-sector employers may opt in voluntarily.1 

Across the South, Alabama (2023), Arkansas (2023), Florida (2023), Kentucky (2024), South Carolina (2024), Tennessee (2023), Texas (2023), and Virginia (2022) have adopted voluntary private insurance models of paid leave that allow private insurance companies to sell insurance policies directly to employers and/or workers themselves. 

While the private insurance model has been embraced by the insurance industry—the National Conference of Insurance Legislators adopted a voluntary paid family leave model bill in 2022 at its annual meeting—it fails workers and families. Not only do these programs fail to require employers to provide any coverage to their workforce, but the relevant laws in these states also typically provide few, if any, requirements for what types of leave are covered, the duration of coverage, or wage replacement rates.

This approach to paid family and medical leave provides less coverage, provides it for fewer workers, increases already large disparities in access, and is likely to be more expensive than comprehensive state PFML plans. 

Less coverage 

State PFML programs typically provide workers with 8–12 weeks of paid, job-protected leave to bond with a new child (birth, adoption, or foster), to care for themselves or a family member with a serious illness or injury, or for military caregiving and exigency leave. Wage replacement rates are typically at 90% or higher, at least for low-wage workers, in most states with a paid leave program, including California, Colorado, Connecticut, Minnesota, Oregon, Washington, and the District of Columbia. Maine and Maryland will also pay out at this rate when they begin paying benefits later in 2026. 

Because voluntary models do not require employers to provide coverage for their workers, there is no guarantee that they will. And when employers do purchase paid leave insurance for their workforce, they are unlikely to provide the same level of coverage as comprehensive state programs. The amount of leave provided, the wage replacement rate, and even what life events are covered depend on the employer and/or the insurance company. The New Hampshire plan, which does provide details on requirements for paid leave coverage, only requires 6 weeks of paid leave with wage replacement of just 60%. 

Finally, in direct contrast to comprehensive, universal state paid leave programs, it is unclear how voluntary insurance models of paid leave could provide a job guarantee for workers taking paid leave. In the public-private model offered in New Hampshire, workers are not provided with job protection but may qualify for protection under the federal Family and Medical Leave Act (FMLA), so long as they meet the requirements of FMLA (i.e., they must work at a firm with 50+ employees, and must have worked for the employer for 1,250 hours over the preceding 12 months). 

Covering fewer workers

An estimated 46.2 million workers—almost one-third (32%) of the private-sector workforce in the U.S.—are eligible for coverage under one of the 14 PFML programs in the country. That leaves tens of millions of workers without a guarantee of paid time off when they need to provide for their family’s needs. This reflects, in large part, the lack of a federal universal, comprehensive PFML program and the failure of most states to implement such a plan. Unfortunately, when participation is voluntary, many employers are unlikely to offer this benefit to their workers. 

For example, in the New Hampshire voluntary program, public-sector workers are automatically covered, and private employers and individual workers can voluntarily participate. After three years, just 2.3% of private-sector workers are covered by this PFML plan through their employer. And in the eight states that authorize private insurance paid leave, researchers are unable to determine whether employers are actually purchasing insurance coverage for their workers, but it appears that few insurance companies are even selling policies in these states. It is therefore not surprising that fewer than 1 in 4 workers are covered by PFML through their employer in most of these states, including Alabama, Arkansas, Florida, South Carolina, and Tennessee. In contrast, the 14 state PFML programs cover 93% of all workers in their jurisdictions. 

Increasing disparities

It is not just that fewer workers are covered by voluntary paid leave models, but coverage rates vary dramatically by income, occupation, race and ethnicity, and other characteristics. According to the Department of Labor, 95% of the lowest-wage workers—mostly women and workers of color—lack access to paid family leave. Many of these workers are in occupations with low access to paid leave, including jobs in leisure and hospitality (8%), accommodation and food service (7%), and transportation and warehouse work (9%). 

American Indian/Alaska Native (18%) and Black (23%) workers have some of the lowest PFML coverage, while Asian American, Native Hawaiian, and Pacific Islander (55%) and Hispanic (41%) workers have some of the highest coverage rates. Racial differences reflect, in part, differences in where workers live. For example, more than half of the Black population lives in one of the 16 Southern states or the District of Columbia, where only two states and D.C. have a state paid leave program.

Higher costs

In states where PFML is voluntary, there is little transparency, especially related to costs. We know from the private health insurance model, however, that introducing a profit motive into the provision of care is a terrible way for policymakers to provide workers with the protection they need at affordable costs. A profit-seeking insurance company is going to look for ways to reduce its costs and maximize profits; this inevitably means seeking to reduce payouts, whether through claim denials or other means. There is no scenario in which the profit-seeking model results in both high-quality, comprehensive leave coverage and low costs for workers, employers, or the public. 

In New Hampshire, for example, only one insurance company bid for a contract to provide paid leave benefits, and its estimated rates were generally higher than the payroll contributions in states with PFML programs. 

Further, an insurance industry stakeholder expressed concern about the lack of incentives for private employers to participate in these plans. In both the New Hampshire and Vermont cases, they reported that the models were unsustainable because most employers did not participate in the plans and individual workers whose costs are capped by the state plans would only participate when they anticipated needing coverage—meaning that the insurance pools would never be adequately financed. 

A better model exists

In recent years, challenges facing workers with care responsibilities have rightfully garnered greater public attention, especially in the wake of the COVID-19 pandemic. Many policymakers have taken notice. Unfortunately, in some states—frequently those that have long opposed strong worker protections, a robust safety net, and workplace regulations—lawmakers have opted for voluntary models of paid family and medical leave that are fundamentally flawed. 

Voluntary models allow businesses to decide whether their workers should be paid when they need to take time to care for themselves or their families. Without mandatory coverage, too many workers will not have access to the leave they need, and this is especially the case for those workers who need paid leave the most. 

Instead, we should follow the model of proven success from 13 states and D.C. that have implemented comprehensive PFML programs, including some that have improved programs over time, incorporating lessons and best practices from other states. These programs provide more inclusive coverage for personal illness or injury, bonding with a child, caring for an ill or injured family member, and military deployment.

Universal programs also provide coverage for more workers, including employees, both full- and part-time, both public- and private-sector workers, and in some cases, independent contractors are allowed to opt in. The best programs provide workers with 12 weeks of job-protected leave—i.e., workers are guaranteed their same job or a substantially similar job with comparable pay and benefits when they return from leave and have wage replacement rates of at least 80% of the state median and 100% for low-wage workers. 

These programs have been proven to expand access at a reasonable cost and with a broad range of benefits for workers, businesses, and states overall.

These are benefits that voluntary private insurance models have failed to provide in part because the goal of private insurance is to make a profit, not to ensure the overall well-being of workers and families or their communities. 

1. Lawmakers in New Hampshire introduced a new bill in February 2026 that will extend paid family leave to a full comprehensive state paid leave program, if it is enacted.

About Economic Policy Institute (EPI)  

The Economic Policy Institute (EPI) is a nonpartisan nonprofit that uses rigorous economic research and analysis to advance policies that promote a fair and just economy where workers thrive, power is shared equitably, and structural racism and gender inequities are dismantled. EPI’s research influences national, state, and local economic policy debates and is widely cited in the media.   

Job Title: Development Director 

The Development Director will lead EPI’s fundraising strategy and operations, deepen and expand philanthropic support, and bring outstanding organizational and process-management skills to ensure fundraising systems, timelines, and workflows are effective, disciplined, and scalable. This is a senior leadership role that will collaborate across departments to build a sustainable, diversified revenue base for EPI’s mission-driven work.

The Development Director supervises two staff— the Associate Director of Development and the Senior Development Associate—and is a part of the senior management team, reporting to the Executive Vice President. 

This position is in our Washington, DC office and is on a hybrid schedule with in-person work at least two days per week (currently Tuesday and Wednesday). 

What You Will Do 

The main responsibilities of the Development Director: 

Fundraising Strategy & Leadership 

• Develop and implement a comprehensive development strategy and annual work plan to meet revenue goals.  
• Equip senior leaders with timely tools, well-researched briefings, and accurate analysis for effective donor conversations. 
• Partner with the President, Executive Vice President, and senior leadership to align fundraising priorities with organizational strategy. 

Donor Cultivation, Solicitation & Stewardship 

• Identify, cultivate, solicit, and steward new and existing donors including foundations, high-net-worth individuals, small dollar donors, and unions.  
• Oversee stewardship plans that strengthen donor loyalty and long-term support. 

Grant Writing & Management 

• Lead proposal development, submissions, and reporting to institutional funders.  
• Ensure timely acknowledgment of awards, compliance with funder requirements, and high-quality impact reporting. 
• Work closely with EPI’s Finance team to ensure grant tracking and management is aligned and accurate. 

Support Board Engagement on Fundraising 

• Support EPI’s President in engaging and informing the Board on development, fundraising goals, pipeline health, and stewardship strategies.  
• Communications & External Representation 
• Work closely with communications staff to craft compelling fundraising collateral, impact reports, donor stories, and case statements.  
• Represent EPI at events, meetings, and in networks that advance visibility and fundraising outcomes. 

Team Management & Infrastructure 

• Design, implement, and continuously improve development systems, processes, and workflows to support efficient fundraising operations, strong coordination across teams, and clear accountability. 
• Ensure high standards of organization, documentation, and project management across proposals, donor engagement, reporting, and stewardship. 
• Provide ongoing guidance and motivation to the development team and provide oversight to consultants as needed.
• Evaluate the development team’s performance and provide opportunities for personal and professional growth at varying points in their career trajectories. 

Who You Are 

Desired qualities and experience: 

Proficiency in: 

• Demonstrated success in securing and stewarding institutional donors.  

• Excellent verbal and written communication skills, including proposal and case statement writing. 

• Outstanding organizational, process-management, and project-management skills, with demonstrated ability to manage complex fundraising pipelines, deadlines, and cross-departmental collaboration. 

• Strong attention to detail alongside the ability to prioritize, plan, and execute multiple workstreams simultaneously 

• Commitment to EPI’s mission of economic justice, equity, and policy impact 

• Knowledge of national philanthropic landscape and funder priorities in economic justice, labor, and equity.  

• Familiarity with donor CRM platforms (e.g., Raiser’s Edge).  

• Experience supporting senior leadership in fundraising roles.  

• A spirit of curiosity and a commitment to continuous learning that supports a deep understanding of EPI’s research, policy priorities, and organizational strategy. While program staff and senior leadership typically lead funder briefings, the successful candidate will develop the insight and institutional knowledge needed to identify strategic fundraising opportunities, shape compelling cases for support, and design proactive fundraising strategies aligned with EPI’s priorities. 

Experience: Minimum 7–10+ years of nonprofit fundraising experience with a strong track record of meeting and exceeding revenue goals. 

EPI is a unionized workplace with the Nonprofit Professional Employees Union (NPEU). 

This position is not in the bargaining unit and reports to the Executive Vice President.  

The Development Director supervises unionized staff— the Associate Director of Development and the Senior Development Associate—and is a part of the senior management team.  

Compensation & Benefits 

The salary for this position ranges from $145,000-$175,000, dependent on experience, plus benefits.   

EPI offers an excellent benefits package, including generous paid time off, a 9.25% employer-provided 401k retirement contribution, partial tuition reimbursement, twelve weeks of parental leave, and fully employer-funded medical, vision, dental, short- and long-term disability, and life insurance for individual employees.  

As a condition of employment, EPI requires all staff to provide proof of COVID-19 vaccination which meets the guidelines as defined by D.C. Health. 

To Apply 

Submit your resume and a thoughtful cover letter detailing your experience designing and implementing comprehensive fundraising strategies. In particular, please focus on highlighting your work with institutional giving, annual campaigns, small donor contributors, events, and planned giving. Please provide a sample fundraising success story or summary of a major proposal you led. Applications will be reviewed on a rolling basis. 

EPI believes that having a diverse and inclusive workplace not only strengthens the institute’s work but is also essential for understanding and creating economic policies that support all working people. We encourage applicants who bring lived experience and nontraditional backgrounds to apply to our positions. 

EPI is an equal opportunity, fair chance, affirmative action employer, committed to building a diverse and inclusive workforce. All qualified applicants will be considered for employment without regard to race, color, creed, national origin, sex, age, disability, marital status, sexual orientation, military status, prior history of arrest or conviction, citizenship status, caregiver status, or other categories protected by law.  

Apply now!

The American Rescue Plan Act (ARPA) was enacted on March 11, 2021. Among other provisions, ARPA allocated $350 billion for State and Local Fiscal Recovery Funds (SLFRF). SLFRF was a recognition of the stark reality that the COVID-19 pandemic had wreaked havoc on state and local government finances (McNicholas, Bivens, and Shierholz 2020). SLFRF was also a reflection of lessons that policymakers learned from recent history. In the years following the Great Recession, inadequate fiscal support to state and local governments resulted in massive budget cuts, public-sector job losses, and reduced spending that dragged on the economy, delaying economic recovery by years (Shierholz and Bivens 2013). With the prospect of potentially devastating COVID-19-induced state and local budget shortfalls, Congress and the Biden administration made the decision to spend at the scale of the problem by making sure SLFRF was large enough to meet its recipients’ needs.

Of the $350 billion in fiscal recovery funds, $195.3 billion went to state governments, $65.1 billion to counties, $45.6 million to cities, $20 billion to tribal governments, $4.5 billion to territories, and $19.5 to small units of local government, mostly towns and villages. They could use the funds for five purposes: responding to the public health emergency caused by COVID-19; responding to the negative economic impacts of COVID-19; providing premium pay to “essential” workers; improving water, sewer, and broadband infrastructure; and replacing public-sector revenue lost by the economic downturn that accompanied COVID-19. Recipient governments had until December 31, 2024, to obligate those funds and until December 31, 2026, to spend them.

By any objective assessment, SLFRF was a transformative success. It averted a potential crisis. It empowered state and local leaders to address long-standing community needs. It helped millions of working families. It saved lives during the COVID-19 pandemic. The design and implementation of SLFRF offer many important lessons to future policymakers.

This report will highlight the smart design of SLFRF, which made it well positioned to address the needs of state and local governments in 2021 and beyond. The report will also note ways in which future policymakers could improve upon SLFRF’s design. The report will describe how SLFRF funds were deployed, showcasing the breadth and variety of uses to which they were put. State and local fiscal recovery funds were a vital part of the U.S. economic recovery post-2020. They provide a shining example of what government can achieve when it has adequate resources, and when the needs of communities and families are the main drivers of investment decisions.

SLFRF played a vital role in preventing a second Great Recession

The pandemic recession that began so suddenly in March 2020 was the biggest economic shock the country has seen since the Great Recession that started in 2008. Comparing the distinctly different policy responses to those two crises demonstrates how important SLFRF was to speeding the economic recovery and to preventing a second Great Recession.

First, SLFRF was vital in preserving and rebuilding the public-sector workforce. In the wake of the Great Recession, state and local governments faced devastating budget cuts that resulted in significant reductions in staffing and services. All faced fiscal crises because of sharp revenue declines caused by the Great Recession, but public services were further strained in many states by deliberate policy decisions, predominantly by Republican-controlled state governments, to cut taxes and slash public services (Cooper, Gable, and Austin 2012). State and local government employment peaked in July 2008, then fell for five straight years. It took a total of 11 years to reach July 2008 levels again (Cooper 2020). By contrast, the peak in state and local governments jobs before the pandemic was in February 2020. By October 2023—just three years and eight months later—state and local public sector employment had fully recovered to pre-pandemic levels.

In the first year following the passage of ARPA, there is evidence that the pace of a state’s SLFRF spending was positively correlated to the recovery of its public workforce:

Table 1

After that, the direct correlation between SLFRF spending and public-sector jobs faded, but that is hardly surprising, given all the other variables that impact job markets.

Second, this rapid recovery mirrored the recovery of the overall job market. The typical U.S. state needed 77 months after the start of the Great Recession for its job numbers to recover; it only took 29 months after the beginning of the COVID-19 pandemic for the same level of recovery. Of course, SLFRF was hardly the biggest factor in the overall economic recovery, but Cooper (2020) has shown that disinvestment in the public sector drags on growth in the private sector as well, and on economic growth overall. SLFRF supported conditions that made the private-sector economic recovery possible.

Third, SLFRF allowed states and localities to enact programs of social insurance and income support that directly responded to immediate community needs. In just the first two years of SLFRF’s operation alone, more than 4.5 million households received mortgage, rent, or utility assistance. Emergency programs offered housing to people who had been displaced by the pandemic and direct government assistance to food pantries and other programs that helped people facing food insecurity. These programs were valuable tools for helping working families in need.

Fourth, SLFRF has helped state and local governments and communities become more resilient against future downturns. Many states upgraded their unemployment insurance (UI) systems to make it easier to cope with an influx of claimants in the future. Some local governments created greater tenant protections and used recovery funds to give tenants facing eviction the right to free legal counsel. Several cities invested in pre-apprenticeship programs to help people in underserved communities gain access to high-quality infrastructure and climate jobs. These investments and others like them will help state and local governments to quickly distribute social insurance benefits when the next crisis hits and provide additional safety for working families put in jeopardy through job loss, illnesses, or natural disasters. (Kamper 2025).

SLFRF’s innovative program design meant funds could be used where they did the most good

The SLFRF program had two unusual characteristics that helped make it successful.

First, unlike previous iterations of state and local aid, SLFRF funds went directly to individual state and local governments. While payments to smaller cities were distributed first to states and then passed on to those cities, states were prohibited from imposing conditions on that distribution and could not hold back the payments; their role was purely administrative.

On previous occasions when federal money was allocated to local governments, it was much more common for the state government to hold federal aid on behalf of local governments. This was, for example, the mechanism behind the COVID-19-era financial assistance to school districts: the Elementary and Secondary Schools Emergency Relief Fund (ESSER, which had three iterations in 2020 and 2021, called ESSER I, ESSER II, and ESSER III respectively). A state’s department of education held ESSER funds and only parceled them out to school districts after the district had made a qualifying expenditure. The districts were not free to spend ESSER funds on their own. With SLFRF, however, recipients received funds before they needed to make expenditures and had complete control over how to use them.

This leads to a second important characteristic of SLFRF: Recipients were given broad latitude in how to use their funds. Under the legislation and the rules put out by the U.S. Department of the Treasury, SLFRF could be used for:

1. responding to the public health emergency caused by COVID-19
2. responding to the negative economic impacts of COVID-19
3. providing premium pay to “essential” workers
4. improving water, sewer, and broadband infrastructure
5. replacing public-sector revenue lost by the economic downturn that accompanied COVID-19

In 2023, the eligible uses for local governments were broadened to include government-built (or renovated) housing, surface transportation projects, and natural disaster relief, though in the end only a small share of recovery funds was used for those purposes.

Treasury rules also made the process simpler for smaller local governments by allowing up to $10 million to be used as public-sector revenue replacement without having to account for specific losses of funding—the SLFRF equivalent of the standard deduction on one’s taxes. Those rules also made clear that “negative economic impacts” could include existing inequities that predated the pandemic, such as long-standing racial employment and wage gaps (Economic Policy Institute 2025).

The combination of these two characteristics—state and local governments had the money within their control before making spending decisions, and great latitude in how to use it—meant that recipients could tailor the focus and pace of SLFRF spending to meet particular local needs. Given the extremely fluid state of the pandemic and the economy when ARPA was passed, this was the right decision to meet the pressing needs of the COVID-19 crisis. Overly prescriptive rules or additional bureaucratic hurdles to accessing and disbursing funds would have made it much harder for state and local recipients to respond rapidly to their specific needs.1

Lessons to apply for future policy design

Despite the great freedom given to recipients to use SLFRF in ways that best met their needs, of the roughly 31,000 local government recipients, almost 600 local government recipients did not report using their fiscal recovery funds at all and a further 600 reported using less than 99%. Another 220 local governments failed to file a single report on their use of fiscal recovery funds, and 1,089 more have been delinquent in filing for at least a year.

At least part of the explanation is that while ARPA guidance allowed for fiscal recovery funds to be used for myriad reasons, recipients (especially smaller local governments) with little experience in receiving money directly from the federal government often struggled to understand Treasury rules on allowed uses of funds. Unlike state governments with experienced personnel deeply versed in Treasury’s complex rules and how to navigate them, many local governments had no such in-house expertise. Advocacy organizations reported, again and again, that even in 2024, as the deadline to obligate ARPA funds was approaching, many local policymakers were still raising questions about how funds could be used and what was allowed (Rochford, Bauer, and Wallace 2024).

Relatedly, Treasury officials who talked with EPI noted that many of the smallest local governments did not have a website or internal email system. Because all SLFRF reporting was supposed to be done electronically, some of these recipients struggled to properly report their expenditures. Sometimes the departure of a single municipal official created significant problems because that person was the only one who knew the electronic passwords.

An abundance of reports from across the country make clear recipients struggled to choose from among many appealing options, creating a kind of paralysis of choice. This is completely understandable; the needs communities were facing at this time were myriad and diverse, and prior to SLFRF, most local government officials had likely never had access to such flexible resources before then.

These challenges were exacerbated because the Treasury Department made a conscious decision not to offer specific technical assistance regarding recipient governments’ possible uses of fiscal recovery funds. When local government officials reached out to Treasury to seek guidance on whether a particular idea was within the scope of the law, Treasury rarely offered definitive answers. This was understandable given that more than 31,000 governmental units received their own fiscal recovery funds; Treasury could not possibly handle detailed queries from more than a fraction of them. What this meant, though, is that many opportunities to use fiscal recovery funds in innovative and imaginative ways were missed. Many local governments chose caution over ambition, out of fear that particular uses of the funds would not be permitted and the funds rescinded.

To prevent a similar situation in the future, policy designers might do well to study Colorado’s Regional Grant Navigator program. Colorado chose 13 community and nonprofit organizations across the state to help local governments find ways to best access funds from the 2021 Infrastructure, Investment and Jobs Act and the 2022 Inflation Reduction Act. These navigators helped local governments understand the complex regulations around the laws, helped them design proposals to apply for funding, and offered advice on which programs might be best suited to the needs of those communities (Colorado n.d.). A similar model might allow local governments to get unbiased and timely assistance from organizations committed to helping them make the most of their funds.

A final challenge of the SLFRF policy design was the lack of clear definition of what “obligating” the funds meant. As advocates, policymakers, and others reported throughout 2022, 2023, and 2024, many local governments understood “obligation” to mean something similar to “budgeting” or “allocating”—making a formal decision as to how to use the funds (Kamper 2024). Recipients unfamiliar with the language used by Treasury could and did make that mistake. It was not until May of 2024 that Treasury explicitly stated in a webinar that “obligating” funds is not the same thing as budgeting (Treasury 2024). “Obligation” required not just a budgetary decision, but concrete steps to implement the decision, such as signing a contract with a vendor or an interagency agreement to send the funds to a particular department. Future fiscal recovery efforts should be more conscious of the need to clearly define terms, especially when plain-language definitions may not match Treasury’s technical definition.

How were fiscal recovery funds used?

General spending trends

The primary use of fiscal recovery funds—approximately 50% of state allocations and 60% of local government allocations—was revenue replacement, (replacing state and local funds that were lost because the economic shock of COVID-19 reduced tax and fee revenues). Revenue replacement had not been an allowed use of previous iterations of COVID-19 fiscal relief funds. Most notably the CARES Act, the first COVID-19 relief measure passed in 2020, did not allow use of Coronavirus Relief Funds for revenue replacement.

State and local governments face considerable constraints on their ability to raise revenues. Measures like Colorado’s Taxpayer Bill of Rights and California’s Proposition 13 often prohibit states from raising taxes or require legislative supermajorities to do so (Jefferson 2025). Local governments face even more constraints, with few policy levers available to raise revenues. As such, any shock to state and local government revenues can take a long time to reverse, a lesson we learned in the aftermath of the Great Recession. By allowing revenue replacement, SLFRF made it much easier for state and local governments to maintain adequate levels of funding, even as the pandemic recession lowered income from taxes. Revenue replacement was an important innovation in ARPA that should be replicated in the future.

Although the interim rules for ARPA put out by Treasury soon after the law was enacted required complex accounting of lost revenue, the final Treasury rule made the process much easier. For amounts less than $10 million, recipients did not need to calculate lost revenue. They could simply designate funds as revenue replacement and use them as needed. The appeal of this rule to local governments is evident in data summarizing subsequent uses of SLFRF; the smaller a recipient government, the more likely they were to use their fiscal recovery funds for revenue replacement.

Table 2

After revenue replacement, the next most popular use of SLFRF was addressing negative economic impacts of the pandemic. Once again, the flexibility given to recipients under this category was almost certainly a key factor encouraging use of funds for such purposes.

Table 3

Infrastructure was the third-largest use of fiscal recovery funds, and here there is a notable regional variation—state and local governments in the South allocated a far greater share of their funds to infrastructure than those in the rest of the country. In particular, 82% of all state funds obligated for broadband were in Southern states (not shown in Figure A).

Figure A

Not only is water and sewer infrastructure essential for people’s health, these investments are vital to a well-functioning economy. As EPI has extensively documented in its Rooted in Racism series, Southern states have long underinvested in in basic physical infrastructure (Childers 2023–2025). These spending choices likely reflect, at least in part, a need to address the long-standing underinvestment in the region—underinvestment driven by Southern lawmakers’ antipathy toward raising adequate revenue.

Aside from infrastructure spending in the South, there are no clear regional trends in how fiscal recovery funds were used. This is not surprising, given the flexibility of the funding (a feature EPI has long supported) (Bivens 2020). When ARPA was enacted in early 2021, there was simply no way for the federal government, or state and local governments, to know what their needs would be. ARPA’s flexibility was the right decision. The ability of recipient governments to immediately fill unanticipated budget holes via revenue replacement meant hundreds of thousands of state and local jobs were preserved, vital public programs were maintained, and a deeper economic crisis averted. The most notable success of ARPA SLFRF lies in what did not happen: a collapse in basic public services, massive long-term unemployment, and an extended economic depression.

Innovative SLFRF investments supported working families

In all, SLFRF funded more than 159,000 different projects across the country. Some were gigantic, like a $787 million program in New Jersey to provide rental assistance to low- and moderate-income tenants, and some were very small, like the $28 that St. Clair County, Michigan, provided to help renovate the Port Huron Township Museum.

There are many examples of state and local governments using fiscal recovery funds to make transformative investments to build an economy that supports working families. Several types of uses deserve special attention: fighting the COVID-19 pandemic, investing in public health, and addressing problems with food access and nutrition.

First, ARPA SLFRF went a long way to address the health emergency the country faced in 2021. States, cities, and counties were on the front lines of keeping people safe, providing access to new vaccines once they became available, and saving lives throughout the COVID-19 pandemic.

Over $1.8 billion in SLFRF was used to test, trace, and vaccinate people against COVID-19. Much of this money was used to deal with the practical and logistical challenges of testing and vaccination. Cities and counties, especially, bought personal protective equipment for government employees, especially first responders. Scores of governments purchased testing kits and lab equipment and worked to engage the public to encourage vaccination and tracing outbreaks. For example, Milan, Illinois, rented a meeting hall in town for $43,200 to host their vaccine clinic. Jefferson County, Missouri, hired a nurse for every public school district to oversee a contact-tracing program to track COVID-19’s progress through schools. Monroe County, Indiana, was one of many governments that instituted wastewater monitoring to check for COVID-19 surges While any individual expenditure may seem minor, together these measures did much to reduce COVID-19 infections and deaths.

Second, SLFRF allowed recipient governments to make long-term upgrades to infrastructure that both mitigated COVID-19 threats and made public spaces permanently safer, healthier, and more accessible. Almost $4.3 billion was obligated to upgrade the air quality and safety of public and private facilities. At least 550 projects upgraded HVAC systems in schools, nursing homes, public buildings, and correctional facilities. Governments invested in digital communications tools to reduce the need for in-person meetings. Typical examples include Peoria, Arizona, which allocated $124,996 to install touchless drinking fountains in public buildings, and Stafford County, Virginia, which spent $115,255 to add a glass partition to the entrance of the Commissioner of Revenue’s office so that the administrative staff could be protected from visitors’ virus transmission.

The freedom given to local governments to innovate was particularly evident in the way multiple localities sought to address problems related to food access and nutrition—an issue that has received tremendous public attention resulting from New York City Mayor Zohran Mamdani’s plan to establish municipally operated grocery stores. While one commentator claimed such a project would resemble “the old Soviet Union” (McArdle 2025), the fact is that many SLFRF recipients used public funds to increase access to food for low-income communities, including by opening their own stores.

For example:

• Sioux Falls, South Dakota, set up a mobile grocery market that would operate in underserved parts of the city.
• The small town of Cutler, Illinois, set up a Community Commissary to make it easier to buy food without having to travel a long way.
• Branson, Colorado (population 74 in the 2010 census), constructed a community greenhouse to grow and sell fresh fruits and vegetables for the town and school.
• Charleston, West Virginia, opened a community grocery store that would provide access to fresh groceries for 14,000 residents, and the city of Austin, Texas, did something similar.

There were, in addition, scores of grants to food pantries and other nonprofits that help people find the food they need. The proposal for New York City fits well with how these communities used SLFRF to address food access.

Above are just a handful of the tens of thousands of useful projects made possible by fiscal recovery funds. Some uses were more effective than others, however. For example, although modernizing state unemployment insurance systems was a useful endeavor (see above), more than $22 billion was also spent replenishing state unemployment insurance trust funds, which was unnecessary. UI trust funds hold UI taxes paid by businesses, to make sure funds are available to pay UI claims during spikes in unemployment. While those funds had, indeed, been depleted by the pandemic recession, state UI trust funds are designed to be self-correcting.2 They have automatic mechanisms to raise employer payroll taxes when the trust fund has been drawn down, to rebuild the funds and be prepared for future downturns. It was wholly unnecessary to use fiscal recovery funds to refill trust funds that would have returned to full strength on their own. Spending SLFRF to refill trust funds was a missed opportunity to support economic growth and strengthened public services (Banerjee, Martinez Hickey, and Sawo 2021). Future fiscal recovery projects should not make refilling UI trust funds an allowed use, though they should continue to support modernization of and upgrades to UI systems.

SLFRF accomplished its goals without driving inflation

Finally, it is worth noting that, despite politically motivated claims to the contrary, there is little evidence that SLFRF, or indeed the entire $1.9 trillion American Rescue Plan, was a significant contributor to inflation. As Bivens, Banerjee, and Dzholos (2022) show, the rise in inflation starting in 2022 was a global phenomenon, one that impacted countries, regardless of whether they provided fiscal relief to their economies during COVID-19. Nor was inflation correlated with the rapid decrease in unemployment the U.S. saw, thanks in part to ARPA. Rather, inflation was primarily driven by the dramatic supply shocks to various sectors of the economy caused by COVID-19, and then exacerbated by the Russian invasion of Ukraine in early 2022. Given the scale of the crisis policymakers were confronted with in early 2021, they were right to spend at the scale of the problem, and critiques blaming that spending for inflation are not backed up by the data. Moreover, policy measures that prioritized lowering inflation would have led to either lower employment or lower real wage growth, as there was no policy option that would have lowered inflation, increased wage gains, and supported the strong job growth of 2021–2024 (Bivens 2024).

Conclusion

ARPA’s State and Local Fiscal Recovery Fund was a great success. By spending at the scale of the problem, the federal government aided the economic recovery, supported the maintenance of public services, and gave myriad governments the chance to make innovative choices that have improved the well-being of their communities. A smaller SLFRF would have slowed our economic recovery and made governments more cautious about enacting bold policies to protect working families.

By giving recipient governments so much flexibility in using the funds, the Biden administration allowed every state, county, city, territory, and tribal government to fashion the response most appropriate to their particular needs. When faced with a crisis that had so much unpredictability, this was the right decision.

We don’t know when the next economic downturn, global pandemic, or climate disaster will hit. Whenever it does, federal policymakers should seek to emulate the model set by ARPA.

Notes

1. The devastating Flint, Michigan, water crisis of the 2010s is a prime example of a situation in which too many bureaucratic hurdles worsened a disaster. Flint was facing a serious fiscal crisis and therefore lacked the internal capacity to apply for federal funding (which they would have received) that might have prevented lead contamination of the water supply. See GAO 2015 for more details.

2. At least they should be, provided policymakers have set adequate UI tax base rates. See Perez 2025 for more information.

References

Banerjee, Asha, Sebastian Martinez Hickey, and Marokey Sawo. 2021. “States Are Choosing Employers over Workers by Using COVID Relief Funds to Pay Off Unemployment Insurance Debt: Policymakers Shouldn’t Be Afraid to Increase Taxes on Employers to Improve Unemployment Insurance.” Working Economics Blog (Economic Policy Institute), November 19, 2021.

Bivens, Josh. 2020. “Getting Serious About the Economic Response to COVID-19.” Working Economics Blog (Economic Policy Institute), March 9, 2020.

Bivens, Josh. 2024. “The Post-Pandemic Recovery Is an Economic Policy Success Story: Policymakers Took the Best Way Through a Rocky Path.” Working Economics Blog (Economic Policy Institute), October 1, 2024.

Bivens, Josh, Asha Banerjee, and Mariia Dzholos. 2022. “Rising Inflation Is a Global Problem: U.S. Policy Choices Are Not to Blame.” Working Economics Blog (Economic Policy Institute), August 4, 2022.

Callaghan, Peter. 2021. “The Minnesota Legislature Approved $250 Million for Pandemic Worker Bonuses. Should the State Give Away More Than That?” Minnpost, August 12, 2021.

Callaghan, Peter. 2022. “How the Legislature’s Deal on Pandemic Worker Bonuses and Unemployment Insurance Got Done.” Minnpost, May 4, 2022.

Childers, Chandra. 2023–2025. Rooted in Racism and Economic Exploitation (report series). Economic Policy Institute, October 2023–June 2025.

Colorado, State of. n.d. “Regional Grant Navigators” (web page). Accessed December 3, 2025.

Cooper, David. 2020. “Without Federal Aid, Many State and Local Governments Could Make the Same Budget Cuts That Hampered the Last Economic Recovery.” Working Economics Blog (Economic Policy Institute), May 27, 2020.

Cooper, David, Mary Gable, and Algernon Austin. 2012. The Public-Sector Jobs Crisis: Women and African Americans Hit Hardest by Job Losses in State and Local Governments. Economic Policy Institute, May 2012.

Economic Policy Institute. 2025. Racial and Ethnic Disparities in the United States: An Interactive Chartbook. Economic Policy Institute. October 2025.

Jefferson, Rita. 2025. Anti-Tax Revolts Backfire: What We’ve Learned from 50 Years of Property Tax Limits. Institute on Taxation and Economic Policy, July 2025.

Kamper, Dave. 2025. “Some States and Localities Will Be Better Prepared to Fight a Possible Recession Because of How They Used ARPA Fiscal Recovery Funds.” Working Economics Blog (Economic Policy Institute), April 30, 2025.

Kamper, Dave, and Emma Cohn. 2024. “Time Is Running out for State and Local Governments to Obligate American Rescue Plan Funds.” Working Economics Blog (Economic Policy Institute), October 17, 2024.

McArdle, Megan. 2025. “Zohran Mamdani Has a Seriously Bad Idea—for Grocery Stores.” Washington Post, July 1, 2025.

McNicholas, Celine, Josh Bivens, and Heidi Shierholz. 2020. “The Next Coronavirus Relief Package Should Provide Aid to State and Local Governments, Protect Employed and Unemployed Workers, and Invest in Our Democracy.” Working Economics Blog (Economic Policy Institute), April 27, 2020.

Perez, Daniel. 2025. Holding the Line: Unemployment Insurance. Economic Policy Institute, September 29, 2025.

Rochford, Patrick, Julia Bauer, and Michael Wallace. 2024. “Obligate It or Lose It! Preparing for the Upcoming ARPA SLFRF Obligation Deadline.” National League of Cities, October 1, 2024.

Shierholz, Heidi, and Josh Bivens. 2013. “Four Years into Recovery, Austerity’s Toll Is at Least 3 Million Jobs.” Working Economics Blog (Economic Policy Institute), July 3, 2013.

U.S. Department of the Treasury (Treasury). 2024. “State and Local Fiscal Recovery Funds: New Obligation FAQs Webinar” (web page). Accessed December 3, 2025.

U.S. Department of the Treasury (Treasury). 2025. “Public Data: State and Local Fiscal Recovery Funds” (web page). Accessed December 11, 2025.

U.S. Government Accountability Office (GAO). 2015. Municipalities in Fiscal Crisis: Federal Agencies Monitored Grants and Assisted Grantees, but More Could Be Done to Share Lessons Learned. Publication number 15-222, March 2015.

Wakeley, Dev. 2021. “Alabama Is Making a Costly Mistake on COVID-19 Recovery Funds. Here’s a Better Path Forward.” Working Economics Blog (Economic Policy Institute), November 8, 2021.

Key takeaways:

• The persistent gender wage gap widened slightly in 2025; women were paid 18.6% less than men on average after controlling for race and ethnicity, education, age, marital status, and state.
• Women are paid less than men across all education levels. Women with a graduate degree earn less, on average, than men with only a college degree.

• The gender pay gap worsened following a year of Trump administration attacks on workers, including cuts to the federal workforce; attacks on diversity, equity, and inclusion efforts; ordering mass deportations; and undermining child care and home care providers.
• States can narrow the gender pay gap with policies that guarantee access to paid family and medical leave, mandate pay transparency, raise the minimum wage, and make it easier for workers to form unions.

March 26 is Equal Pay Day, a reminder that there is still a significant pay gap between men and women in our country. The date represents how far into 2026 women would have to work on top of the hours they worked in 2025 simply to match what men were paid in 2025.

On an hourly basis, women were paid 18.6% less on average than men in 2025, after controlling for race and ethnicity, education, age, marital status, and state. After narrowing to a series low of 18.0% in 2024—likely driven by a strong labor market recovery from the COVID-19 recession that lifted wages more at the lower end of the overall wage distribution—the gender wage gap widened slightly in 2025. Though far from a total reversal of the last few years’ progress, the slight worsening in 2025 reflects the slowing of low-end wage growth and the economic consequences of Trump’s first year back in office.

Women are paid less than men due to discrimination associated with occupational segregation, devaluation of women’s work, and societal norms, much of which takes root well before women enter the labor market. The wage gap is smallest among lower-wage workers partly because the minimum wage creates a wage floor. At the 10th percentile, women are paid $1.39 (or 9.1%) less an hour than men, while the wage gap at the middle is $4.12 an hour (or 14.7%). Women at the 90th percentile of their wage distribution are paid $14.05 (or 19.6%) less an hour than men at the 90th percentile of the wage distribution.

Women are paid less than men at every education level

Although women have seen gains in educational attainment over the last five decades, they still face a significant wage gap. Among workers, women slightly outnumber men in the college-educated labor force and are significantly more likely to obtain a graduate degree than men. Even so, women are paid less than men at every education level, as shown in Figure A.

Figure A

Among workers who have only a high school diploma, women are paid 21.5% less than men. Among workers who have a college degree, women are paid 23.8% less than men. That gap of $12.07 per hour translates to roughly $25,100 lower annual earnings for a full-time worker. Women with an advanced degree also experience a significant hourly wage gap of $17.70 in 2025, amounting to over $36,800 annually.

What the data makes very clear is that women cannot educate themselves out of the gender wage gap. Systemic inequities are so persistent that women with advanced degrees are paid less per hour, on average, than men with only college degrees. Men with a college degree only are paid $50.61 per hour on average compared with $49.67 for women with an advanced degree.

Black and Hispanic women experience the largest wage gaps

For Black and Hispanic women, the pay gaps relative to white men are even larger due to compounded discrimination and occupational segregation based on both gender and race/ethnicity. In Figure B, we compare middle wages—or the 50th percentile of each group’s wage distribution—for Asian American/Pacific Islander (AAPI), Black, Hispanic, and white women with that of white men.1

White and AAPI women are paid 81.9% and 93.3%, respectively, of the amount non-Hispanic white men are paid. Black women are paid only 68.3% of white men’s wages at the middle, down from 69.6% in 2024. This is a gap of $9.87 on an hourly basis, which translates to roughly $20,500 lower annual earnings for a full-time worker. For Hispanic women, the gap is even larger: Hispanic women are paid only 64.5% of white men’s wages, an hourly wage gap of $11.06. For a full-time worker, that gap is over $23,000 a year. This disparity has also risen slightly compared with last year.

Figure B

Even when controlling for age, education, marital status, and state of residence, Black and Hispanic women are paid 25.3% and 27.4% less than their white male counterparts, respectively. In other words, very little of the observed difference in pay is explained by differences in education, experience, or regional economic conditions.

Trump administration policies exacerbate lower pay and make it harder to enforce antidiscrimination laws

Over the last year, the Trump administration has repeatedly taken actions that harm women workers, including:

• slashing the federal workforce;
• weaponizing agencies meant to defend workers and combat discrimination by turning them into defenders of discriminatory practices;
• eliminating enforcement of race- and gender-based equal employment practices for federal contractors;
• ordering mass deportations;
• undermining child care providers and vital state funds;
• limiting access to funding for higher education;
• rolling back protections for home care workers; and
• normalizing harassment and retaliation in the workplace.

Black and Hispanic women have endured and will continue to suffer the consequences of these attacks more intensely than many of their white, non-Hispanic male colleagues. Trump’s reckless decimation of the federal workforce, for instance, has disproportionately affected Black women, for whom government jobs have historically been a powerful tool for economic mobility and security. In 2025, Black women’s employment rate fell by 1.4 percentage points to 55.7%. This is one of the sharpest one-year declines in the last 25 years and is a much more dramatic drop than that of other women or Black men. College-educated Black women experienced the largest drop in employment, likely because nearly half of Black federal government workers have a bachelor’s degree or higher. This drop in well-paid, traditionally stable jobs will almost certainly lead to increased economic insecurity. Additionally, mass deportations will likely reduce jobs for both immigrant and U.S.-born women, particularly in the care sector, disproportionately impacting Hispanic women.

The Trump administration has also stifled the government’s ability to protect workers and penalize discriminatory employers. The restriction of the use of words like “gender,” “race,” “equity,” and “discrimination,” and attempts to weaponize the Equal Employment Opportunity Commission (EEOC) against women and workers of color will harm all workers, while weakening our ability to track pay equity and enforce nondiscrimination laws. Staffing levels at the EEOC have fallen steadily over the last four decades, but recent funding cuts and shifting priorities will exacerbate its already reduced capacity for enforcement. There have also been ongoing threats to the availability and continued collection of key data throughout federal agencies. If agencies that collect data on wages and incomes by demographic characteristics pull back, it would be a disaster for anyone—policymakers, researchers, employers, or workers—who wants basic facts about how well the economy is performing for different workers and different sectors.

Despite federal threats, states can help close the gender pay gap

Closing pay gaps by gender and by race and ethnicity will require policy solutions on multiple fronts. Although attacks on gender and racial equity continue at the federal level, state lawmakers can and must take steps to address the gender wage gap. Potential solutions include enacting pay transparency laws, mandating Paid Family and Medical Leave (PFML), raising the minimum wage, funding universal child care, and removing anti-worker, so-called “right-to-work” (RTW) statutes. Figure C highlights the states that have already passed some of these critical pieces of legislation, while underscoring the need for strong federal standards to cover the millions of workers who live outside of these states.

Figure C

Only 14 states have mandatory, comprehensive PFML policies, even though they provide essential benefits that help workers maintain their livelihoods while taking care of themselves and their families. Studies show that access to PFML improves outcomes for parents and children, workforce participation, and job retention, and that this a beneficial policy for both employees and employers. Access to paid leave is also shown to bridge racial gaps in care and pay.

Pay transparency laws are another useful tool that prevents employers from offering unequal pay by requiring them to include wage information in job postings. While there is some variation in laws, all include some requirement that employers provide salary information in job postings, but employers in Connecticut, Maryland, and Rhode Island only must furnish that information if requested by applicants. This wage transparency has the potential to reduce gender-based discrimination by arming jobseekers with more information and limiting employers’ ability to pay different amounts to similarly qualified candidates. A Colorado pay transparency law, for example, reduced gender wage gaps for workers who changed jobs by as much as 8.9%.

Policymakers effectively stopped protecting workers’ rights to form unions and bargain collectively starting in the 1980s, resulting in less leverage for workers and increased income inequality. Weak labor law allows employers to retaliate against union organizing and undermine workers’ right to collectively bargain. Union contracts can help narrow gender and racial wage gaps by providing clear wages for a given level of experience and education, reducing employers’ ability to discriminate in wage setting. Unfortunately, 26 states have RTW laws that make it even harder for unions to effectively organize and bargain for better contracts. States with these laws not only have lower unionization rates but also have wider gender wage gaps. By making it easier for workers to form unions, policymakers can help reduce these pay gaps.

The minimum wage keeps wages from falling below a mandated floor. While the real value of the federal minimum wage has been allowed to decline, down nearly $5 an hour since its peak in 1968, states have stepped in and increased their minimum wage. As of January 2026, 30 states and D.C. have minimum wages higher than the federal minimum, covering more than half of U.S. workers. Since women are disproportionately found in the low-wage workforce, these laws are key to increasing their economic security and narrowing wage gaps at the lower end of the wage distribution.

Although there is no single policy that will close the wage gap, each of these solutions will narrow it and improve conditions for workers across the country. In his first year back in office, Trump has rolled back critical labor standards, decimated federal unions, and laid off tens of thousands of federal workers. Now, more than ever, it is critical that states step up to protect workers under attack, prevent the gender wage gap from expanding, and build an equitable economy that works for all. 

1. Race/ethnicity categories are mutually exclusive in this analysis. Here we denote white to mean white non-Hispanic, Black is Black non-Hispanic, Asian American/Pacific Islander (AAPI) are AAPI non-Hispanic, and Hispanic refers to Hispanic of any race.

Key takeaways

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trump policies will drag on aggregate demand and raise recession risks

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

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

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

Figure A

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

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

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

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

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

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

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

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

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

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

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

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

Figure B

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

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

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

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

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

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

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

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

Supply destruction leads directly to unaffordability

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

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

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

How Trump policies will slow potential output and exacerbate affordability concerns

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

Figure C

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

Loosening immigration restrictions and unleashing mass deportations

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

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

Cutting back federal spending and the workforce

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

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

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

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

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

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

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

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

Haphazardly implementing poorly designed and chaotic tariff policy

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

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

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

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

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

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

Financing tax cuts for the rich and corporations with higher debt

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

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

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

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

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

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

Figure D

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

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

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

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

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

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

Threatening a political takeover of Federal Reserve policy decisions

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

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

How much will supply destruction slow growth in coming years?

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

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

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

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

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

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

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

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

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

Adding up supply destruction from Trump policies

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

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

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

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

Figure E

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

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

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

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

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

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

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

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

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

Normalizing the most abusive parts of the financial system

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

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

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

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

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

Attacks on the federal workforce

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

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

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

Measures of GDP and income understate harms of Trump policies

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

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

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

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

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

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

Conclusion

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

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

Notes

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

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

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

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

[5] See Lo et al. 2025.

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

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

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

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

[10] See Shierholz 2025 for this broader argument.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

References

Banerjee, Asha, and Josh Bivens. 2022. Will Secular Stagnation Return? The Stakes for Current Economic Debates and Fiscal Policy. Economic Policy Institute Report. August 4, 2022.

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

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

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

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

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

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

Bloom, Nicholas, Philip Bunn, Paul Mizen, Pawel Smietanka, and Gregory Thwaites. 2025. “The Economic Impact of Brexit.” National Bureau of Economic Research (NBER) Working Paper no. 34459, November 2025.

Bureau of Economic Analysis (BEA). 2025. “National Income and Product Accounts (NIPA)” (web page). Accessed December 2025.

Bureau of Labor Statistics (BLS). 2025. “Major Sector Productivity and Costs Database” (web page). Accessed December 2025.

Congressional Budget Office. 2009. The Budget and Economic Outlook: 2009 to 2019. January 7, 2009.

Congressional Budget Office. 2024. The Distribution of Household Income in 2021. September 11, 2024.

Congressional Budget Office. 2025a. “Estimated Budgetary Effects of Public Law 119-21 to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14, Relative to CBO’s January 2025 Baseline” [Excel files]. Published July 21, 2025.

Congressional Budget Office. 2025b. Key Budget and Economic Data.

Congressional Budget Office. 2025c. The Budget and Economic Outlook: 2025 to 2035. January 17, 2025.

Congressional Budget Office. 2025d. The Estimated Effects of Enacting Selected Health Coverage Policies on the Federal Budget and on the Number of People with Health Insurance. September 18, 2025.

Congressional Budget Office. 2025e. The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget. May 2025.

Economic Policy Institute (EPI). 2025–2026. Federal Policy Watch (Blog post series).

Epstein, Gerald. 2018. “On the Social Efficiency of Finance.” Development and Change 49, no. 2: 330–352. March 2018.

Farber, Henry S., Daniel Herbst, Ilyana Kuziemko, and Suresh Naidu. “Unions and Inequality over the Twentieth Century: New Evidence from Survey Data.” Quarterly Journal of Economics  136, no. 3: 1325–1385. August 2021.

Fieldhouse, Andrew J., and Karel Mertens. 2025. “The Returns to Government R&D: Evidence from U.S. Appropriations Shocks.” Society for Economic Dynamics Annual Meeting Working Paper, June 26, 2025.

Gensler, Gary, Simon Johnson, Ugo Panizza, and Beatrice Weder di Mauro, eds. 2025. The Economic Consequences of the Second Trump Administration: A Preliminary Assessment. Centre for Economic Policy Research, December 2025.

Gould, Elise, Katherine deCourcy, Joe Fast, and Ben Zipperer. 2025. Strong Wage Growth for Low-Wage Workers Bucks the Historic Trend. Economic Policy Institute, March 2025.

Hirtle, Beverly, Anna Kovner, and Matthew Plosser. 2019. “The Impact of Supervision on Bank Performance.” Federal Reserve Bank of New York Working Paper no. 768. May 2019.

Hsieh, Chang-Tai, Erik Hurst, Charles I. Jones, and Peter J. Klenow. 2019. “The Allocation of Talent and U.S. Economic Growth.” Econometrica 87, no. 5: 1439–1474. September 2019.

Hughes-Cromwick, Ellen, and Julia Coronado. 2019. “The Value of U.S. Government Data to U.S. Business Decisions.” Journal of Economic Perspectives 33, no. 1: 131–146.

Klein Martins, Guilherme. 2025. “Long-Run Effects of Austerity: An Analysis of Size Dependence and Persistence in Fiscal Multipliers.” Oxford Bulletin of Economics and Statistics 87, no. 2: 330–356.

Lo, Justin, Larry Levitt, Jared Ortaliza, and Cynthia Cox. 2025. ACA Marketplace Premium Payments Would More Than Double on Average Next Year If Enhanced Premium Tax Credits Expire. KFF, September 30, 2025.

Lynch, Robert, and Kavya Vaghul. 2015. The Benefits and Costs of Investing in Early Childhood Education. Washington Center for Equitable Growth, December 2015.

Marr, Chuck, and Josephine Cureton. 2025. Administration’s Proposed Cuts to Non-Defense R&D Pose Long-Term Risk to Rising Living Standards. Center on Budget and Policy Priorities, October 2025.

McNicholas, Celine, Margaret Poydock, and Josh Bivens. 2026. 47 Ways Trump Has Made Life Less Affordable in the Last Year. Economic Policy Institute, January 2026.

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Shierholz, Heidi. 2025. “Everyone Is Talking About Affordability—and Making the Same Mistake: Focusing on Just Prices Misses the Bigger Picture.” MS NOW, November 29, 2025.

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Key takeaways:

• Real wages declined 0.3% for low-wage workers in 2025, a stark departure from the unusually strong wage gains they had experienced over the previous five years.
• This reversal was not inevitable—it was caused by policy decisions that weakened the labor market.
• Meanwhile, middle- and high-wage workers saw modest wage growth in 2025.
• Low- and middle-wage workers have suffered from decades of slow and suppressed wage growth. To improve affordability, policymakers can and must raise wages. 

Low-wage workers saw their real (inflation-adjusted) wages decline in 2025, a sharp reversal from the historically fast real wage growth they had experienced over the previous five years. Middle- and high-wage workers continued to experience modest gains in 2025, according to our new analysis (see Figure A).

We examine wage growth across deciles, using the Current Population Survey (CPS) Outgoing Rotation Group microdata. Note: Due to the federal government shutdown and a lack of funding at the Bureau of Labor Statistics (BLS), there are no CPS wage data for October 2025. That means that 2025 wages are calculated based on reported wages from the other 11 months of the year.

Figure A

A weakening labor market halted low-end wage growth in 2025

In 2025, the 10th-percentile wage—the hourly wage at which 10% of workers are paid less and 90% of workers are paid more—fell 0.3% to $14.56. The median wage—the wage at the middle of the wage distribution—grew 0.8% to $25.67 in 2025 while the 90th-percentile wage increased 0.4% to $64.52 (see Figure B).

Figure B

These outcomes are a stark departure from the post-2019 pattern in which low-wage workers consistently experienced faster real wage growth than those in the middle and upper parts of the wage distribution. During that period, policymakers engineered a fast and full recovery from the pandemic recession, which provided unusual leverage to low-wage workers as employers scrambled to hire or rehire the workers they lost in the pandemic. Low-wage workers were able to secure historically fast real wage growth, despite the pandemic- and war-driven inflationary spike in 2021–2022.

But in 2025, a softening labor market halted low-wage workers’ progress. The Trump administration chaotically imposed historically high tariffs, conducted cruel mass deportations, and implemented massive layoffs among federal agencies that provide key inputs to private-sector economic growth and security. All of this led to increased economic uncertainty, and promised growth failed to materialize—particularly in areas such as manufacturing employment.

Payroll employment growth slowed notably as average monthly job gains fell from 168,000 in 2024 to only 49,000 in 2025. The average unemployment rate ticked up from 4.0% to 4.3%. By December 2025, the unemployment rate stood at 4.4%, fully a percentage point higher than the 3.4% low point reached in April 2023. Groups that are often affected first by an economic downturn—such as young workers and Black workers—experienced a much faster uptick in unemployment. Most concerning is the depressed hires rate, which is currently at levels similar to 2013 when the economy was still recovering from the Great Recession. Should layoffs pick up even a bit, this low hires rate would see the unemployment rate rise quickly.

The 2026 outlook for wages remains uncertain. While higher unemployment and depressed hires point to a cooling labor market, it is unclear that conditions will continue to deteriorate: Unemployment insurance claims remain stable and consumer spending has held up. At the same time, economic risks loom large, including geopolitical instability, Trump’s immigration policy and cuts to social programs, and the possibility of a stock market and investment collapse if the AI-driven stock market bubble deflates rapidly.

Wage inequality has declined since 2019, but low-end wage levels are still insufficient to make ends meet

Even with last year’s decline, the 10th-percentile wage of $14.56 represents a significant improvement from 2019 in inflation-adjusted terms. And there was still substantial wage compression between 2019 and 2025, as wages at the 10th percentile grew twice as fast (15.0%) as wages at the 90th percentile (7.4%). These findings are consistent with economist Arindrajit Dube’s recent Substack article, which documents strong wage compression over this period. Importantly, Dube shows that these patterns persist even after controlling for compositional changes in the population, meaning that faster wage growth at the bottom is not explained by shifts in worker demographics such as age, education, or gender.

But this low wage is still far from sufficient to make ends meet. Even if that 10th-percentile worker worked full time throughout the year, their annual pay would only be $30,279—which is not enough to attain a modest yet adequate standard of living in any U.S. county or metro area, according to EPI’s Family Budget Calculator.

Low-wage workers have seen little wage growth for much of the last 50 years

While the gains over recent years are welcome, longer-term trends show lower-wage workers losing ground. Figure C shows wage growth at the 10th, 50th, and 90th percentiles from 1979 to 2025. Over this period, 90th-percentile wages grew by an average of 1.1% per year, compared with just 0.5% at the 10th percentile. In fact, it wasn’t until 2015 that lower-wage workers finally reliably surpassed their 1979 real wage. If wages at the 10th and 50th percentiles had grown at the same rate as the 90th percentile since 1979, they would have been $18.58 and $32.40, respectively, or about 27% higher. For all wage deciles over time, including data by demographic characteristics, visit the EPI data library.

Figure C

While workers at the 90th percentile have benefited more than lower-wage workers, their gains pale in comparison to those at the very top of the distribution. The gulf between the lowest- and highest-wage workers cannot be fully captured in the CPS data because it isn’t possible to accurately measure what’s happening with very high-end wages. Using Social Security Administration (SSA) data, we previously found that wages for the top 1% skyrocketed 182% from 1979 to 2023, roughly triple the growth rate of the 90th percentile and about seven times the growth of the 10th percentile.1 As a result, inequality between the top 1% and the rest of workers substantially worsened over this period.

It is also true that productivity growth—the change in the amount of goods produced or services provided in an hour of work—has outpaced the wages of the vast majority of workers since 1979.2 While higher earners have fared better, every worker should benefit when the economy expands and productivity increases. Had low-end wages grown in line with productivity since 1979 (as they almost surely did in previous decades), the 10th-percentile hourly wage would be $21.04—or 45% higher than it is now. Similarly, the median wage would be 43% higher—or $36.69. Our forthcoming wage calculator will allow users to input any wage level and find how much higher their wages would be if they had in fact grown as fast as productivity.

Policymakers can and must raise wages to address affordability concerns

Making life more affordable for working families is not just about slowing the rate of increase of prices, it’s about ensuring continued wage gains at the bottom and middle of the wage distribution after decades of slow and suppressed wage growth before the COVID pandemic. In 2025, wages for the lowest-wage workers lost the race against prices, making it more difficult for them to afford necessary goods and services.

Policymakers must identify raising wages as the key lever to making life more affordable for working families, and they can do that by raising the minimum wage, reforming labor law to ensure workers can freely exercise their right to unionize, and maintaining full employment. Ignoring these policy levers to raise wages makes the affordability proposition even more difficult to attain.

1. To be clear, this isn’t an apples-to-apples comparison because we are comparing two different data sets and one uses annual earnings (SSA) and the other uses hourly wages (CPS).

2. Productivity growth is the percent change between 1979 and the most recent four quarters. At the time of writing, 2025 Q4 was not available.

In an executive order dated August 7, 2025, President Trump called for a reexamination of regulations and guidance for retirement plans. Trump asked regulators to encourage retirement plan administrators to include risky options like alternative assets (or “alts”) in 401(k) and similar retirement plans. Alternative assets could be funds invested in private equity and cryptocurrencies, assets that lack strict regulation and whose value and risk can be hard to assess compared with other types of investments. Because of this, many consider alts to be unsuitable for retirement plans. Trump’s executive order listed direct and indirect interests in private market investments, real estate, digital assets, commodities, infrastructure, and longevity risk-sharing pools.

Currently there are no explicit bans on offering these types of investments in participant-directed retirement plans, but employers and advisers who serve as retirement plan fiduciaries can be sued for including inappropriately risky and costly assets among investment options. (Fiduciaries are required by law to act in the best interests of retirement plan participants.) Outside of retirement plans, marketing private equity and other largely unregulated alternative assets to small investors is mostly prohibited by securities laws, regulations, and agency guidance—though cryptocurrencies and other digital assets can be sold to anyone.

Whether due to fiduciaries’ litigation fear or common sense, alts like private equity have so far made little headway in the 401(k) space, though some major players began marketing managed funds with alternative asset components to 401(k) plan sponsors even before Trump issued his executive order.

Key takeaways

• Proposed state legislation to extend full, equal collective bargaining rights to all state and local government workers can help Virginia:
  • reduce the state’s large public-sector pay gap
  • improve public services
  • reduce staff vacancies and turnover
  • decrease racial and gender wage disparities
• Strong collective bargaining rights and increased unionization rates are highly correlated with numerous, widely shared benefits including higher wages, more equitable state economies, and healthier democracies.
• Virginia currently has one of the largest public-sector pay gaps in the nation. State and local government employees in Virginia earn, on average, 26.7% less than private-sector peers with similar education and experience.
• The public-sector pay gap varies across states and is largest in states like Virginia where most public employees lack collective bargaining rights. In Virginia, collective bargaining is currently banned for state employees and only recently became permitted for some local government employees.

In 2026, Virginia lawmakers are poised to consider transformative legislation that would extend full collective bargaining rights to public employees at all levels of state and local government. The benefits of comprehensive collective bargaining rights would extend far beyond affected public employees who would enjoy better working conditions. Stronger state collective bargaining laws can help improve the quality of public services and economic outcomes for all Virginians.

Data show that strong collective bargaining laws help states address persistent public-sector pay gaps, reduce staff vacancies and turnover, and lead to higher unionization rates (Morrissey and Sherer 2024). Increased unionization rates are highly correlated with numerous, widely shared benefits including more equitable state economies and healthier democracies (McNicholas et al. 2025).

For Virginia, expanding public-sector bargaining is a critical next step in building an economy that works for all. The expansion will reverse a long history of anti-worker state policies that have suppressed wages and limited workers’ power in the labor market by blocking pathways to unionization. Such policies have resulted in greater income inequality and persistent racial and gender wage disparities (Bivens and Shierholz 2018; Mishel and Bivens 2021). Strong, comprehensive state legislation covering public employees’ labor rights is also especially important at a moment when the federal government has been attacking the jobs, working conditions, and union contracts of over 235,000 federal civil servants residing in Virginia, and threatening long-standing federal protections of all workers’ rights (EPI 2025b; Oakford and Poydock 2025). 

This report examines how public-sector workers with limited or no collective bargaining rights fare compared with public-sector workers with well-established collective bargaining rights. To do so, we estimate pay differences between state and local government workers and private-sector workers with similar education and experience. In this analysis, Virginia is among a minority of states in which state employees have no bargaining rights and only some local government employees have limited bargaining rights. By contrast, 27 states have well-established collective bargaining rights for state and local government workers (Table 1).

The right to bargain collectively over pay is associated with higher unionization rates (union membership as a share of the workforce) in a given state. This report shows that collective bargaining rights and union strength help state and local government workers narrow the pay gap with private-sector workers. We show that the pay gap for public employees is significantly larger when these workers have weak or no bargaining rights, like public employees in Virginia, which has one of the largest public-sector pay gaps in the nation (-26.7%).

Virginia public employees lack collective bargaining rights

Proposed legislation in Virginia would, for the first time in the state’s history, guarantee that all state and local government employees enjoy labor rights similar to those of their private-sector peers (whose rights to collectively bargain are covered under the federal National Labor Relations Act) (HB 1263 and SB 378). The Virginia Assembly passed similar legislation (HB 2764 and SB 917) in 2025, only to have it vetoed by then-Governor Glenn Youngkin (McGinley 2025). 

Virginia is one of a handful of Southern states that for decades explicitly banned public employees and employers from entering into collective bargaining agreements. In 2020, Virginia took an important step toward making collective bargaining newly optional for local governments, but the state’s policies remain out of step compared with most states. Virginia lacks a statewide collective bargaining statute covering all local government employees and still has a ban in place barring state employees from collective bargaining (Borja 2022).

As shown in Table 1, the majority of states and Washington, D.C., already ensure collective bargaining rights for most public employees, including state workers. Many states have had statewide public-sector bargaining statutes in place for decades (Rueben 1996; Sanes and Schmitt 2014). Such laws typically set clear, uniform guidelines for union elections and contract negotiation processes and establish state labor boards charged with fostering productive labor-management relations (including timely contract settlements), ensuring broad awareness of and compliance with statutory guidelines, and mediating or adjudicating disputes as needed.

Table 1

Who are public employees in Virginia?

In 2024, approximately 560,000 Virginians worked in state and local government occupations (BLS-CES 2020–2025). This includes teachers and school staff, firefighters, transit operators, law enforcement, administrative staff, and employees serving the state’s public safety, transportation, health care, judicial, corrections, and higher education systems. As shown in Table 2, 21.2% of Virginia state government employees and 20.4% of Virginia local government employees are Black, and 57.3% of state government employees and 64.5% of local government employees are women. Many public-sector workers in the state are highly educated. Virginia public-sector workers are more than twice as likely to have advanced degrees as private-sector workers and are much less likely to have a high-school level or less education.

Table 2

Anti-union state policies are rooted in racism and harm all Virginia workers

Virginia’s ban on union contracts for public employees is a Jim Crow-era policy with deep roots in the history of slavery and white supremacy. After the passage of federal labor laws accelerated worker organizing in the 1930s, Virginia joined several Southern states in adopting anti-union state laws designed to prevent multiracial union organizing and suppress Black workers’ wages and power (Childers 2023). The Virginia Assembly first took an explicit stance on public-sector bargaining in response to the unionization of Black hospital employees at the University of Virginia in 1946, via a joint resolution declaring it against the public policy of the state to negotiate with public employee unions (a stance later affirmed by state supreme court decisions and codified in statute in 1993). Virginia was also among the first states to adopt anti-union so-called right-to-work legislation in 1947, an anti-labor policy jointly promoted by white supremacist organizations and industry groups intent on slowing the growth of unions to maintain access to cheap labor—especially in Southern states (The Commonwealth Institute 2022; Watts 2021; Pierce 2017, 2018; Sherer and Gould 2024).

As a result of these long-standing anti-union state policies, unionization rates in Virginia for both public- and private-sector workers are well below national averages.

Figure A

Narrowing Virginia’s large public-sector pay gap

Across the country, public-sector employees earn less than their private-sector counterparts, and this pay gap has widened in recent years. In the latest available five-year period (September 2020–August 2025), state and local government employees earned, on average, 17.2% less than private-sector employees with similar education and experience. The size of the public-sector pay gap varies across states and is largest in states like Virginia where most public employees lack collective bargaining rights. Public-sector workers with strong bargaining rights experience a narrower pay gap (-14.3%) than those with weak (-19.6%) or no bargaining rights (-22.5%) (see Table 3).

Virginia currently has one of the largest public-sector pay gaps in the nation. Among all 50 states, Virginia’s -26.7% public-sector pay gap appears to be the second highest, though differences among states clustered at the bottom of the rankings are not statistically significant. (Pay gap statistics are for full-time wage and salary workers ages 18–64, based on the authors’ analysis of pooled September 2020–August 2025 Current Population Survey microdata downloaded from Flood et al. 2025 and EPI 2025a.)

Compensation packages of public employees, on average, include more robust benefits than those of private-sector workers, but Virginia’s public-sector compensation gap remains large, even when factoring in more robust benefits. Benefits are an estimated 32.0% of pay for private-sector workers in the South Atlantic region and an estimated 51.3% of pay for Virginia public-sector workers. Factoring in benefits, Virginia’s public-sector compensation gap shrinks to a still sizable 16.0% (authors’ estimate based on BLS-ECEC 2020–2025 and Public Plans Data 2020–2024; see Morrissey and Sherer 2024 for methodology).1

Table 3

Addressing high staff vacancy and turnover rates in Virginia’s public sector

The growing public-sector pay gap has become a particular concern at a moment when low pay has created serious challenges to recruiting and retaining teachers and other public employees across the country (Cooper and Martinez Hickey 2022; MissionSquare Research Institute 2023; Wething 2024a, 2024b; Martinez Hickey 2025). Virginia has faced particularly acute staffing shortages in public education and in units of state government in recent years (Manzanares 2025; Cantor 2025).

The latest (2025) biennial compensation report from the state’s Department of Human Resource Management notes that “Years without any salary adjustments in the past have made it difficult for state agencies to build a proactive and sustainable approach to addressing compensation, recruitment and retention concerns” (VDHRM 2025). Between 2001 and 2023, low average salary increases for state workers (just 2.9% per year, compared with 3.4% annually in the private sector) have led to high vacancy and turnover rates. As of 2024, roughly 1 in 5 (22.4%) state jobs were unfilled, and the median salary across the state workforce was just $61,305—a full $5,000 less than the median city employee salary in Richmond, which has adopted its own collective bargaining ordinance (McGinley 2025).

Chronic state employee staffing shortages are already having direct impacts on the health, safety, and quality of life of Virginians. To take one example, in 2025 the Virginia Department of Juvenile Justice (DJJ) drew headlines after reporting that inability to adequately staff large facilities for incarcerated youth had led to unsafe conditions, lockdowns, increased restrictions on out-of-cell time, and a lack of rehabilitative services. DJJ directors indicated ongoing difficulty recruiting for open positions, despite participating in job fairs, college and university visits, outreach to military and veteran communities, and offering signing bonuses and referral incentives (Manzanares 2025). The root causes of understaffing identified by Virginia state agencies like DJJ—from burnout and high workloads to low starting salaries, lackluster raises, and difficult or unsafe working conditions—are precisely the topics that a structured collective bargaining process would allow state agencies to address, with direct input from frontline employees.

Addressing racial and gender pay gaps to improve recruitment and retention of workers of color and women

The public-sector pay gap disproportionately affects Black workers and women, who are more likely to be employed in public-sector jobs and who are disadvantaged in the broader labor market (Childers 2025). Strengthening collective bargaining rights for government workers in Virginia therefore promises to narrow the pay gap and reduce racial and gender inequalities in public institutions and across the labor market.

For example, a 2024 RAND report showed that Black teachers nationally receive lower average salaries and pay raises than white teachers do, a difference linked directly to the fact that Black teachers were less likely to live in states where public educators had collective bargaining rights. The inadequacy of pay is one of the main reasons teachers report for leaving the profession, further contributing to the demographic mismatch between teachers and students (e.g., nationwide over half of all students are children of color, but the teaching workforce remains around 80% white) (Steiner et al. 2024; Gopalan 2025). Likewise, data show that in states like Wisconsin where legislators have weakened formerly strong collective bargaining rights in the past two decades, resulting decreases in unionization levels and worker wages have measurably widened public-sector pay gaps and gender pay gaps (Nack et al. 2019; García and Han 2021; Biasi and Sarsons 2022).

Building on success and remedying limitations of current state law that only permits local collective bargaining

In 2020, Virginia partially lifted its long-standing ban on public-sector collective bargaining with legislation creating an “opt-in” system that has allowed local governments to set their own policies on whether and how to bargain with their own employees. While this opening fell far short of creating a consistent statewide framework for collective bargaining, it has resulted in at least 17 of Virginia’s largest cities, counties, and school boards adopting collective bargaining ordinances and creating new pathways to union contracts for substantial numbers of public employees—including, for example, 27,000 teachers and school staff and 12,000 county employees in Fairfax County; nearly 4,000 City of Richmond employees; and others (Borja 2022; Sharma 2022; Khalil 2023; Lukert 2024; Pope 2025; Walter 2026).

The local “opt-in” system was a positive step forward that has already revealed high levels of interest in collective bargaining among Virginia workers. The system resulted in new union contracts covering tens of thousands of frontline educators and civil servants, providing an initial boost to Virginia’s historically low unionization rate.

Significant limitations of the new “opt-in” system have also quickly become clear. As noted above, the major shortcoming of the current law is that it does not ensure equal collective bargaining rights for all public employees. Virginia state employees remain barred from collective bargaining, and in local government where collective bargaining is permitted (but not required), workers continue to lack collective bargaining rights, unless they are able to persuade local officials to adopt and then implement a collective bargaining ordinance. When localities do adopt such ordinances, they may vary in strength and effectiveness (Overman 2023).

As a result, Virginia’s current “opt-in” system for local collective bargaining has generated an uneven patchwork of highly variable (and potentially unstable) collective bargaining policies across the state. Some local governments have continued to block workers’ path to a union contract by rejecting appeals from their own employees to adopt local collective bargaining ordinances (Murphy 2024; Cooper 2025; Lytle 2025; Wilkinson 2025). Because current state law leaves the burden of collective bargaining policy development up to each individual local government, some jurisdictions have expressed interest in or support for collective bargaining while remaining reluctant to invest the necessary time or scarce administrative or legal resources to developing and implementing a local ordinance. Even in larger local jurisdictions with strong collective bargaining ordinances now in place, the “opt-in” system remains fragile and highly vulnerable to instability whenever turnover occurs among elected leaders or administrators with experience necessary to maintain unique local labor-management systems.

Creating a state labor board to provide efficiency and stability for all Virginia public employers and employees

A proposed state labor board equipped to administer a statewide, uniform collective bargaining framework would serve all Virginia state and local government entities and provide consistency, efficiency, stability, and economies of scale. All Virginia public employers and employees would benefit from access to a central, independent state board with capacities to advise public employers and employees about collective bargaining procedures, administer union elections, and mediate contract negotiations. The creation of such state capacities is also especially important at moment when federal labor agencies with similar capacities have been eliminated or rendered non-functional. Indeed, across the country, many states are relying more than ever on their existing state labor boards, and in some cases, are exploring paths to expanding state labor board capacities in order to ensure consistent protections of workers’ rights to unionize and collectively bargain (H.B. 3005; Walter and Madland 2025).

Conclusion

In 2026, Virginia lawmakers should seize the opportunity to enact strong, comprehensive collective bargaining legislation that covers all state and local government workers and creates a state labor board to administer the new system. Under Virginia’s current state law (where collective bargaining is banned for state employees and allowed only for some local government workers), pay for Virginia public employees has lagged far behind that of private sector counterparts with similar education and experience.

Stronger collective bargaining rights can help shrink Virginia’s large public-sector pay gap, reduce racial and gender pay gaps, and improve recruitment and retention of qualified public employees. Removing barriers to unionization for public employees is also a critical step toward reversing the impacts of long-standing anti-worker state policies in Virginia that have for decades suppressed all workers’ wages and contributed to growing income inequality. Lastly, state action to shore up public employee rights is especially important at moment when the federal government is attacking civil servants, public education, health care, and all public services. By extending full collective bargaining rights to historically excluded state and local government workers, state lawmakers can help lead the way to a more vibrant, equitable economy rooted in multiracial democracy in Virginia, the South, and the nation.

Notes

1. If anything, our comparison likely minimizes the public-sector compensation gap in Virginia by comparing benefits for private-sector workers in the South Atlantic region to public-sector workers throughout the country because public-sector data for the South Atlantic region is not available from the Bureau of Labor Statistics. Our comparison does account for the fact that Virginia pension benefits are less generous than public pensions in many parts of the country, though possibly not in two Northern Virginia counties with their own retirement systems. It does not fully account for other differences in benefits between Virginia public-sector workers and their counterparts in other states, though it does account for the fact that public-sector workers in Virginia are covered by Social Security (not true in some states) and adds 1% for public-sector retiree health benefits that are not included in BLS compensation statistics. Finally, it compares all public-sector workers with all private-sector workers, when arguably the better comparison would be between public-sector workers and private-sector workers employed by large employers, who tend to provide more generous benefits than small employers.

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In part 1 of this two-part blog post series, I provided background and discussion on a rider amendment that the Homeland Security subcommittee of the House Appropriations Committee proposed and passed over the summer. Originally known as Amendment #1 but later dubbed the Bipartisan Visa En Bloc amendment, it would make major changes to the H-2A and H-2B visa programs through the appropriations process, while completely circumventing the committees that should have subject matter jurisdiction in the House and Senate. Part 1 focuses on the changes and impacts in the H-2A program; this post will briefly explain the components of the rider that would make changes to the H-2B visa program and the impact of those changes, as well as one change that would affect both programs.

The H-2B program has been expanded through appropriations riders every year since fiscal year 2016

Two of my previous reports provide a fuller explanation of the background on the size of the H-2B program and a history of the legislative riders in appropriations bills that have been used to expand the size of the H-2B program. A quick recap here is warranted. In fiscal year 2016, Congress authorized a “returning worker” exemption through appropriations legislation to fund the operation of the U.S. government. The legislation exempted H-2B workers from the annual H-2B cap of 66,000 that is set in law, for fiscal year 2016, if the workers hired were previously in H-2B status in any of the preceding three fiscal years. There was no cap on the number of returning H-2B workers under the exemption.

In each year since FY 2017, Congress has, through appropriations riders, given the executive branch the discretionary legal authority to roughly double the number of H-2B visas available. Rather than specify the level of increase for the H-2B program, appropriators have passed the buck instead to the executive branch—perhaps because they didn’t want the responsibility or criticism that may come from setting a specific number—by directing the U.S. Department of Homeland Security, in consultation with the U.S. Department of Labor (DOL), to determine how many additional H-2B visas are appropriate, if any. DHS has interpreted the rider language as allowing them to issue up to 64,716 “supplemental” visas in the corresponding fiscal year. In total, it has been 10 years (FY 2016–2025) since Congress first permitted increases to the size of the H-2B program through an appropriations rider. The Biden administration in 2023, 2024, and 2025 used the full authority granted to the executive branch in the legislative riders, raising the total H-2B annual limit to 130,716.

The appropriations rider would create a new methodology to expand the H-2B cap by at least 100,000

The rider takes a different approach to allowing a higher number of H-2B visas to be issued in FY 2026. The language of the amendment states that for every employer who has had any H-2B positions certified in the past five fiscal years (2021–2025), the highest number that they had certified in those years will be the number of H-2B workers they may hire who will not count against the annual cap of 66,000. In other words, if an employer had 10 jobs certified in 2021, 15 in 2022, 20 in 2023, 100 in 2024, and 50 in 2025, they would be allowed to hire 100 H-2B workers in 2026 without them counting against the 66,000 cap.

To calculate how many workers could be hired in 2026 under this formula, a colleague and I matched employer records from DOL and identified the employers who had at least one approved H-2B job in each of the years between 2020 to 2024. (Full year data for 2025 were not available at the time of writing, so 2020–2024 are used as a proxy.) Altogether, 186,342 H-2B workers would have been exempted from the annual cap under this formula. This is almost certainly a low-end estimate because the number of H-2B jobs certified in 2020 was lower than normal because of the bureaucratic shutdowns and slowdowns caused by the start of the COVID-19 pandemic.

Table 1 shows an estimate for 2020–2024 that serves as a proxy for our estimate on the number of new H-2B workers who will be exempted from the cap in 2026 and also lists the number of new H-2B workers who will be permitted under the regular annual cap of 66,000. Altogether, the regular cap plus the supplemental cap for H-2B in 2026 would permit at least 252,342 new workers if the language in the rider becomes law. That’s an increase of almost 100%, relative to the total cap in 2023–2025, and a 282% increase, relative to the original H-2B cap of 66,000.

It’s also important to note that the annual caps and total number of workers will grow exponentially in the following years after 2026 if Congress reauthorizes the same language in the rider year after year, as they’ve done with past H-2B riders. This will occur because employers will have an incentive to apply to DOL for labor certification for as many H-2B jobs as possible because that will increase the size of their exemption from the cap for the following year.

Table 1

Total number of H-2B workers would reach 282,000 in 2026 if the rider becomes law

In a recent report, I showed that in 2024, when 64,716 supplemental H-2B visas were added to the statutory cap of 66,000, for a total cap of 130,716, there were a total of 169,177 H-2B workers. This was up from 75,122 total H-2B workers just a decade earlier. The nearly 170,000 total in 2024 included 139,541 H-2B workers with newly issued visas from the State Department, and 4,580 H-2B workers who had their employment extended with the same employer. An additional 25,056 were H-2B workers who changed employers. Workers who extend their H-2B status or change jobs are not counted against the annual cap. (In 2025 the cap was identical to the previous year; thus, final numbers for 2025 are likely to be very similar to 2024.)

To get a better sense of the total number of H-2B workers who would be employed in 2026 if the rider became law, I estimated that the same number of workers who extended their status or changed jobs in 2024 would also do so in 2026, and added that total to the 2026 total cap that would result from the rider. This is illustrated in Figure A, which shows the total number of H-2B workers from 2017 to 2024, and projections for 2025 and 2026. The annual cap plus the supplemental cap, together with H-2B extensions and job changes, will result in nearly 282,000 H-2B workers being employed in 2026—almost 113,000 more workers than were employed in 2024 and 2025.

Figure A

The rider would move 12,000 H-2B jobs to the P visa, which is not administered by the Department of Labor

The other notable change in the rider when it comes to the H-2B program is that H-2B workers employed at carnivals, traveling fairs, and circuses would be moved to the P visa program. According to DOL, in FY 2024 there were 12,398 H-2B jobs certified in the “Amusement and Recreation Attendants” occupation, which is the relevant occupation that would be moved to the P visa. There would be no annual cap on the number of amusement and carnival workers who could be employed in the P visa program.

At present, the P visa is a little-known program intended for use by professional athletes and coaches, members of an internationally recognized entertainment group, or persons performing under a reciprocal exchange program or as part of a culturally unique program. At present, the P visa program has no wage rules or worker protections and is administered exclusively by DHS, which has no staff or expertise on worker rights. This is extremely troubling, given that H-2B workers employed at carnivals and traveling fairs work grueling hours and in terrible conditions, making them some of the most exploited H-2B workers—as advocacy groups have pointed out. These workers are often paid below the minimum wage and are not paid for overtime hours. Yet DOL would no longer have any formal oversight role to ensure they are protected.

The rider language says that employers hiring H-2B carnival workers through the P visa “shall be subject to the same program requirements” of the H-2B program, which are administered by DOL. It also directs DHS and DOL to each separately publish regulations to implement H-2B carnival workers being moved to the P visa program within 180 days and finalize them within one year.

The legislators who support this amendment have provided no explanation or rationale for why it makes sense to create an entirely new process and set of regulations to move one of the biggest H-2B occupations from DOL into DHS—an agency that will be given primary responsibility over the P visa and protecting carnival workers, but which has no mandate or expertise on labor standards and employment laws. The most obvious explanation is that this legislative maneuver is simply a new way to expand the H-2B cap even beyond 252,000, in a way that gives carnival employers an unlimited supply of workers who can be exploited and underpaid. It also seems absurd to put a low-paid traveling carnival worker into the same visa category—where there’s no labor oversight—as a professional baseball player coming from abroad to sign a multimillion-dollar contract with a major league team, or a world-famous singer, dancer, or painter.

House Homeland Security appropriations rider would defund the H-2 modernization rule, restricting the ability of H-2 workers to change jobs and leave abusive employment situations

One other notable section in the rider that impacts both the H-2A and H-2B programs would prohibit DHS from spending funds to implement a regulation that took effect in January 2024—often referred to as the H-2 modernization rule. The rule, among other things, requires additional scrutiny of applications from employers that have violated the law, makes it easier for H-2 workers to be eligible for green cards through existing pathways, and expands the ability of H-2A and H-2B workers to change employers (this is referred to as visa “portability”), making it easier to leave an abusive employment situation. The regulation is far from perfect. As EPI and other advocates have pointed out, the portability provisions require additional measures to make visa portability a more practical reality, rather than just a right that exists on paper and one that can be hijacked by employers seeking to circumvent the annual cap.

Nevertheless, these three provisions in the H-2 modernization rule can undoubtedly help some workers, reducing the indentured nature of the visa programs by tilting the balance of power ever so slightly in the direction of workers. And that’s likely the exact reason that the employers and legislators pushing for the rider included this provision to defund the rule.

The H-2B program needs reforms to improve labor protections and provide H-2B workers with a pathway to citizenship

The appropriations committees in the House and Senate should not continue using parliamentary tactics to make changes to the H-2B program that would likely not pass in Congress through regular order. Instead, Congress should work with the executive branch to reform the H-2B program in the following ways: 

• ensure U.S. workers are considered for open temporary and seasonal jobs 
• craft updated wage rules that protect U.S. wage standards for all workers in H-2B industries
• provide migrant workers with new protections and allow them to more easily change jobs
• provide migrant workers with a quick path to a green card and citizenship
• prohibit lawbreaking employers from hiring through the H-2B program

As EPI and other advocates have long said, these genuine reforms are the only way to ensure that the workers playing vital roles in the U.S. economy are not being exploited and underpaid and that their employers are not able to use visa programs as an employment law loophole that ultimately erodes job quality for all.