Half of Every Dollar: How Household Debt Eats Into Workers’ Income Gains

Executive Summary

For years, the headline economic data describing workers’ well-being have been weak: over the year ending in August, the most recent data available, real earnings fell by 0.1 percent when accounting for inflation. Where income gains have occurred, they have largely accrued to higher-income households, reinforcing what economists often call the “K-shaped” economy.

But wage measures alone do not capture the full financial pressures facing workers. They measure income without accounting for the debt payments that households must make before they can use their earnings for housing, food, healthcare, and other necessities. As debt obligations take up a growing share of income, conventional measures of real earnings increasingly understate workers’ financial insecurity.

This report changes that equation, by comparing workers’ income growth with the growth of their debt obligations since the end of 2022. The Century Foundation and Protect Borrowers combined credit records for millions of working-age adults with neighborhood income data, measuring each worker’s debt payments against the typical household income where they live, to map an affordability crisis that is significantly worse than wage data alone suggests.

More than half of a typical worker’s raise goes to debt payments.

• Since the end of 2022, real take-home income for a typical household rose about $109 a month. Meanwhile, over that same period, a typical worker’s debt payments rose $57. Meaning that, if the household has one earner, 52 cents of every dollar a worker gained went to paying down their debt before they could actually spend it on other things.
• In a household with two earners, each carrying the average debt increase, combined payments rose about $114, compared to the household’s $109 rise in income. In other words, the household’s entire real income gain was lost to debt, and then some.
• Across the same three years, real debt payments grew more than eight times as fast as real household income—14.8 percent compared with 1.7 percent, respectively.
• Workers in the lowest-income neighborhoods lost 72 percent of their income gains to debt payments, compared with 32 percent for workers in the highest-income neighborhoods.

Debt payments now claim roughly 10 percent of household take-home pay.

• About 80 percent of working-age adults carry consumer debt, and their required monthly payments now claim roughly 10 percent of after-tax household income, up from 8.9 percent at the end of 2022.
• Credit cards and auto loans drive most of this burden. Roughly seven in ten adults with credit records have a credit card, and those payments account for 44 percent of monthly debt obligations. Auto loans come next, at 40 percent, and carry the highest median payment, at $471 a month.

The bills are nearly the same up and down the income ladder, but paychecks are not.

• Debt payments do not scale with income. For example, the median car payment is $462 a month for workers in the bottom fifth of household income distribution and $495 in the top fifth. The median credit card payment for those groups is $121 and $140, respectively.
• That bundle costs $582 a month,17 percent of typical take-home pay for workers in the lowest-income neighborhoods. At the top, that bundle is $635 and represents just 7 percent of typical take-home pay. When factoring in student loan payments, the gap widens to 21 percent compared with 9 percent.
• Nearly one in twenty workers in the bottom fifth owes more than 40 percent of typical take-home pay in their neighborhood to debt service, more than seven times the rate for workers in the top fifth.

Even good credit doesn’t close the large racial gaps that exist.

• For the average Black worker, required consumer debt payments equal 13.3 percent of estimated after-tax household income, compared with 10.7 percent for Hispanic workers, 9.4 percent for white workers, and 6.8 percent for Asian workers.
• These disparities are not explained by differences in creditworthiness. Among super-prime borrowers, Black workers’ payments still claim 13.6 percent of take-home income compared with 8.4 percent for white workers. The racial gaps exist within every credit tier and income quintile.

The situation is about to get worse for many workers, and every number here is a conservative floor.

• Student loans currently account for only 7.5 percent of debt payments, but that is due to a repayment system in administrative turmoil and litigation that has trapped millions in forbearance.
• For example, millions of borrowers will need to take action in order to keep a payment that they can afford or be pushed into a standard ten-year repayment schedule. Under this typically more expensive repayment option, the debt burden for Black women with student loans would rise from 15 percent of household income to 23 percent.
• Our data does not account for all debt owed, such as personal loans, Buy Now, Pay Later (BNPL) loans, and medical debt. We estimate that we capture 85 to 90 percent of household debt payments. The remaining, unmeasured debt is concentrated among lower-income and Black and Hispanic households—making the disparities described in this report even more stark in reality.

Rising consumer debt is a labor market issue.

• High debt burdens limit workers’ bargaining power. A worker who cannot afford a short interruption in income because they have high debt payments has less ability to leave a job, negotiate for higher pay, or withstand a period of unemployment.
• This shows up in a labor market where hiring has stalled and the quit rate has been stuck at 1.9 percent for months.
• None of this is captured by standard measures of real income. As such, the authors propose a new economic measure, Real Income Net of Debt, or RIND, which would capture the drag of debt on workers, and thus provide a more complete and accurate picture of households’ financial stability.

Introduction

Americans all across the economy are facing an affordability crisis. Everything from housing to child care to groceries is becoming too expensive for the average family to afford. The debate around affordability usually centers on only two dimensions, wages and prices, but fails to take into account the growing debts that working families have been forced to take on to make ends meet. The liability side of household balance sheets is a critical missing piece from this framework. You cannot assess whether workers can truly afford to live without accounting for what they owe and more recently, working families are finding themselves in unprecedented levels of household debt. Debt is also a crucial lens through which to assess the labor market, and belongs in the conversation with wages and prices.

Low wages are a root cause of the affordability crisis. Labor’s share of national income is currently at its lowest level¹ post-World War II. More recently, workers have seen sluggish income growth that is outpaced by rising inflation.² When workers can no longer afford to pay for the things they need, they resort to taking on debt. Over time, servicing this debt magnifies the affordability challenge and traps workers in bad jobs. Debt erodes the purchasing power of real income the same way inflation erodes the purchasing power of nominal wages. Workers with high debt-to-income ratios face a compound disadvantage. As prices rise and wages stagnate, debt obligations consume an ever-larger share of take home pay.

Our calculations indicate that, since the end of 2022, required monthly debt payments for working households grew more than eight times as fast as real take-home income;³ with the Federal Reserve hiking interest rates earlier this month,⁴ debt payments are likely to grow even faster. And just as inflation hits households differently,⁵ debt is not a burden shared equally across the workforce. Women and workers of color carry the heaviest debt loads relative to their earnings and have the thinnest cushion of savings and wealth to fall back on when obligations come due. Debt also functions as a labor market anchor. It suppresses mobility because workers can’t afford the transaction costs of changing jobs, and it gives employers more leverage over workers who cannot credibly threaten to leave, further eroding worker power.

This report will first look at how the rising cost of household debt is creating a drag on worker income and then propose a new economic metric that reflects workers’ debt burdens. It will then examine how various forms of debt are rising and how they impact households differently. Arguing that the rising burden of debt signals a failing labor market, the report will conclude with recommendations for policy approaches to help address rising household debt across the economy.

Rising Household Debt Payments Are Eating Up Income Gains

Workers are being squeezed from all sides. The standard metrics used to describe the economy are systematically understating how bad it has gotten. Viewing the affordability crisis by looking just at wages and inflation misses workers’ growing debt obligations that eat into real wages and strain budgets before households can think about purchasing the things they need.

On their own, the headline economic numbers already look weak. Inflation is eroding purchasing power as prices rise faster than wages. Over the year ending in August, average hourly earnings increased 3.1 percent,⁶ but adjusted for inflation, real average earnings fell 0.1 percent over the year. Workers actually saw a pay cut in real terms. Furthermore, analysis that looks only at the average worker conceals the K-shaped economy we are currently experiencing. Real wage growth is concentrated at the top of the income distribution. Higher-income households saw their after-tax wages climb 6 percent over the past year⁷ and everyone else saw wages slip behind inflation. Americans in the top 20 percent of the income distribution account for nearly 60 percent of spending.⁸ Topline GDP and spending figures are increasingly propped up by a narrow slice of wealthy households.

Looking longer term, over the past five years, real earnings for typical workers have grown,⁹ portraying a positive picture of workers’ financial standing. But over that same period, household required monthly debt payments as a share of disposable personal income have been steadily rising as well.¹⁰ Inflows have increased, but so have outflows, leaving workers more squeezed than the headline wage numbers suggest.

The working class is losing real purchasing power at the same time their debt balances are growing as a share of income. Even the modest wage growth lower- and middle-income workers do manage to get is increasingly absorbed by debt payments before it reaches a household’s discretionary budget. Household debt payments as a percentage of income have risen for six consecutive quarters, from about 9 percent in 2021 to about 11 percent today.¹¹ Meanwhile, lower-income households carrying disproportionate shares of consumer debt have a much higher ratio of debt to income. Total household debt hit $18.8 trillion this year,¹² an increase of 33 percent since just before the COVID-19 pandemic. Credit card balances alone are approximately $1.27 trillion.¹³ Auto¹⁴ and student loan debt¹⁵ are similarly large and growing.

Nationwide survey data from The Century Foundation¹⁶ shows that nearly three in four working-class people carry some form of debt, such as student loans, auto loans, medical debt, personal loans, or credit card balances. The same survey found that working-class respondents are considerably more likely than college-educated workers to fall behind on bills and turn to costly financing such as Buy Now, Pay Later (BNPL) schemes, so-called earned wage access (EWA) programs, or payday loans to bridge the gap between wages and costs of living. Lower incomes and heavier reliance on debt are challenges that compound each other, so the debt-drag problem is not evenly distributed across the workforce but rather is concentrated among the workers who already have the least room to absorb a shock.

Tracking Affordability Requires a Metric That Reflects Workers’ Debt Burdens

The current economic debate uses gross income to determine whether workers can afford a comfortable life. Real wage growth, which adjusts for inflation, is still a gross measure of income that does not capture what workers actually have left to spend after their bills are paid. A worker earning $20 an hour with no debt obligations has a very different economic reality than a worker earning $20 an hour who owes $500 a month in student loan payments, $200 a month in medical debt installments, and carries a $10,000 credit card balance at 20 percent APR. The first worker has an affordability problem; the second is in a true economic crisis. Residual income after fixed debt obligations is a more realistic affordability metric than gross pay alone.

To truly capture the financial well being of American workers, it’s essential—yet still rare—to consider the impact of debt on a household’s balance sheet. This report does that, applying the term debt drag to define the share of real income growth consumed by rising debt obligations. Calculating debt drag captures how much income workers actually have left over to spend after accounting for both inflation and debt payments. This is the amount actually making it to workers’ pockets, influencing how they feel about affordability and the economy.¹⁷ Standard affordability measures only track what an employer pays out, adjusted for the cost of goods and services.

This report measures the burden of debt drag directly. The authors joined credit records for millions of working-age adults with neighborhood income data from the American Community Survey and consumers’ documented monthly debt payments against after-tax household income. These required debt payments are measured for each worker individually, while income is the estimated median household income for the worker’s census tract and racial group. A household with two workers therefore carries two sets of debt payments against one household income, and its combined burden runs higher than any single worker’s figure suggests. Debt for this analysis covers student loans, auto loans and leases, credit cards, and home equity lines. 

Roughly 80 percent of working-age adults hold consumer debt. For them, required monthly debt payments now consume roughly 10 percent of household take-home income, up from 8.9 percent at the end of 2022.

Roughly 80 percent of working-age adults hold consumer debt. For them, required monthly debt payments now consume roughly 10 percent of household take-home income, up from 8.9 percent at the end of 2022. (See Figure 1.) Notably, these figures are conservative floors, since credit files miss several key types of debt obligations. Our next section details what our measure can and cannot see, as well as who carries debt.

FIGURE 1

The two sides of the ledger—income and debt—have moved very differently. Since the end of 2022, real household take-home income grew 1.7 percent while required monthly debt payments for the same workers grew 14.8 percent. (See Figure 2.)

FIGURE 2

A wage measure that reports only the inflow side of that ledger will always overstate how much better off workers actually feel. Tracking whether workers can afford to buy the things they need requires a measure that captures debt drag.

The authors of this report propose a new macroeconomic indicator, Real Income Net of Debt (RIND), that would provide a more accurate, well-rounded picture of workers’ financial health.

In this report, we demonstrate how RIND could be used in practice. For the “RIN” (real wage income), we rely on after-tax household income built from Census tract-level data from the American Community Survey (ACS). For the “D” (debt payments), we analyze households’ real debt obligations, based on nationally representative credit panel data of U.S. consumers.¹⁸ All results are four-quarter averages ending in the first quarter of 2026.¹⁹

RIND is proposed not as a replacement for measuring real wage growth, but rather as a complementary, more complete picture of the financial stability of American workers. RIND’s value becomes even more apparent when considering that certain groups of people are much more likely to carry significant debt, including workers of color, women, and low-income workers. RIND captures that: it tracks what happens to a workers’ income after it leaves the paycheck and before it becomes discretionary spending.

Wage and inflation measures that ignore debt payment obligations give policymakers and advocates an incomplete look at household financial health. Labor market analysis that reports steady wage growth without considering the drag of debt does not match workers’ lived experience in the economy. Some analysts point to resilient consumer spending as evidence that households are thriving, but this misses the mark in two ways. First, spending sustained by rising debt means households are borrowing more to maintain a standard of living their wages no longer support. This is neither sustainable nor a sign of financial health. Second, consumption has become increasingly concentrated among higher-income households. Aggregate spending trends mask middle- and lower-income households increasingly relying on debt and still falling further behind.

RIND answers the urgent question of how much workers actually keep from their earnings. By tracking Americans’ real income growth after their debt payments, alongside traditional wage growth metrics, RIND allows policymakers to better assess whether workers are truly getting ahead in this economy, or if they’re falling further behind.

Types of Debt and Who Bears Them

Two debt sources dominate what workers pay every month. First, credit cards are near-universal debt. Seven in ten working-age adults with credit records carry at least one card, and cards account for just over 44 percent of estimated consumer debt payments, with the median balance over $3,200.

Auto debt is the second largest pillar, at around 40 percent of debt payments, and it carries the highest median payment of any consumer product, at $471 a month. Together the two products are more than four-fifths of the typical worker’s monthly debt payments.

Table 1

Worker debt, by type
Type	Share holding	Median balance	Median monthly payment	Share of consumer required monthly debt payments
Credit cards	69.6%	$3,242	$135	44.4%
Auto loans	31.1%	$16,146	$471	39.9%
Student loans	17.9%	$25,125	$189	7.5%
Home equity	4.3%	$30,599	$289	4.7%
Auto leases	2.7%	$9,134	$489	3.5%
Mortgage (for reference)	27.7%	$143,766	$1,259	—
Utility arrears (distress)	3.7%	$362	—	—
Note: Mortgages shown for scale and excluded from consumer debt service. Utility arrears appear on credit files mainly at delinquency, so the share holding is a floor on distress, not a measure of utility debt. Source: Authors’ analysis of the UC-CCP and ACS. Four-quarter averages ending March 2026, ages 25 to 64.

Critically, both credit card debt and auto debt are regressive—meaning those debt obligations hit the hardest for those who can least afford it. Unlike what one might expect under a proportional system, a monthly debt payment does not scale with income. For example, our analysis shows that the median car payment is $462 a month for those in the bottom fifth of household income and $495 in the top fifth, largely due to rising new and used car costs. The median credit card payment runs from $121 in the bottom fifth of household income to $140 at the top, despite these two groups having drastically different median after-tax incomes: $41,248 and $114,915 per household, respectively. Nearly identical bills often fall on workers earning very different paychecks, taking larger and larger portions of their income as you descend the economic ladder. A clear spillover effect links the two, with research showing borrowers carrying auto debt experience faster credit card balance growth.²⁰

While auto debt median payments do not vary much by income level, they weigh differently on household budgets across other demographic groupings. Auto debt is 44 percent of consumer debt payments for Hispanic workers and 42 percent for Black workers, against 39 percent for white workers and 36 percent for Asian workers. Where public transit is thin, a monthly car payment is a cost of holding a job, and it is the largest single drain on the paychecks of the workers of color, who keep the least after debt.

Student debt is also not a top-of-the-ladder phenomenon. Participation is nearly flat across the income distribution, at 17 to 19 percent in every quintile, and balances rise with income. Reported monthly federal student debt payments are small because deferral, forbearance, and income-driven plans suppress them (although that will likely change as the Trump administration eliminates²¹ the Saving on A Valuable Education (SAVE) and other income-based repayment programs). But the median balance of $25,125 is the largest of any non-housing debt, and the largest balances are borne by workers for whom the labor market pays least for a degree. More than one in four Black workers holds student debt, against one in five white workers and one in eight Hispanic workers, and the median balance for Black workers of $28,303 is the largest of any group. Black women stand at the peak: 32 percent hold student debt, the highest rate of any group, with the highest median balance among holders at $31,165.

The remaining debt products mark the two ends of the distribution. Utility arrears appear on a credit file mainly after delinquency, so they are a floor on distress rather than a measure of utility debt. That floor sits at 6.3 percent of workers in the bottom household income quintile against 2.2 percent in the top, and at 7.2 percent of Black workers against 3.5 percent of white workers. At the other end sit the debts that build wealth. A third of white workers carry a mortgage against a fifth of Black and Hispanic workers, and white workers hold home equity lines at more than twice the rate for Black workers. The pattern inverts cleanly. The groups that carry more of the debt that drains income hold less of the debt that builds wealth.

While the composition of worker debt payments by type does not shift much along the income ladder, the proportions do shift slightly as incomes go up (see Figure 3). Composition by type does vary more considerably by racial group, however (see Figure 4).

Black women sit at the intersection of race and gender and so often face a more severe financial challenge. They carry the highest average student loan balances of any demographic group, hold a disproportionate share of the $1.7 trillion in outstanding student debt, and are significantly more likely than white men or white women to hold any student debt at all. Add in higher medical debt,²² lower wages relative to white or male workers, and a higher likelihood of being a single head of household, and the RIND for a Black woman can fall dramatically below a white worker with the same nominal pay.

FIGURE 3

FIGURE 4

Everything above understates the bill. Our measure does not capture personal and debt consolidation loans, point-of-sale installment plans for furniture and appliances, most buy-now-pay-later credit (BNPL) products that a growing number of working families are having to rely on to make ends meet,²³ or medical debt held as provider payment plans. Some lenders report balances without scheduled payments, which drops those obligations from debt payment obligations entirely. And the student loan figures reflect a system still in administrative turmoil, with servicing breakdowns and litigation over repayment plans keeping millions of borrowers in forbearance. We estimate our measure captures 85 to 90 percent of household debt payments. The missing share is not evenly distributed.²⁴ Informal installment credit, BNPL, and medical payment plans concentrate among lower-income households and Black and Hispanic households, exactly where the measured burden is already heaviest. Every gap in the data pushes our numbers in the same direction: higher. The actual debt burdens are higher than we estimate, and the income workers keep is lower than our numbers show. Which means that the affordability crisis is worse than we can measure—and the recent Federal Reserve interest rate hike is likely to make it even harder for workers who rely on debt just to get by to get back on their feet.

Which means that the affordability crisis is worse than we can measure—and the recent Federal Reserve interest rate hike is likely to make it even harder for workers who rely on debt just to get by to get back on their feet.

How Growing Debt Burden Impacts Households Differently

Our data puts numbers on the squeeze that workers are facing. Since the end of 2022, required monthly debt payments for working households grew more than eight times as fast as real take-home income. Over that period, typical household take-home income for a worker’s tract was up about $109 a month in real terms, while that worker’s own debt payments rose by $57, roughly 52 percent of the increase in household income. In our analysis, debt service was measured per worker, while income is per household. A household with two working adults, each carrying the average increase, saw combined payments rise about $114 a month against $109 in income gains, meaning that the households’ entire real gain was surrendered to debt payments, and then some. This capture is not shared evenly, and its clearest gradient is class. Households in the bottom fifth of the income ladder surrendered 72 percent of their gains to debt payments, against 32 percent for the top fifth.

FIGURE 5

The racial gradient is more mixed. Black women surrendered most of their income growth to debt at 63 percent, but white men follow at 61 percent, and the clear outlier is Asian workers, whose incomes grew fastest. Gains capture is first a class story. The race and gender story in this report rests more on the burden levels, not on the capture rate. And because our measure misses some forms of debt that concentrate among the hardest-pressed workers, the true capture rates are higher for every bar in the figure.

Women hold a disproportionate share of the country’s student debt. Research shows²⁵ women hold two-thirds of student loan debt despite making up a smaller share of enrolled students. The persistent gender pay gap means the same loan payment eats up a larger slice of women’s real wage growth than it would for a man earning the same amount. Women also have higher rates of medical debt²⁶ than men, compounding the level of debt drag. Workers of color face similar dynamics. Black borrowers are more likely to carry medical debt²⁷ in collections than white borrowers, and more likely to hold unsecured debt in collections overall. In general, people of color pay higher interest rates²⁸ on credit so that a dollar of debt costs more to service, widening the gap between gross pay and what a worker keeps even more. Unlike measures built only on real wages, RIND shows how these groups experience a smaller improvement in actual income even when nominal pay is rising, because so much of that pay is already committed to debt.

Unlike measures built only on real wages, RIND shows how these groups experience a smaller improvement in actual income even when nominal pay is rising, because so much of that pay is already committed to debt.

Our analysis makes the disparity concrete. The average Black worker devotes 13.3 percent of household after-tax income to consumer debt service. For Hispanic workers the figure is 10.7 percent, white workers 9.4 percent, and for Asian workers 6.8 percent. These racial gaps survive within every credit tier. Among super-prime borrowers—the safest tier lenders recognize—Black workers’ payments still claim 13.6 percent of household take-home income, against 8.4 percent for white workers. (See Figure 6.) Even good credit doesn’t close the large racial gaps that exist. Table 2 reports the burden and what is left over for each group.

FIGURE 6

Table 2

Average debt payments and real income net of debt, by race and gender
Group	Debt payments, share of household take-home	Debt payments, share of own take-home	Household Real Income Net of Debt (RIND), $ per month
Black women	13.2%	21.1%	$4,177
Black men	13.6%	19.8%	$4,215
Hispanic women	10.2%	23.0%	$5,223
Hispanic men	11.2%	19.2%	$5,176
White women	8.9%	17.7%	$6,284
White men	9.9%	14.3%	$6,216
Asian women	6.4%	13.9%	$8,591
Asian men	7.4%	12.0%	$8,386
Source: Authors’ analysis of the University of California Consumer Credit Panel and 2020–2024 American Community Surveys. Four-quarter averages ending March 2026. Residual income is household take-home minus non-mortgage debt service in constant dollars.

A geographic analysis tells a similar story. Monthly debt payments claim nearly twice the share of household income for workers in Mississippi and Louisiana than it does in Washington, D.C. or Seattle. The burden is highest exactly where incomes are lowest. (See Figure 7.) That is what an affordability problem looks like.

FIGURE 7

A decomposition of the monthly gap makes the mechanism explicit. Measured against white men, most of each group’s residual income shortfall comes from lower household income. Heavier debt service then adds a further penalty for Black and Hispanic workers. Debt deepens a gap that low income opens.

The same pattern runs the whole income ladder. (See Figure 8.) A worker’s debt service payments claim 14 to 23 percent of household take-home income in the bottom fifth of income and 5 to 8 percent in the top fifth, and the racial gap appears within every quintile.

FIGURE 8

Note: Asian households show the highest burden in the bottom fifth. That group most likely mixes students and recent immigrants with low measured income against real debt.

The Compounding Effect of Wealth Inequality

Racial wealth inequality also impacts debt loads and amplifies the affordability gap. The median white household holds around $250,000 in net worth, compared to roughly $27,000 for the median Black household and $49,000²⁹ for the median Hispanic household. The gap of more than $200,000 has widened over the past several years, even as median wealth rose across all racial groups. White households are more likely to own all asset types and for those assets to have a higher median value.³⁰ White households are 1.8 times more likely to own their homes, 1.5 times more likely to own at least one retirement account, and 1.9 times more likely to own stocks and mutual funds than Black households. For these three assets, the white household value is 1.6, 4.3, and 6.4 times more, respectively. The wealth gap directly shapes how debt lands on different households. With less wealth to draw on during a financial shock, workers of color are more likely to rely on debt to cover the exact expenses that a wealthier household could absorb from savings. All across the income ladder, workers of color have lower net disposable income than white workers. The median white worker earns 24 percent more than the median Black worker and 29 percent more than the median Latino worker.³¹ The racial income gap grows after including debt obligations because workers of color carry more debt, at higher interest rates, and with less savings to cushion against shocks. The affordability crisis is not race neutral. The racial wealth and income gaps, and higher debt, make the crisis more severe for workers and households of color.

Rising Debt Keeps Workers Trapped in Bad Jobs

We are currently in a low-hire, low-fire labor market. Employers added 162,000 jobs in August,³² but this comes after average monthly job growth of just over 31,000 over the prior twelve months. The hiring rate has actually softened rather than improved, and is still only about half a percentage point above the historic low of 2.8 percent in summer of 2009³³ during the Great Recession. At the same time, firing has slowed as the layoff rate has fallen to 1.0 percent and weekly initial jobless claims have remained low this year. The quits rate is one of the clearest signals of worker mobility. This rate has been stuck at the low rate of 1.9 percent for months. Conventional analysis focuses on the employer side factors such as economic uncertainty, higher labor costs, and technology investment. But worker constraints are an important consideration in lack of labor market dynamism when they are structurally unable to move even if they wanted to. Debt is a central piece of that story. The current labor market is frozen by both employers and workers. When employers are creating very little churn and workers are forced to stay put, debt becomes a labor market anchor by blocking job transitions, preventing career investment, and suppressing bargaining power.

The current labor market is frozen by both employers and workers. When employers are creating very little churn and workers are forced to stay put, debt becomes a labor market anchor by blocking job transitions, preventing career investment, and suppressing bargaining power.

Rising Debt Increases Job Lock

Worker mobility across jobs and employers is one of the clearest markers of a healthy, efficient labor market. It is how wages rise, skills get matched to their best use, and workers escape bad employers. Debt can shut all this down, causing job lock. Workers with high debt loads who are living paycheck to paycheck can’t afford the gap in income that happens when they change jobs. After starting a new job, it often takes several weeks before the first paycheck hits a worker’s bank account. That lack of access to earnings is unendurable when budgets are already stretched thin. A growing share of employers now offer workplace payday loans that workers can use if they need an advance on their earnings, known as Earned Wage Access (EWA) products. But this is just another form of debt that workers may struggle to repay if they leave a job. Furthermore, these products are more likely to be used by low-income households earning less than $50,000 a year and carry extremely high effective APRs,³⁴ meaning workers most in need of a financial bridge are instead taking on another type of debt trapping them in place.

In our analysis we were able to measure worker mobility directly. We define a labor market move as a change of residence that crosses a commuting zone, the standard delineation of a local labor market. Moving within the same zone does not count. Among workers who hold consumer debt, heavier burden means fewer labor market moves. Workers who devote less than 10 percent of take-home income to debt payments change labor markets at 5.4 percent per year. The rate falls to 4.6 percent for workers devoting 20 to 40 percent.

FIGURE 9

Rising Debt Prevents Career Investment

Second, debt traps workers in their current roles and prevents career investment. Career transitions often require short-term investments like additional training, physical relocation, and periods of reduced income. High debt loads make this impossible for workers. Employers themselves have also been found using debt as a means to keep workers trapped in their current jobs. Employers often force their workers to sign agreements known as stay or pay contracts or training repayment agreement provisions (TRAPs) as a condition of employment and require workers who receive on-the-job training—regardless of the quality or necessity of that training—to pay back the supposed cost if they leave their job before the end of a specified term.³⁵ Workers remain in low-productivity roles because of these types of financial constraints, and not because they lack ambition, skill, or information about better opportunities.

Looking at student debt shows this clearly. Black women carry the highest average student loan debt balances of any demographic group³⁶ with more than 30 percent more undergraduate debt and nearly double the graduate debt of white women. Recent federal changes for Parent Plus and graduate loan caps to support for Historically Black Colleges and Universities, which award a disproportionate share of degrees to Black women, will make this worse. A Black woman weighing a return to school to gain qualifications for higher-growth jobs would wind up carrying a debt load that makes the bet far riskier than it would be for a white male colleague in the same position. After graduation, she would face a pay gap that makes repaying the debt even harder in the first place. Black women with a bachelor’s degree earn 67 percent of what white men earn, and those with advanced degrees earn 71 percent.³⁷ Over a forty-year career, the combined race and gender wage gap is estimated to cost Black women close to $1 million³⁸—earnings that could have otherwise paid down debt or built the cushion needed to support a job or career transition.

Rising Debt Suppresses Bargaining Power and Wage Growth

Third, debt can be a labor market anchor by suppressing bargaining power over wages. The unionization rate has declined steadily for decades, to just 10 percent in 2025.³⁹ For the large majority of workers without a union, the threat of quitting is the main source of bargaining power. For workers loaded with debt, that threat is not credible and what little bargaining power they had evaporates. Employers know that a worker who cannot afford even a brief gap in income cannot actually threaten to leave. Reporting on labor organizing has shown how debt forces workers to work for bad employers and makes them less likely to strike,⁴⁰ since a strike causes a paycheck pause that either creates debt or is something indebted workers cannot sustain. This dynamic hits the hardest for workers with the least wealth to fall back on. The typical white household had 9.2 times as much wealth as the typical Black household and 5.1 times as much as the typical Hispanic household in 2021.⁴¹ When a strike or a job change means going without a paycheck, Black and Hispanic workers have far less savings to bridge the gap so their threat to walk away carries less weight with employers. The result is that employers are able to pay below-market wages to workers who can’t afford to leave. Low-wage growth also persists even in a labor market that is not technically slack, consistent with workers losing the ability to bid up their own wages by threatening to leave.

The pandemic-era pauses in student loan repayment flattens every one of the numbers regarding job lock. Most student borrowers in our panel data saw reduced or zero dollar scheduled payments under deferral and income-driven plans. If reported payments were replaced with payments under the standard ten-year repayment schedule, the debt burden of Black women with student loans would rise from about 15 percent of household income to 23 percent. (See Figure 10.) That is the largest jump of any group, and it lands where the burden is already heaviest. With the pandemic-era payment pause now over, and many income-driven plan options eliminated⁴² and replaced with more expensive options⁴³ student debt burdens will certainly weigh more heavily going forward.

FIGURE 10

Looking at household burden also understates the challenge that individual workers face regarding job lock, because it measures a worker’s debts against everyone’s income. The worker deciding whether to leave a bad job, or a bad situation, faces her own paycheck. So we also measure each person’s debt service against their own take-home pay, estimated from what workers of their gender and race earn. The two measures tell different stories. Black women with debt surrender 21 cents of every dollar of their own take-home pay to debt service, and Hispanic women surrender 23 cents, against 14 cents for white men. The ordering changes too. Hispanic women carry a lighter household burden than Black women but the heaviest own-paycheck burden of any group, because their own earnings cover less than half of household income. A debt load that looks manageable at the household level can be unpayable from the paycheck of the person who owes it.

Figure 11 plots the two burdens against each other. The dashed line marks where they would be equal, which is where a worker’s own paycheck is the whole household income. Every group sits above the line. Distance from the line measures reliance on other people’s income to carry one’s own debts, and women sit furthest, because they carry household debts on smaller paychecks. Job lock increases with that distance. A worker whose debts are payable only with a partner’s income has less freedom to change jobs, to move, or to leave.

FIGURE 11

Gender compounds these three channels of debt-induced job lock, independent of race. On average, women take on more student debt relative to their earnings and take longer to pay it off than men.⁴⁴ Upon graduation, all women face a gender pay gap making it harder to repay student debt. Women hold larger absolute balances and face a larger debt burden relative to earnings than men. The same level of debt is far more binding for workers with small paychecks, which is disproportionately women, and especially women of color.

The Macroeconomic Costs of Debt Drag

Debt creates a labor market friction that has a real cost on economic efficiency. In economic theory, labor market mobility is efficiency enhancing. Workers moving to higher-value use causes wages to converge toward marginal product and raises overall productivity. A quits rate stuck at 1.9 percent, low hiring, and less job switching means this sorting process has stalled. Debt means an important share of workers who want to move, and who employers would hire, cannot make the jump because of the transition cost. This constraint makes the labor market less productive. The labor market frictions due to debt obligations not only make workers worse off, but also create a drag on the macroeconomy. Debt relief is more than an individual or charitable solution. It is pro-growth and productivity enhancing, and disproportionately benefits women and workers of color who are more likely to suffer unwieldy debt obligations.

Moving Toward a Debt Agenda

Household debt is a drag on workers and their families, the labor market, and the economy overall. Workers’ paychecks simply are no longer keeping up, as high costs even for goods that people rely on to meet their most basic needs are becoming endemic. Skyrocketing gas and grocery prices have accelerated the pain, but Americans have long been struggling with high prices on everything from healthcare, to housing—even the cost of paying off their debt itself. Meanwhile, unchecked corporate power has led to stagnant wages, rising prices, and a rollback in public goods that used to help keep all Americans afloat. As a result, Americans are increasingly on their own when it comes to bearing risk in the economy, often in the form of debt.

Rising household debt is a symptom of broader failures within our economy, and in order to address those challenges, policymakers need an agenda that not only addresses the immediate problem of outstanding debt but also takes steps to head debt off at the source. Enacting debt relief, raising wages and expanding bargaining rights, cracking down on predatory lenders and financial practices, and expanding public provisioning are all necessary steps to strengthen the labor market. Policies that pursue these goals would promote worker mobility, strengthen bargaining power, and improve how efficiently workers are allocated across the economy.

Enacting Debt Relief

Enacting debt relief is one way to immediately raise workers’ take-home pay so that they can afford their basic needs and support their families. With more than half of increases to household income currently eaten up by required debt payments, not only are workers excluded from fully sharing in the gains their productivity is creating, but also their gains are being recycled back to capital as interest income rather than contributing to economic activity in the form of their purchasing additional goods and services. Workers get hit twice. First, in the declining labor share of productivity, and then again as interest payments on household borrowing to maintain their standard of living. Debt relief would show up immediately as money households get back in their pockets.

Cancel Student Debt. Student debt relief would impact millions of workers. Broad-based cancellation would boost the economy and encourage labor market mobility because workers freed from monthly loan obligations can change jobs, start a business, purchase a home, build wealth, or retire on their own terms. For the wider economy,⁴⁵ student debt suppresses short-run consumption, drags down GDP, and slows innovation and entrepreneurship. One study found that real GDP could be boosted by approximately $100 billion⁴⁶ over ten years from cancelling student debt. Additional economic modeling found⁴⁷ that cancelling outstanding federal federal student debt could lift real GDP by up to $100 billion a year, or $1 trillion cumulatively over a decade, while adding 1.5 million jobs, lowering unemployment, and not spurring inflation. The pandemic-era payment pause that suspended payments freed up an average of $138 a month,⁴⁸ and separate studies⁴⁹ link debt cancellation to improved credit scores,⁵⁰ lower delinquency on other debt,⁵¹ increased geographic and career mobility, and improved health outcomes.⁵²

The Biden administration discharged $189 billion in student debt, but was blocked by the Republican attorneys general and the Supreme Court from taking more aggressive steps to provide relief to borrowers. Going forward, policymakers should pursue additional student debt relief and ensure that current pathways to cancellation remain accessible to borrowers such as Public Service Loan Forgiveness, Borrower Defense to Repayment and Closed School Discharge, Total and Permanent Disability Discharge. Policymakers also need to reverse massive cuts to the student loan repayment system and restore truly affordable repayment options that will result in lower student loan payments. Relief should be broad-based, but should be designed to best serve the borrowers most in need—those who did not complete degrees, Black and Hispanic borrowers with lower post-graduate income and wealth, and low-wage borrowers. State and local governments should also consider student loan cancellation and student loan repayment assistance programs that help increase the financial stability of their workers.

Cancel Medical Debt. Medical debt cancellation and affordable healthcare support labor market mobility by freeing workers from job lock. Nearly one in four workers⁵³ now say they are staying in a job they would rather leave specifically to hold onto their health insurance. That is a sharp increase from one in six workers in 2021, during the COVID-19 pandemic.

Medical debt does more than shrink discretionary income, it also impacts overall financial health through credit reporting. In 2025, the Consumer Financial Protection Bureau (CFPB) finalized a rule to ban the inclusion of medical debt on credit reports to prevent financial harm to people with high medical needs and expenses, but the rule was vacated by a federal court, putting many of the lowest income workers most at risk of seeing their credit scores damaged by medical debt. Lower credit scores due to the inclusion of medical debt impacts borrowers ability to secure affordable housing, access employment, and gain access to affordable credit and other financial assets. Medical debt disproportionately harms low-income people and people of color, and relief would be especially beneficial to those communities. Nearly thirty state and local jurisdictions have already taken action to relieve some of the $220 billion in outstanding medical debt, often purchasing the debt for pennies on the dollar.⁵⁴ More states, localities, and the federal government should pursue medical debt cancellation.

Cancel Utility Debt and Work to Bring Down Skyrocketing Household Energy Bills. Rising energy costs are causing more American households to fall behind, generating unprecedented levels of utility debt. Over the course of President Trump’s second term, average monthly energy utility bills have risen by 12 percent, roughly three times the overall rate of inflation during the same period. As a result, nearly one in twenty households—equivalent to roughly 14 million Americans—have utility debt so severe that it was sent or soon will be sent to collections.⁵⁵ Policymakers must take action to lower utility costs and can do so by reining in AI data center expansion that is driving electricity demand and raising energy costs, limit how utility companies have used their monopoly power to rake in record profits and raise costs onto consumers, reverse Trump era cuts to renewable energy, and roll back attacks on affordable energy assistance programs. Policymakers at all levels of government should also consider efforts to provide immediate relief to consumers, including cancelling utility debt, providing relief checks or utility refunds from excess profits made by utility companies.

Cap Credit Card Interest Rates and Rein In Junk Fees Draining Workers’ Paychecks. Roughly 111 million people—half of all Americans with a credit card and over 40 percent of all U.S. adults—are unable to pay off their credit card bills each month, trapping them in cycles of persistent debt that balloons due to record-high, industry-inflated interest rates and predatory fees. Over the decade from 2013 to 2023, credit card interest rates have skyrocketed, from 12.90 percent in 2013 to 22.8 in 2023, and are now at the highest level ever recorded. Workers whose paychecks are already not going nearly far enough are spending billions on interest payments alone each year. President Trump promised to cap interest rates at 10 percent when he took office, and every day that he has delayed has cost Americans $368 million in interest.⁵⁶ Research has found that capping rates at 10 percent would save Americans $100 billion—and put nearly $900 per year back into the pockets of individual workers.⁵⁷ This bold bipartisan proposal would effectively give every worker who carries a balance from month to month on their credit cards—111 million Americans—a raise. As 30 million Americans have fallen behind on their credit card bills, the Trump administration abandoned rules that would have capped credit card late fees at $8. Unless policymakers reverse course, Americans could be forced to pay an extra $10 billion annually in unnecessary late fees.⁵⁸ Congress should legislate protections for working families to cap late fees and ban other excessive junk fees that allow financial companies to pad their bottom lines at the expense of workers.

Reining In Predatory Financial Practices and Banning Big Business from Trapping Workers in Debt

If workers who fall into debt feel like they now have a target on their back, they may be right. Banks and even employers now seem more and more intent on directly putting workers into debt, enhancing corporate bottom lines while keeping workers locked into bad jobs. Reining in these predatory practices would go a long way in helping workers extricate themselves from debt traps.

Ban Employer-Driven Debt and Workplace Coercion. Employers themselves are an increasing source of worker debt and coercion. Major employers have been found relying upon Training Repayment Agreement Provisions (TRAPs), which require workers to reimburse their employer for the costs of on-the-job training, as a means to force workers to remain in poor working environments and low-paying jobs. Research has shown that these TRAPs are used in sectors that collectively employ more than one-in-three private sector workers.⁵⁹ Employers are also offering workplace payday loans, commonly referred to as earned wage access products and locking workers into their jobs with abusive employment contracts that include noncompete agreements, which restrict workers from seeking employment in the same field after leaving their employer. These practices very directly lead to less worker mobility, and should be banned or the exploitive practices curtailed.

Ban Surveillance Tools and Practices. Firms increasingly rely on surveillance tools built on workers’ and consumers’ private data to jack up prices on the products and services they sell or to offer lower wages to their workers based on an individual’s personal financial situation—for example, creating apps that offer workers lower wages based on their personal indebtedness. These tools are rife with predation and are designed to extract from workers, use their debt as coercion, and often force them deeper into debt through higher prices. Policymakers must ban surveillance tech that is driving workers further into debt.

End the Growing Financialization of Desperation across Today’s Economy. Predatory lenders are no longer defined as the payday lender on the corner; they are, increasingly, your landlord, your utility company, your employer, your medical provider, and even grocery stores and other brick-and-morter retailers, thanks to the increasingly intertwined relationship between those entities and the banks, fintech companies, and other financial firms that have been rushing to push Americans into high-cost debt at nearly every point of sale. As a result, more Americans are taking on Buy Now, Pay Later (BNPL) products and high-cost loans to finance weekly groceries, their utility bill, and even their monthly rent. Americans are now relying on medical credit cards to cover medical procedures. These products tend to come with hidden fees, triple-digit interest, and disastrous consequences if you fall behind. At the same time, the Trump administration has continued its quest to dismantle the CFPB—the federal agency charged with serving as the financial cop on the beat to protect consumers from predatory practices. Policymakers must rein in the growing collusion between merchants and financial companies across the economy, restore robust oversight into the financial marketplace, and return to enforcement of consumer protection law. Further, state and national policymakers should legislate a BNPL Borrower Bill of Rights to increase transparency and strengthen borrower rights and protections.

Raising Wages and Building Worker Power

Workers’ share of the nation’s productivity gains has been declining for over half a century, the result of attacks on the right of workers to form and join a union and the overall waning of worker power. Deceptively named Right to Work laws and the dismantling and underfunding of federal agencies that promote workers’ rights have tilted the balance of power wholly in favor of corporate employers, keeping workers’ wages and power suppressed. Leveling the playing field would allow workers to reclaim a fair share of productivity gains and better afford the cost of living.

Raise the Minimum Wage and End Subminimum Wages. The federal minimum wage has been stuck at $7.25 an hour since 2009, and has lost roughly 30 percent of its purchasing power over the past several decades. Additionally, federal law still permits employers to pay certain categories of workers, including disabled workers and tipped workers, below the federal minimum wage. Today, tens of thousands of disabled workers are working for subminimum wages with most earning less than $3.50 per hour.⁶⁰ The Economic Policy Institute has proposed indexing the federal minimum wage to two-thirds the national median, which would put it at about $20 an hour⁶¹ by 2030 and lift pay for nearly 40 million workers, with the largest gains flowing to Black workers and women. Recently, members of Congress have introduced legislation that would require large employers to raise their minimum wage to $25 an hour by 2031, and phases out subminimum wages for tipped and disabled workers.⁶² Seventeen states have already ended subminimum wages for disabled workers⁶³ while others have raised wages for tipped workers or have eliminated the tip minimum wage entirely.⁶⁴

Make It Easier for Workers to Join a Union. Beyond raising the federal wage floor, workers need greater power on the job to bargain for higher wages and better working conditions. The Protecting the Right to Organize (PRO) Act would make it easier for workers to collectively bargain with their employers, leading to more workers who are able to join a union. Policymakers and employers can also set mandatory wage standards across industries through sectoral bargaining. For the millions of workers who want a union but are unable to get one,⁶⁵ sectoral standards offer a way to rebalance power and establish a wage floor even without a collective bargaining contract. The evidence that unions raise wages is deep and consistent. Workers in a union earn about 13 percent more⁶⁶ than their nonunionized counterparts. Unions also address pay equity for workers of color, where the premium is especially pronounced. Unionized Black workers make 13 percent more than nonunionized Black workers, and unionized Hispanic workers make 16 percent more than nonunionized Hispanic workers. Sectoral and workplace-level approaches to increased worker power can reinforce each other to facilitate higher wages for workers.

A revived National Labor Relations Board is also crucial in ensuring workers can actually exercise their right to organize and capture these wage and equity gains.

Fight Discrimination and Promote Equal Pay. Persistent and structural labor market discrimination has caused women and people of color to earn less than their peers, and carry disproportionate debt burdens. Addressing worker debt for these groups will require policy change as well as aggressive enforcement of federal civil rights law to ensure that workers get what they are owed. As a starting point, the Equal Employment Opportunity Commission (EEOC) should recommit to salary reporting across race and gender, to recovering lost wages for workers who faced discrimination, and to investigating unfair pay practices. The recent end to demographic reporting by the EEOC⁶⁷ will make the affordability crisis worse for workers who can least absorb it, as wage suppression and outright wage theft against women and workers of color go undetected.

Expanding Public Provisioning

The policy solutions that will most fundamentally address the debt that is anchoring workers to bad jobs and lowering their wages lives far upstream from when the debt is accrued. Rising household debt is a signal that the social contract has frayed to a point that workers are left to bear all of the risks of the economy on their own, with government playing a diminished role. In order to reverse course, policymakers need to take major steps to expand public goods that make it easier for families to get ahead, and while the list below is not exhaustive, the examples provided are indicative of the scale at which policymakers need to begin.

Guarantee Debt-Free College. Policymakers should guarantee debt-free college for anyone who attends a public institution to prevent workers and families from having to take on debt in the first place. More than thirty states have instituted some version of a tuition-free community college program, and a handful of states have implemented free college for students attending undergraduate institutions. At the federal level, there have been a number of debt-free college proposals introduced, including the College For All Act and the Debt Free College Act of 2023, although none have become law. As massive cuts in the One Big Beautiful Bill Act drastically strain state budgets across the country and lead to cuts to higher education systems that will diminish college access and affordability, policymakers must prioritize efforts to lower college costs and tackle the student debt crisis at the source.

Reform the Healthcare System. While debt cancellation would be an essential lifeline to people who have already incurred debt, ending medical debt for good will require major changes to our healthcare system. An increasingly financialized, consolidated, and complex healthcare system⁶⁸ has raised costs for everyone,⁶⁹ regardless of whether they have public or private coverage. Aggressive and practically unfettered horizontal and vertical consolidation in the health care system has meant that Americans are feeling the pain at every point of interaction—from the point of care, to the pharmacy counter, to untangling and paying for a mess of bills, copays, and deductibles.

Our polling shows that two-thirds of Americans report wanting major healthcare reform, ranging from new public coverage options to a complete overhaul of the healthcare system. Other ideas to expand the public role in healthcare, such as universal maternal health care⁷⁰ that guarantees every pregnant person access to maternity care at no out of pocket cost would directly address this gap—also have majority public support. In order to curtail the corporations that manage our healthcare system—from insurers, to pharmaceutical companies, to hospitals—that maximize how much they can extract from patients and government payers, policymakers should be leveraging the federal government’s considerable power as a regulator and payer to fundamentally reshape healthcare markets to make universal affordable healthcare a reality.

Create Opportunities for Families to Build Wealth. Debt is especially burdensome for Black and Hispanic families who hold the lowest levels of wealth. While investments in public goods such as healthcare and education are essential to getting Americans out of the debt trap, policies that help low-wealth households build wealth can help provide a financial cushion for the unexpected, and are another way to help families avoid taking on debt. Policies such as baby bonds, which provide government-funded trust accounts to every child scaled based on household wealth, could help close the wealth gap.⁷¹

Conclusion

The standard scorecard for the economy counts what comes into household budgets, such as workers’ wages and wage increases, but ignores required monthly debt payments when counting what goes out. Assessing worker wellbeing this way is inadequate math, because since the end 2022, household debt payments have grown over eight times as fast as real take-home income. More than half of every dollar of income growth is being eaten up by interest and debt payments before ever reaching family’s budgets. Real Income Net of Debt (RIND) shows that contrary to some headline numbers, millions of workers are increasingly becoming economically insecure.

This is a labor market story because debt suppresses the quit rate, creates job lock, and hands employers leverage over workers who can not credibly threaten to leave. A labor market that depends on worker mobility to allocate people to their most productive capacity cannot function efficiently when a growing share is financially locked in place. Rising household debt is a flaw inside the labor market that drags down wages, bargaining power, and productivity growth all at once.

Debt burden shows that the labor market consequences are not distributed evenly. Black women, Hispanic workers, and low-income workers across every racial group carry the heaviest debt loads relative to what they earn, have the thinnest financial cushions to absorb shocks, and get the smallest share of their paychecks after servicing debt. Debt is compounded by generations of wealth inequality and wage disparities. We cannot create an affordability agenda without addressing debt or it will leave these workers behind.

Debt deserves to be treated like a first-order economic indicator. Reporting RIND alongside wages so policymakers and advocates can see if economic growth is actually reaching households. Once measurement is in place, we should use the policy tools available to relieve debt. Cancelling student and medical debt, capping interest rates, and restraining employer debt traps are all examples of solutions available to provide help to struggling households. We should also address the ways workers end up in debt in the first place through stagnant wages, eroded bargaining power, and lack of public provisioning. Together these interventions represent a coherent alternative to the status quo so that economic growth is measured by what workers actually keep and not just by what employers pay.

Appendix: Data and Methods

Our data comes from the University of California Consumer Credit Panel, a nationally representative sample of anonymized credit records observed quarterly. We restrict the panel to adults ages 25 to 64 whose current and, where relevant, prior-quarter addresses geocode reliably to a 2020 census tract. For each person-quarter we observe balances and scheduled monthly payments by trade line: student loans, auto loans and leases, credit cards, mortgages, home equity lines, and utility accounts in collections. Consumer debt service is the sum of scheduled non-mortgage payments. Credit cards with outstanding balances but without a reported scheduled payment enter at 2 percent of balance. Throughout the report, burden divides a worker’s own payments by their household’s income, so a household with more than one earner carries several such burdens against one income.

The panel has no income, so we build it at the census tract level. We take tract household income distributions from the 2020 to 2024 five-year American Community Survey, anchor each vintage at its midpoint, and interpolate between vintage midpoints on a log scale. Within each quarter we scale tract income by county average weekly wage growth from the Quarterly Census of Employment and Wages (QCEW), falling back from county to state to national wages where county cells are unpublished. QCEW wages carry a strong quarter-of-year seasonal, so we remove a fixed seasonal factor per geography, estimated from the deviation of log wages around a centered moving average using 2015 and later, excluding 2020Q2 through 2021Q4, when pandemic-era bonuses and layoffs distorted the seasonal pattern. A residual seasonal component of roughly plus or minus 1 percent remains. Every figure and table is therefore a four-quarter average, and quarter-to-quarter movements within a year should not be read as changes in burden. Gross income becomes after-tax income through the NBER TAXSIM calculator, applying federal and state income taxes and payroll taxes to each tract-level income position.⁷² Own take-home, used in the own-paycheck measures, is built the same way from tract median earnings by gender and race, with a fallback to broader geography where small tract cells are suppressed. Real values use the CPI, deflating each quarter before any averaging. Because each person is assigned their tract’s median, group figures are weighted averages of local medians rather than statistics of individual incomes.

Race and ethnicity are estimated with Bayesian Improved Surname Geocoding (BISG), which combines the census surname list with the racial composition of a person’s tract to produce a posterior probability that each person belongs to each group.⁷³ Every result by race is a probability-weighted estimate: a person contributes to each group in proportion to their posterior, and no person is assigned a race. Group aggregates are ratios of probability-weighted sums, and weighted medians use the cumulative weight of the sorted distribution. We track the effective sample size of each cell as the squared sum of weights over the sum of squared weights, and we suppress cells with a weight sum below 100. Estimates for the groups with the most diffuse posteriors, American Indian and Alaska Native people and multiracial people, were excluded in the outputs for this reason.

Cross-sectional estimates pool the four most recent quarters of person-quarter observations. Income quintiles are ranked within each quarter against that quarter’s distribution and pooled afterward, so nominal income growth cannot masquerade as movement between quintiles. Debt drag is cumulative real debt-service growth over cumulative real income growth from a base window ending in December 2022, computed on four-quarter averages. A labor market move is a change of residence between consecutive quarters that crosses a 2020 commuting zone boundary,⁷⁴ with both endpoint addresses reliably geocoded. Quarterly move rates annualize as one minus the fourth power of the retention rate. The student repayment scenario replaces each borrower’s reported student loan payment with a 120-month amortization of their outstanding balance at 6 percent and recomputes household burden.

Three limitations matter for interpretation. First, credit files miss several kinds of household debt: secured and unsecured personal and debt consolidation loans, point-of-sale installment financing, most buy-now-pay-later credit, and medical debt held as provider payment plans, which reaches a credit file only at collections. Some lenders also report balances without scheduled payments, and many student borrowers remain in forbearance amid servicing breakdowns and litigation over repayment plans. We estimate our measure captures 85 to 90 percent of household debt service, and the missing share concentrates among lower-income households and Black and Hispanic households. Every result in this paper is therefore a floor, and residual income an upper bound on what households keep. Second, our income is the median household income of a worker’s tract and demographic cell, not the worker’s own paycheck, so all results describe groups rather than individuals. Third, all results are descriptive. Burden, mobility, and income share causes we do not model, and nothing here identifies a causal effect.

1. Richard Audoly, Miles Guerin, Srinidhi Narayanan, and Rachel Schuh, “The Post‑COVID Decline in the Labor Share,” Federal Reserve Bank of New York, June 24, 2026, https://libertystreeteconomics.newyorkfed.org/2026/06/the-post-covid-decline-in-the-labor-share/.
2. Deena Zaidi, “Inflation is outpacing wage growth again, squeezing Americans’ paychecks,” CNBC, September 12, 2026, https://www.cnbc.com/2026/09/12/inflation-is-outpacing-wage-growth-again-squeezing-americans-paychecks.html.
3. Unless otherwise noted, data in this report are the authors’ analysis of the University of California Consumer Credit Panel (UC-CCP), a nationally representative 2 percent sample of U.S. adults with credit records. Since credit records contain no income, we measure each worker’s debt payments against the median after-tax household income in their census tract, computed separately by racial group, from the U.S. Census Bureau’s 2020–2024 American Community Survey (ACS) 5-Year Estimates, with workers weighted by their estimated probability of belonging to each group. The income construction additionally uses the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages and Consumer Price Index, and the NBER TAXSIM calculator. The UC-CCP was created and is maintained by the California Policy Lab, whom we thank for hosting and documenting the data. Full methods are in the appendix.
4. Kyle K. Moore, “A Hike in Whose Interest?” The Century Foundation, September 16, 2026, https://tcf.org/content/commentary/a-hike-in-whose-interest/.
5. Evan Wasner, “Remember the ‘Vibecession’? It Turns Out, People Were Right.” The Century Foundation, August 19, 2026, https://tcf.org/content/commentary/remember-the-vibecession-it-turns-out-people-were-right/.
6. “The Employment Situation—August 2026,” U.S. Department of Labor, Bureau of Labor Statistics, September 4, 2026, https://www.bls.gov/news.release/pdf/empsit.pdf.
7. “The Institute Employment Report: April 2026,” Bank of America, May 6, 2026, https://institute.bankofamerica.com/content/dam/economic-insights/monthly-employment-report-april-2026.pdf.
8. Rishabh Mishra, “Mark Zandi Says Top 20% Of Americans Now Account For Nearly 60% Of Spending As Bottom 80% Fall Behind Inflation,” Benzinga, June 22, 2026, https://www.benzinga.com/markets/equities/26/06/60007034/moodys-k-shaped-economy-80-americans-are-losing-battle-with-inflation.
9. “Employed Full Time: Median Usual Weekly Real Earnings: Wage and Salary Workers: 16 Years and Over [LES1252881600Q],” FRED, Federal Reserve Bank of St. Louis, updated July 21, 2026, https://fred.stlouisfed.org/series/LES1252881600Q. https://fred.stlouisfed.org/series/LES1252881600Q.
10. “Household Debt Service Payments as a Percent of Disposable Personal Income [TDSP],” FRED, Federal Reserve Bank of St. Louis, updated June 22, 2026, https://fred.stlouisfed.org/series/TDSP.
11. Ibid.
12. “Household Debt Balances Decrease Slightly; Credit Card Delinquency Transitions Steady,” Federal Reserve Bank of New York, August 11, 2026, https://www.newyorkfed.org/microeconomics/hhdc.
13. Jennifer Zhang, Eduard Nilaj, Mike Pierce and Julie Margetta Morgan, “Interest Nation: The State of America’s Credit Card Debt Crisis,” Protect Borrowers and The Century Foundation, March 17, 2026, https://tcf.org/content/report/interest-nation-the-state-of-americas-credit-card-debt-crisis/.
14. Laura Valle Gutierrez, Tara Mikkilineni, Eduard Nilaj, Angela Hanks, and Aissa Canchola Bañez, “When the Wheels Come Off: How Surging Auto Loan Debt Is Hurting Households,” The Century Foundation and Protect Borrowers, May 6, 2026, https://tcf.org/content/report/when-the-wheels-come-off-how-surging-auto-loan-debt-is-hurting-households/.
15. Peter Granville, Eduard Nilaj, Jennifer Zhang and Aissa Canchola Bañez, “Trump’s Student Loan Delinquency Crisis, Unmasked,” The Century Foundation and Protect Borrowers, February 20, 2026, https://tcf.org/content/report/trumps-student-loan-delinquency-crisis-unmasked/.
16. Angela Hanks and Julie Margetta Morgan. “Survey: The Affordability Crisis Is Here, and It’s Hitting the Working Class the Hardest,” The Century Foundation, December 11, 2025, https://tcf.org/content/report/survey-the-affordability-crisis-is-here-and-its-hitting-the-working-class-the-hardest/.
17. Lydia Saad, “Affordability Still Dominates Americans’ Financial Worries,” Gallup, April 28, 2026, https://news.gallup.com/poll/708905/affordability-dominates-americans-financial-worries.aspx; Hailey Jeon and Tina Tang, “Americans’ Economic Concerns Extend Beyond Their Household Finances July 28, 2026, Navigator, https://navigatorresearch.org/americans-economic-concerns-extend-beyond-their-household-finances/
18. Our calculations do not include medical debt, even though it is a serious burden for many households. Medical debt mostly appears in credit files (if it appears at all) as collections only, without a scheduled monthly payment, and so cannot be easily observed and incorporated into RIND calculations. Residual income here is therefore an upper bound on what workers keep.
19. For more information, see the appendix on data and methods.
20. Laura Valle Gutierrez, Tara Mikkilineni, Eduard Nilaj, Angela Hanks, and Aissa Canchola Bañez, “When the Wheels Come Off: How Surging Auto Loan Debt Is Hurting Households,” The Century Foundation and Protect Borrowers, May 6, 2026, https://tcf.org/content/report/when-the-wheels-come-off-how-surging-auto-loan-debt-is-hurting-households/.
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24. We arrive at this range as follows. The Federal Reserve Bank of New York’s Household Debt and Credit Report places outstanding balances in categories our measure does not include, mostly personal loans and consumer finance, at roughly $568 billion as of Q2 2026. Personal and debt consolidation loans amortize on short fixed terms of two to five years, so their share of monthly payments runs well above their share of balances. We put their payment share of household debt payments at 6 to 8 percent, and medical provider financing and Buy Now, Pay Later plans at about 2 percent. Adding 2 to 4 percent for loans whose servicers report balances without scheduled monthly payments puts the uncaptured share at 10 to 15 percent of household debt payments. These are approximations built from aggregate balances and typical loan terms, because payment microdata for these products is scarce. That absence is part of the problem this paper describes. Source: Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, 2026Q2.
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Tags: debt, household debt, affordability