What Will 2026 Hold for the American Worker?
The Pitch: Economic Update for January 8th, 2026
Friends,
Let’s start 2026 with some good news for the workers who power the American economy.
As soon as 2026 dawned, the National Employment Law Project reports, minimum wages increased “in 19 states and 49 cities and counties, for a total of 68 jurisdictions.” In 12 of those states and 48 localities, the minimum wage topped $15 per hour. In three states and 40 localities, the minimum wage rose above $17 per hour.
Flagstaff, Arizona, officially eliminated its tipped subminimum wage on January 1st, completing a phase-in period that was approved by voters ten years ago. “Starting January 1, 2026, Flagstaff will no longer permit employers of tipped workers to use any portion of tips as a credit towards their obligation to pay the minimum wage,” NELP writes. “The full minimum wage of $18.35 will now serve as the tipped cash wage with tips on top.”
Those workers will now have more money to spend in their communities, which will create jobs through increased consumer demand. They will also have a little bit more of a cushion against the price increases that are still afflicting consumers at grocery stores and countless other products and services. These wage increases are an unalloyed good for the whole economy—not just the wealthy few.
Workers didn’t just win on the minimum wage. A site called Littler listed all the state labor laws that went into effect on January 1st, and some of them are quite interesting. For instance:
Alabama passed a law called the “Portable Benefits Act, which establishes a framework for independent contractors to create portable benefit accounts that can be funded by both the independent contractor and the hiring party.” The law allows employers to “deduct 100% of their contributions to a portable benefit account as a business expense, and independent contractors can deduct both the hiring party’s contributions and their own contributions as an adjustment to income.” This is a noteworthy policy that addresses some of the failures of gig employment.
California also adopted some new protections for gig-economy workers, first by prohibiting food-delivery apps from putting tips toward the base pay of their drivers, and second by allowing gig workers at rideshare companies to unionize.
Delaware passed a paid family medical leave law that provides “up 12 weeks of paid parental leave, 6 weeks of paid family caregiver leave, or 6 weeks of paid medical leave in an application year.”
Oregon now allows striking workers to collect unemployment benefits after two weeks without pay.
That’s all great news. As we’ll see in the next item, though, the picture for American workers in 2026 is anything but rosy. The economy is still suffering from high prices driven partly by the Trump administration’s campaign of tariffs, the forced deportation of immigrants, further economic uncertainty due to the Trump administration’s erratic foreign policy and open corruption, and a job market that is working for people in the wealthiest ten percent but falling behind for everyone else.
But it’s important to take a moment to acknowledge the fact that even in red states and counties, the minimum wage continues to rise. The American people, no matter what their political affiliation, still understand that workers are the most important force for economic growth in this country.
The popularity of the minimum wage should give you hope in this new year that the American people aren’t turning their backs on their fellow workers. Even if lawmakers and the super-rich seem hell-bent on pursuing a trickle-down agenda that enriches themselves at everyone else’s expense, they are outnumbered. The American people have accepted the truth about how the economy really grows—through expanding worker paychecks. And if that understanding directs how a majority of people vote at the ballot box in the midterm elections this November, we could wake up to a very different world on January 1st, 2027.
The Latest Economic News and Updates
The 2026 Labor Forecast Is Stormy
Even with the bigger paychecks and stronger protections I wrote about above, American workers are facing a difficult labor market in 2026. In their annual forecast for the new year, Goldman Sachs economists predict that the unemployment rate, which at the time of this writing is at 4.6%, will “not see a meaningful decline anytime soon.”
They continue, “we could easily imagine further unemployment rate increases in the near term if either productivity-enabling AI applications arrive more quickly than expected or company management teams increase their focus on lowering labor costs in 2026.”
In their annual new year forecast, analysts at investment firm Charles Schwab note that the K-shaped labor market we wrote about last week is particularly harming small businesses. They write, “over the past couple of years, small businesses with 20-49 employees have seen net job losses; firms with more than 500 employees have continued to hire aggressively. For the former cohort, weakness started to accelerate this summer, presumably when businesses started to feel more of a pinch from tariffs.”
Joseph Politano explained that last year was a particularly difficult one for blue-collar workers in fields like manufacturing, mining, and warehouse work. “In total, employment across trades and industry is now down 123k from the all-time peak reached in early 2025 and has been declining nearly every month since February,” Politano writes. “This is likely underselling the damage as well, since preliminary estimates for upcoming annual jobs data revisions suggest an additional loss of 100k manufacturing jobs and 30k construction jobs.”
These weaknesses are all adding up. Schwab’s economists write, “we expect the unemployment rate to continue to rise into 2026—albeit not at a recessionary-like pace—as we continue to see rolling recessions in certain industries (like manufacturing).”
Just yesterday, we got our first bit of economic data of 2026, in the form of the Job Openings and Labor Turnover Survey (JOLTS) for November of last year. The news for workers was largely not good, with hiring numbers and job openings both declining month-over month. Glassdoor Chief Economist Daniel Zhao reports that the sluggish hiring rate now rivals “the post-Covid low, and in a similar range as seen in 2013,” when the labor market was still dragging in the slow recovery from the Great Recession.
Zhao found some good news in this week’s JOLTS report. The spate of layoffs that seemed to be growing larger and larger all fall seems to have calmed a bit in November, falling “to 1,687,000 in November, down from 1,850,000 in October.” And more workers quit their jobs in November, too.
“Overall, October revisions and November rebound in quits make data look a little better,” Zhao writes, though he notes that the overall “trend doesn’t look substantially different. Sluggish hires rate is still the data point causing the most angst for workers as it has for the last 2 years or so,” he concludes.
This is not where you want American workers to be. A healthy labor market is like a spirited game of musical chairs, with plenty of workers leaving their jobs and finding employment for higher wages elsewhere. Right now, workers are largely staying seated because they don’t see any possibility of finding a better position in the near future, and they probably also know people who have been frozen out of the labor market for months. That’s not a path to sustainable economic growth for anyone.
Will “Affordability” Be the Word of 2026?
“It’s safe to say that inflation—and, by association, affordability…—has dominated the post-pandemic economic discourse for multiple reasons,” write Charles Schwab’s economists in their 2026 forecast. “First, the personal consumption expenditures (PCE) price index has been above the Federal Reserve’s 2% target for four and a half years. Second, price levels remain egregiously above where they were before the pandemic; and third, there has been upward pressure on inflation from elevated tariffs and a largely resilient services sector.”
It’s important that Schwab notes tariffs as a major factor in higher prices. Later in the same report, they note that “analysis from the Tax Foundation shows that tariffs have raised overall retail prices by nearly five percentage points relative to the pre-tariff trend.”
They don’t expect those pressures to disappear this year. “While uncertainty associated with tariff policymaking has subsided in the second half of 2025, we think tariffs will remain a dominant macro theme in 2026,” they write. “We expect to remain in a high-tariff world, with the average effective tariff rate on U.S. imports still well into double digits; and while we think companies will continue to implement cost mitigation efforts (such as low hiring) to avoid steep price increases for the end consumer, there might be thinner profit margins as inventories are worked down.”
Schwab’s economists then make a prediction that nobody wants to hear: “We think the world will have to get used to more volatile and stubborn inflation.” They continue, “we see some risk that inflation moves higher [in 2026] but recognize that if the labor market were to deteriorate faster than expected, a decline in income growth would ultimately be disinflationary.”
So rising prices are likely to continue to be a subject of debate for the next year—and they’re quite possibly going to be the deciding factor in the midterm elections in November.
But in the face of Schwab’s dire prediction, what can government actually do to bring down prices for American consumers right now? Many of the processes that we know will ultimately bring prices down will also require time and concerted, sustained effort to play out. For instance, breaking up monopolies in food production and grocery retail are excellent long-term goals that would bring down the price of groceries, increase the wages of workers, and increase choice for consumers, but that’s a project that would take years to unfold. The American people are demanding some sort of immediate relief.
For the New York Times, former Biden administration chief economist Jared Bernstein listed four areas in which government could lower prices for Americans on a relatively speedy timeline:
“In the most expensive counties, child care can cost more than $20,000 a year, a burden for even relatively high-income families,” Bernstein writes. But the good news is that “Recent research reveals that robust public investment in the child care sector quickly elicits new supply, and new supply restrains price growth.”
And housing is also putting immense pressure on American families, with more than half of all renters spending more than a third of their income on housing. “A new plan from the Center for American Progress that I helped write argues that the federal government should use its leverage to encourage undersupplied communities to finance new affordable multifamily housing, expand the production of modular housing and scale up existing local programs that are eliminating barriers to affordable home building,” Bernstein writes.
“Our health system is twice as expensive as those of our international peers, suggesting that the government could spend less and consumers could pay less — though many with their hands in the U.S. health-care cookie jar would earn less.,” Bernstein continues. “As the Stanford University economist Neale Mahoney and I recently argued, that would require loosening rules that restrict the supply of medical professionals, capping hospitals’ and doctors’ charges, lowering the Medicare eligibility age and allowing federal agencies to negotiate lower prices on many more drugs.”
Finally, “Electricity costs were essentially flat for the five years before the Covid-19 pandemic, then climbed about 40 percent between 2020 and 2025,” Bernstein notes. “Politicians are starting to run, successfully, on capping electricity rates and forcing energy-gobbling data centers to pay more of the costs of adding them to the grid. Reversing Mr. Trump’s drive to halt the building of renewable energy projects would also help. Despite his efforts to pull the plug, renewables are, by far, the fastest-growing and least expensive sources of increased supply.”
I fully expect the first few months of 2026 to feature a vibrant conversation about economic policies to increase affordability for working Americans, and Bernstein’s good ideas are definitely a worthy contribution to the debate. I’ll feature the best and most helpful conversations here in upcoming issues of The Pitch.
But we should also make sure to remember that affordability is only one half of the equation. Candidates who run on an affordability agenda should also remember that raising the paychecks of workers is a significant tool when it comes to making life more affordable. We can’t forget that we need Americans to work and take home big paychecks in order to grow the economy for everyone—and those big paychecks will help them weather the storm of high prices that have dominated the conversation for the past four years. We can do that by raising the minimum wage, increasing the overtime threshold to ensure that every hour over 40 that a worker puts into a week is compensated at time-and-a-half, and increasing protections for workers who want to unionize.
It’s important to keep workers in the center of the conversation because trickle-downers are already adapting their language to blame workers for higher prices. A staffer for a trickle-down think tank recently published a ridiculous op-ed in the Wall Street Journal arguing that labor costs are a major factor in the affordability crisis.
This argument is absurd on its face—you can’t pay people less as a way to combat higher prices, particularly when those higher prices are clearly padding the record profit margins of huge corporations. But more arguments like this are coming, and we need to make sure that we keep American workers and their families at the center of everything we do. After all, those workers are the reason why the American economy is the powerhouse that it is in the first place.
This Week in Trickle-Down
The Economic Policy Institute looks at the new “Trump Account” program that the administration claims will fight child poverty. Instead, EPI finds that “Trump’s voluntary savings accounts are poised to widen wealth disparities for generations. The more resource-constrained families will be unable to keep up with the contributions of their more affluent peers—broadening inequities in wealth even further.”
We don’t often focus on the United Kingdom’s economy, but Lauren Almeida at the Guardian spotlights a compelling metric that American economic organizations should adopt. The High Pay Centre looked at the exorbitant annual pay of CEOs at the 100 largest British corporations compared to the annual pay of their average workers. For the year of 2026, “UK bosses will exceed the average annual pay of staff in less than 29 hours of work, or by about 11.30am on Tuesday if they started work on Friday 2 January,” Almeida reports. If it takes you less than three-quarters of a workweek to earn what your average employee makes in a year, either you’re hugely overpaid or your workers are hugely underpaid—or, most likely, both statements are true.
Mark Dent at The Hustle writes about the shocking decline of retirement pensions for American workers. He writes that roughly “88% of Americans employed in the private sector had defined benefit retirement pensions in 1975,” while that number has now declined to 33%. State and local governments, however, remain very strong, with 92% of workers having defined-benefit pensions.
This Week in Middle-Out
On Bluesky, M. Nolan Gray points out that we’re starting to see real evidence that, contrary to the claims of anti-growth trickle-downers, building a lot of housing drives down rents in existing housing. You can read more about this at the States Forum.
This Week on the Pitchfork Economics Podcast
The podcast is starting 2026 with an episode that sets the table for a year of robust economic conversations. Nick and Goldy talk with English journalist George Monbiot and American journalist and author Binyamin Appelbaum about how neoliberalism was deliberately built and sold to the American people. The fact that trickle-down wasn’t an inevitable, natural development offers a blueprint to build a more progressive economic framework focused on American workers, not just the super-rich and CEOs.
Closing Thoughts
Last week, I wrote about the K-shaped economy that has worsened over the last few years, in which income, wealth, consumer spending, and jobs are all funneled up to the wealthiest ten percent or so of Americans, while 90% of working Americans lose ground on all those fronts. I argued that this massive and growing inequality was the end result of 40+ years of trickle-down economic policies adopted by politicians on the right and left side of the aisle—policies that enriched the wealthy at the expense of everyone else.
When a small group of economic commentators first rang the alarm bell on the K-shaped economy back in 2021, many experts dismissed our concerns as a momentary blip caused by the pandemic or a biased reading of the numbers. But over the next four years, that gap between the haves and have-nots continued to grow, to the point that the wealthiest ten percent of Americans are responsible for roughly half of all consumer spending in America.
“For middle and lower-income Americans, spending has barely budged. Households in the 40th to 60th income percentile spent about $2.1 trillion in the second quarter of 2025 — almost unchanged from what they spent in 2023 and 2024,” writes Danielle Antosz at Moneywise, adding that “consumers are still grappling with elevated cost of living from pandemic-era surges, with federal data showing prices are roughly 25% higher than they were in 2020.”
So working Americans are spending the same as they were three years ago, but that money isn’t going as far. In other words, 90 percent of American families are losing wealth.
“All of this leaves the broader economy more vulnerable. Because consumer spending accounts for about 70% of GDP, relying so heavily on a relatively small slice of the population creates a structural risk,” Antosz continues. “If high earners cut back because of job losses, stock-market volatility, or falling home values, their restraint could ripple throughout the economy.”
If you’re a regular reader of The Pitch, none of this should come as a surprise to you. But the number of people warning about the K-shaped economy has grown over the years, and the number of skeptics has dwindled. But as of last month, the K-shaped economy has broken into the mainstream of American economic policy. The Charles Schwab 2026 economic outlook I mentioned earlier in this issue even devoted an excellent graphic to the growing threat of the K-shape:
And in fact, this problem has become large enough that the Federal Reserve can’t ignore it any longer.
As Heather Long pointed out last week, the notes from last month’s Federal Reserve meeting directly raise concerns about economic inequality.
The notes suggest that a “majority of participants” in the December Fed meeting “mentioned evidence of stronger spending growth for higher-income households, while lower-income households had become increasingly price sensitive and were making adjustments to their spending in response to the outsized cumulative increase in the prices of basic goods and services over the past several years.”
While it may not seem like a big deal that the Fed acknowledges the economic data that everyone else can clearly see, the reality is that this is a significant development. The Fed is a cautious and slow-moving institution, and it tends to keep commentary at a very high level in order not to throw the markets into turmoil.
For a majority of the Fed membership to acknowledge that working families are spending more in exchange for less is a big deal. It correctly identifies the biggest problem plaguing the American economy today—a flaw that could imperil the entire economy if it continues unabated.
There can be no doubt, now that the Fed has chimed in, that inequality is the largest problem facing our economy this year. Hopefully, this indicates that the Fed will weigh their future decisions on how they will impact working Americans first and foremost. Because those workers are the real backbone of the economy. Their paychecks create jobs and spur economic growth for everyone. Simply handing wealth over to those at the top of the economy, as we’ve been doing, creates a brittle, unsustainable, and lopsided economy that benefits no one in the long run.
Be kind. Stay strong.
Zach