The Labor Problem

If the United States wishes to be strong abroad, it needs to be strong at home. An effective foreign policy requires resources and public support. Those factors, in turn, depend on a strong economy underpinned by prosperous and financially secure households. A solid economy with a healthy labor market means more tax revenue to fund government priorities, including defense spending and research and development. A weaker economy with a greater need for social assistance spending, by contrast, means less fiscal and political room for military expenditures.

Although U.S. economic growth has been boosted in the last year by the artificial intelligence (AI) boom, this expansion has not translated into a robust job market. There is both limited demand for workers and limited supply. The Bureau of Labor Statistics has forecast that the U.S. labor force will grow by only 0.4 percent annually between 2023 and 2033, compared with 1.3 percent in the previous decade. Given declining fertility rates and an aging population, the country will need foreign-born workers to make up the shortfall. Yet in 2025, the Brookings Institution estimated that the United States lost between 10,000 and 295,000 immigrants, the first time in half a century that the country recorded a net outflow of foreigners. This exodus of workers has been a drag on economic growth, with fewer households consuming. It has also stressed those industries that rely more on immigrant labor, including construction, food and hospitality, and agriculture. U.S. officials need to prioritize an approach to immigration that better balances economic and social needs. Without an effective policy to support the labor market, and in turn the U.S. economy, policymakers will have a relatively harder time financially sustaining an effective foreign policy.

In addition to ensuring a healthy, growing labor force, the United States needs to maximize the productive potential of its workers. Although AI is often presented as the answer, a clean, perfectly timed swap of workers for AI agents is unlikely: AI will not be able to replace the available jobs when and where they are needed, nor can AI agents do jobs in the agricultural or construction sectors, which have been hard hit by the reduction of foreign labor. Although AI has the potential to unleash higher productivity growth, when and by how much remain to be seen. For now, the technology’s contribution to economic growth is a forecast, not a certainty.

Rather than simply relying on AI, Washington should take steps to increase workers’ productive capacity. It should begin with education, which provides workers with skills that command an increased income, which in turn fuels consumption. Although AI could disrupt education in the longer term, in the near-term, the positive relationship between education and productivity is likely to hold. Americans obtaining a bachelor’s degree substantially benefit in terms of income and skills, driving productivity and economic growth. According to the latest Bureau of Labor Statistics data, bachelor’s degree holders’ median weekly earnings are 66 percent higher than workers with only a high-school diploma. Beyond looking for ways to make college more affordable, especially for lower-income families, policymakers should seek to scale some of the programs already underway across the country that are linking post-secondary training with subsequent employment.

That is not to say that elementary and high school education cannot also be significantly improved. The National Center for Education Statistics’ national report card showed in 2024 that only 22 percent of twelfth grade students achieved proficiency in mathematics and only 35 percent reached proficiency in reading. Once again, there are success stories across the country that could be studied and replicated to change those statistics.

A productive, financially healthy workforce is far likelier to have the political appetite to support a globally engaged foreign policy. Periods of labor-market stress and financial insecurity, by contrast, tend to foster protectionism. Historically, households struggling with scarcity have been less willing to consider policies that divert capital or other public-sector resources from their domestic needs.

Unfortunately, the United States is in an age of financial insecurity. The Federal Reserve’s recent annual household finances study found that 37 percent of adults would have to borrow or sell an asset to cover a $400 emergency expense, and 39 percent had no assets specifically designated for retirement. This is unsustainable. A financial literacy program on the federal level would help.

Beyond improving foundational educational attainment, either as a stepping stone to college or technical training, Americans need to learn to manage their personal budgets and secure their financial well-being. Currently, thirty-nine states require at least one course in personal finance to graduate high school, while twenty-two states have a similar economics requirement, according to work by the Council for Economic Education. State officials can support legislation to ensure all U.S. students receive training in economics and personal finance. Fortunately, much of the needed curriculum and teacher training is already publicly available. The federal government, for its part, can extend funding for newborns to get investment accounts (the current “Trump account” program expires in 2028) and attach financial-literacy programs to support the recipients.

The United States’ fiscal room is shrinking. The government’s rising interest payments on debt leave less money for other government priorities, both domestic and foreign. Without a sufficiently expanding, educated, and productive labor force to support economic growth, Washington will struggle to find the capital and political support at home needed to pursue its priorities abroad.