Populism won’t help U.S. workers. Here’s what will

New York Mayor elect (then candidate) Zohran Mamdani speaks at a rally in New York City on Oct. 26, 2025. (Lev Radin via Shutterstock)

We live in a populist age. Widespread discontent has swept unlikely politicians to the top of both political parties, and those politicians are pursuing unorthodox policies to respond to the concerns of the American people, with a particular focus on workers.  

This impulse can be seen on both the left and the right. In 2017, President Donald Trump declared that “The GOP will be, from now on, the party of the American worker.” Following the 2020 election, then-Senator Marco Rubio argued that the future of the GOP is “based on a multiethnic, multiracial, working-class coalition.” On the left, Senator Bernie Sanders has also stressed the importance of the working class, declaring on X in 2024 that “it should come as no great surprise that a Democratic Party which has abandoned working class people would find that the working class has abandoned them.” More recently, while running as the Democratic nominee for mayor of New York City, Zohran Mamdani actively sought to cast himself as the true tribune of the working class, stating, “I’m fighting for the very working people that [President Trump] ran a campaign to empower, that he has since then betrayed.” 

Critics of populism – myself included – should be among the first to acknowledge that this impulse to focus on the problems facing American workers is both welcome and long overdue. Unfortunately, the solutions being offered by today’s populists – namely protectionism, nationalism, and larger, more heavy-handed government – simply won’t fix the problems they purport to solve. But what reforms would? How, in a populist age, can policymakers actually deliver more prosperity to the Americans who need it most?  

What propels populism? 

Before answering those questions, it’s important to diagnose how U.S. politics ended up in its current state. The conventional narrative – that decades of globalization led to a hollowed-out workforce and decimated communities, that the game is rigged against typical workers and households, that workers’ wages have been stagnant for decades, and that elite business leaders have increasingly relied on inexpensive immigrant workers – has some elements of truth. But it is largely inaccurate.  

Instead, I trace the real origins of our current populism to the 2008 financial crisis. The recession it caused and the painfully sluggish recovery that followed created significant hardship for Americans. In the United States, the inflation-adjusted median wage did not recover its 2007 level until 2014. In other words, for over half a decade, more than half of U.S. workers lost ground. This backsliding led many Americans to question the fairness of the country’s economy. Washington’s decision to rescue Wall Street but not provide direct relief to homeowners also fueled the sentiment that the system was rigged in favor of the rich.  

The 2008 crisis was global, however, and many other countries also experienced surges of populist politics in response. That fact strongly suggests that the explanation for the rise in populism must go far beyond economic policies or conditions specific to the United States. This country’s recent experience is also broadly consistent with the historical record: Economists studying advanced democracies in the 19th and 20th centuries have shown that populism often surges following financial crises, with politics then normalizing, on average, a decade later.  

 In my judgment, the United States followed this broad pattern in the 10 years after the 2008 crisis. By 2018 and 2019, the country’s politics felt like they were normalizing. Public support for immigration, globalization, and U.S. global leadership was strengthening in those years. Joe Biden, not Bernie Sanders, won his party’s 2020 presidential nomination. And the populist candidate – President Trump – lost the general election that year. But the COVID-19 pandemic poured gasoline on the populist fire – in part by increasing skepticism of public health and other elite decision-makers.   

A protest outside the New York Stock Exchange during the global financial crisis on Sept. 25, 2008. (AP Photo/Spencer Platt)

The wrong arguments 

Populism is a term often used but seldom defined. The last few paragraphs hint at a definition, but don’t offer a specific one. So let me provide one here. Populism is best thought of as being characterized by three elements. The first is a worldview that pits “the people” against “the elites” in a zero-sum struggle. The second is a desire to turn inward, which manifests as hostility toward international commerce and, on the political right, hostility toward immigrants. Finally, populism typically also features a pessimism about current and future economic and social outcomes, which manifests as nostalgia for an imagined past.  

By postulating a zero-sum struggle between the powerful and the powerless, the populist worldview denies people agency and indulges a narrative of grievance and victimhood. This worldview manifests itself in certain kinds of diagnoses of America’s problems – for example, the claim that “every billionaire is a policy mistake,” that the game is rigged, that many people are forced to work in dead-end jobs, that income is distributed rather than earned, or that globalism and immigration and economic dynamism are good for elites but bad for typical workers and households. All these claims are analytically incorrect. 

Misguided as they are, however, these arguments are politically popular, and they lead to policy solutions that would be harmful to workers. Among them: Attempting to promote domestic manufacturing through protectionist measures like trade wars. Slashing immigration. The government taking equity stakes in private companies. Expanding the middle-class entitlement state. An indifference to the costs of populist policies in terms of lost economic growth.  

As I have shown elsewhere, none of these policies, if adopted, would advance the interests of U.S. workers. Large increases in tariffs will have three effects on employment in the manufacturing sector. Protection from foreign competition would make domestic manufacturers more competitive, which would likely boost employment. But by increasing the cost of intermediate inputs – many of which are imported – into the production of final goods, tariffs would make domestic manufacturers less competitive, which would decrease employment. And retaliation by other nations would decrease employment in domestic manufacturing firms focused on exports.  

The economists Aaron Flaaen and Justin Pierce have studied the 2018-2019 trade war, carefully measuring each of these three effects. They found that for every manufacturing job gained due to protection from import competition, five were lost due to higher input prices, and three were lost due to retaliation.  

Though tariffs are often described as consumption taxes, the majority of U.S. imports are not final consumer goods, but intermediate inputs imported by businesses. In each quarter of the years 2023 and 2024, between 54% and 56% of U.S. imports consisted of industrial supplies and materials, capital goods – such as machinery, buildings, equipment – and automotive engines and parts. Given the composition of these imports, it makes sense that tariffs would hurt most U.S. workers more than they would help. That truth can perhaps best be illustrated by considering the steel industry. For every one job in steel production that would be helped by tariffs, there are 80 jobs in occupations that use steel that would be hurt by tariffs. 

Slashing immigrant inflows at a time of declining fertility among native-born Americans, meanwhile, would slow both current and future economic growth. And the demonization of immigrants – a feature of the populist right, not left – risks diminishing America’s role as a global magnet for some of the most talented, risk-tolerant, and ambitious foreign-born workers. This trend will have major implications for long-term innovation and growth. 

Expanding the middle-class entitlement state – by, for example, establishing a single-payer health care system or by providing a universal basic income to all parents, as many on the populist left would like – would crowd out private-sector investment, lowering productivity and workers’ wages. In August, President Trump directed the government to take an equity stake in the chip-maker Intel. If this trend spreads to other companies, it will exacerbate crony capitalism and the misallocation of capital, leading to a less productive workforce that earns lower wages.  

Populists in both parties argue that the United States has overemphasized the importance of economic growth and material prosperity. This view has perhaps been most forcefully promoted by Senator Sanders, who in 2015 seemed to argue that the pursuit of such growth has come at the expense of solving economic and social problems. “You can’t just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems,” he said. “You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.” President Trump has made a somewhat similar argument. In April of this year, when pressed about the slowdown in economic growth that would follow his trade war, the president dismissed the concern, saying, “maybe the children will have two dolls instead of 30 dolls. So maybe the two dolls will cost a couple bucks more than they would normally.” 

Of course, the objective of economic policy should not exclusively be to maximize the growth rate. But no U.S. president, Republican or Democrat, has ever made that their exclusive goal. And aggressively deprioritizing economic growth in favor of populist policies like protectionism and universal benefits would hurt workers, lowering their wages, and (by definition) reducing long-term prosperity. 

A cosmetology class on Feb. 8, 2019, in Dubuque, Iowa. (Jessica Reilly/Telegraph Herald via AP)

What works for workers 

If populist solutions won’t work, what would? I propose a four-part agenda designed to increase participation in economic life and foster upward economic mobility. First, policymakers should remove barriers that currently block such upward mobility. Second, they should encourage greater participation in the workforce. Third, they should advance policies that will increase skills. Fourth, they should encourage business investment. Below, I discuss some illustrative policies that would advance each component of this agenda (but my list of examples is not meant to be exhaustive). 

American workers today face substantial barriers to upward mobility. To acquire a cosmetologist license requires an average of 342 days of education and experience – almost 10 times more time than is required to become an emergency medical technician (36 days). Of course, some licensing rules promote public health and safety. But many occupational licenses are little more than barriers to entry established by incumbents to reduce competition. Indeed, the evidence suggests that occupational licenses reduce wages for typical workers.  

Another type of barrier consists of safety net programs that unintentionally reduce upward mobility by discouraging work. The Social Security Disability Insurance (SSDI) program is a good example. Many SSDI recipients likely could work part time or in certain occupations, but fear doing so because it could mean losing access to their disability benefits. This program should be reformed in a way that encourages part-time work. 

Similarly, standard unemployment benefits currently subsidize unemployment, increasing the duration of joblessness. Reemployment bonuses, by contrast, would reward unemployed workers when they secure employment. In a recent study I wrote with my AEI colleague Duncan Hobbs, we found evidence that reemployment bonuses could increase employment following downturns in the labor market.  

Data from the U.S. Bureau of Labor Statistics show that more than one in 10 American men between the ages of 25 and 54 currently do not participate in the workforce. In the 1950s, only two in 100 men in that age range were not employed or looking for work. And after considerable gains in the previous decades, the participation rate of American women in the workforce has been roughly flat for the past 30 years. These figures point to a serious economic problem: The potential contributions of millions of people are not being realized, which is depriving society of their talents and energy. The problem is also a human one; for many people, work is an indispensable part of a full and flourishing life. A holistic understanding of promoting long-term prosperity should include promoting high rates of workforce participation, with a particular emphasis on the participation rates of low-income households.  

The earned income tax credit (EITC) is one of the most successful antipoverty programs in the United States, annually lifting several million children out of poverty. It does this in part by encouraging workforce participation; indeed, the credit is only available to low-income households with a working adult, and it increases in generosity as household labor-market earnings grow over their initial range.  

The economist Diane Whitmore Schanzenbach and I have looked comprehensively at the EITC, studying all five federal expansions that have occurred since the program’s introduction in 1975. We found that a $1,000 increase in the size of the maximum credit is associated with a roughly 3 percentage point increase in employment among the credit’s targeted population. This is a sizeable impact.  

The generosity of the EITC has increased over the years, with the focus being on lower-income households with dependent children. Credit expansions have not focused on households that do not support kids. But given the increase in joblessness among working-age men, an expansion of the credit for childless adults would be reasonable. In 2024, the maximum credit allowed for members of this group was $632 per year. Doubling that credit would materially increase employment among low-income and working-class men. 

Workforce training programs are often criticized as ineffective, but in recent decades, substantial progress has been made in designing programs that effectively increase skills and wages. Sectoral training programs that target industries with strong demand for labor, as well as work-based learning models, such as apprenticeships, have been found to be particularly promising. Implementing such programs still faces significant hurdles, to be sure, including how to scale up successful models. But a pro-worker government could dive into this space, determine what works and what doesn’t, and provide resources to expand these opportunities for workers to build their skills and increase their wages. 

Finally, a pro-worker agenda should include policies to increase business investment. Additional investment in equipment, structures, and technology would increase the productivity of workers by allowing them to produce more goods and services for every hour they work. As workers become more productive, businesses would compete more aggressively for their services, driving up wages. President Trump has done a lot to increase investment by signing into law a substantial reduction in the corporate income tax rate in 2017 and by changing tax policy in 2025 to allow businesses to fully deduct the costs of certain investments in the year the spending occurs rather than over time. But more can be done to incentivize business spending, including further reductions in the corporate tax rate and in capital income taxation more broadly. Because higher deficits will reduce private investment and workers’ wages, these reductions should be offset with reductions in spending in entitlement programs aimed at the middle class, most notably Medicare and Social Security.  

One of the best things about populism is that it forces politicians to focus more on workers. But the policies currently being offered up by populists in both parties would actually hurt the economic outcomes of lower-income and working-class Americans. What those workers need instead is an agenda based on increasing opportunity and workforce participation by removing barriers to success, increasing workers’ skills, and fostering a climate of investment and productivity growth. Americans deserve to lead full and flourishing lives, and for many that requires the opportunity to earn their own success in the labor market. Nostalgia for an imagined past won’t lead to mass flourishing. A focus on opportunity and mobility will.