Assessing the Subsidy-Dependent Labor Market: A Macro Strategist's Counterfactual

The headline unemployment rate paints a picture of resilience. Yet a deeper look reveals a labor market held together by targeted support, not organic strength. The core thesis is that without specific government subsidies, the U.S. job market's apparent growth would likely be negative or deeply stagnant, masking underlying structural weaknesses. This is the counterfactual we must consider.

The official numbers show a tight labor market, with forecasters projecting an annual-average unemployment rate of 4.2 percent in 2025 and 4.5 percent in 2026. But this stability sits atop a fragile foundation of weak growth and contracting sectors. The broader economic engine is sputtering, with real GDP growth forecast at a mere 1.9 percent in 2025 and 1.8 percent in 2026. In such a tepid environment, the labor market's ability to expand is severely constrained.

This constraint is visible in the data for key industries. While the headline payroll numbers may show modest gains, the underlying trends in critical sectors are negative or stagnant. In mining and logging, the 1-month net change is consistently negative, with employment in mining, quarrying, and oil and gas extraction down by 1.3 thousand jobs last month. More broadly, the construction sector, a traditional bellwether for economic health, has seen monthly employment decline of 11 thousand jobs in recent data. These are not cyclical blips but signs of structural pressure in capital-intensive, commodity-linked industries.

The implication is clear. The headline unemployment rate is being propped up by subsidies that keep workers employed in these weak sectors or support demand in the broader economy. Without that support, the contraction in these industries would likely accelerate, pulling down overall employment and pushing the unemployment rate significantly higher. The forecasted modest GDP growth provides little room for job creation, making the labor market's apparent stability a function of policy intervention, not a sign of robust, self-sustaining expansion.

Evidence of the Subsidy Effect: Where Growth is Artificially Sustained

The scale of government intervention is staggering. A national database tracks over 722,000 subsidy award entries across the country, a figure that underscores the depth of policy involvement in the economy. This isn't a fringe activity but a central pillar of state and local economic strategy. The data reveals a clear structural shift in how that money is deployed. While incentives for small and midsize firms have grown, the dominant trend is a move toward "moonshot" strategies. These are massive, high-stakes proposals aimed at luring extremely large corporations with the promise of significant jobs and investment.

This pivot represents a fundamental reallocation of public capital. The focus has shifted away from the foundational investments in education and infrastructure that build long-term economic capacity. Instead, the policy calculus now often centers on securing headline-grabbing announcements of new factories or corporate relocations. The political payoff is immediate and tangible: ribbon-cutting ceremonies and press releases tout jobs created. The hidden costs-fiscal strain, opportunity costs, and the risk of non-delivery-are deferred and less visible.

The implication for the labor market is direct. These large corporate inducements are creating jobs that are not the organic result of market forces but are contingent on government payments. The Carrier deal in Indiana is a textbook example. The company received millions in tax breaks to keep a portion of its workforce, but the arrangement was explicitly tied to specific, measurable outputs. The deal was sold on the promise of job retention, yet it came with the caveat that the jobs kept were often not the ones originally threatened. More broadly, the strategy of targeting "moonshot" corporations for massive subsidies suggests a labor market where employment growth is being artificially sustained by policy, not by broad-based economic health.

Mechanisms and Sustainability: The Trade-offs of a Subsidy-Dependent Model

The subsidy model creates a complex set of trade-offs. On one hand, it provides immediate relief and visible economic activity. On the other, it distorts market signals, builds fragile employment, and carries significant opportunity costs. The sustainability of this growth hinges on the effectiveness of these interventions in building lasting human capital versus simply moving existing work.

The evidence suggests that many subsidized programs fall short of their long-term goals. For instance, subsidized employment initiatives designed for the "hard-to-employ" are effective at providing short-term income and reducing welfare dependence. However, evaluations show they are less successful at helping participants transition to unsubsidized employment. This indicates a fundamental limitation: the programs may keep people off the streets or off benefits, but they often fail to build the hard skills or marketable credentials needed for permanent, private-sector placement. The result is a form of employment that is contingent on continued public support, not a pathway to independence.

This pattern of limited long-term impact extends to student employment subsidies. Research on the Federal Work-Study program reveals a nuanced picture. About half of its participants are what economists call "inframarginal workers"-students who would have worked anyway. For them, the subsidy primarily reduces hours worked and improves academic outcomes, but has little impact on future employment. The program effectively subsidizes existing work, not new job creation. The benefits are real but narrow, focused on academic performance rather than future career trajectories. This raises questions about the efficiency of using public funds to support students who are already engaged in the labor market, especially when resources could be targeted more precisely at those who need the most help.

The most significant trade-off, however, is seen in the massive corporate inducements that dominate state and local economic development. These "moonshot" deals come with an enormous per-job cost. The strategy of targeting a few large firms for billions in incentives-like the GlobalFoundries, Boeing, or Foxconn deals-creates a high-stakes gamble. The opportunity cost is stark: these funds could have been invested directly in workforce development, education, or infrastructure, which build broader, more resilient economic capacity. Instead, they are used to pay for jobs that may not have been created otherwise, often in exchange for promises that are difficult to enforce. This approach prioritizes short-term political optics and headline jobs over the long-term structural health of the labor market.

The bottom line is that a subsidy-dependent growth model is inherently fragile. It can mask structural weaknesses and provide temporary stability, but it does so at the expense of building durable human capital and efficient public investment. The sustainability of this model is questionable, as it risks creating a labor market that is artificially inflated and vulnerable to policy shifts, while underinvesting in the very foundations of future economic strength.

Catalysts, Scenarios, and Investment Implications

The forward path for the subsidy-dependent labor market is not predetermined. It will be shaped by a few key catalysts and risks that investors must monitor. The primary driver is the trajectory of artificial intelligence investment. AI spending is currently a powerful support for the economy, but its momentum is uncertain. A sharp pullback in corporate AI capital expenditure could slow growth and increase political pressure for more subsidies to fill the gap. This creates a feedback loop: if AI-driven productivity gains falter, the case for using public funds to prop up employment may strengthen, even as the long-term efficiency of such spending is questioned.

The most significant structural risk is that subsidies crowd out more efficient public investment. The policy focus on "moonshot" deals for large corporations-like those for GlobalFoundries, Boeing, or Foxconn-diverts resources from foundational areas like education and infrastructure. This is a classic opportunity cost. While these inducements create headline jobs, they do so at a high per-job price, often with uncertain delivery. The funds could instead be used to build broader, more resilient economic capacity. If this trade-off continues unchecked, it undermines long-term productivity and the very human capital that a healthy labor market requires.

For investors, the takeaway is to look beyond the headline numbers. Monitor the balance between reported job growth and the underlying quality of that growth. Are gains concentrated in subsidized sectors or more broadly distributed? More critically, watch the sustainability of subsidy programs themselves. With fiscal constraints tightening, the political calculus may shift. The sheer scale of the subsidy ecosystem-over 722,000 award entries nationwide-means that any reassessment of their effectiveness will have wide-ranging implications. The investment implication is clear: a labor market propped up by subsidies is vulnerable to policy shifts and fiscal reality checks. The path to durable employment growth lies not in more targeted handouts, but in the more difficult work of building the economy's structural foundations.