Wages Are Growing But Low-Paid Americans’ “Real Incomes” Are Falling Due to Inflation

Wages are growing around the country but inflation has effectively wiped out any gains for the lowest-paid Americans, The Wall Street Journal reports.

Wages for the lowest-paid employees grew by about 2% annually before the pandemic but have significantly increased amid the recovery. The annual wage growth for the 25% lowest-paid workers grew by 4.8% in August, the highest increase since 2002. By comparison, wage growth for the top earners was 2.8% in August.

A labor shortage has helped lower-paid workers earn more. Businesses have been offering higher wages to attract more applicants and, until recently, high unemployment benefits allowed laid-off workers to find better paying work.

State reopenings, the vaccination rollout, and trillions in economic stimulus have also resulted in increased demand, even as the delta variant has caused some consumers to pull back.

Real wages fall:

But while wages are rising for low-paid workers, so is inflation.

Consumer prices rose about 5.3% in August, effectively causing the “real” wages for low-paid employees to fall by 0.5%.

Economists project that inflation would fall to around 4.1% by the end of the year before cooling to around 2.5% in 2022 and 2023. But that would still leave inflation higher than the 1.8% average rate in the decade before the pandemic.

Economists also expect the conditions that have resulted in higher wages -- labor shortages, federal stimulus -- to taper off, meaning that future wages may not continue to rise at the same rate.

Economists predict that workers' bargaining power will also fade as a result.

“In the long run, I don’t see how that source of clout is viable,” economist Josh Bivens told the Journal. “People need to work to live, and this goes double for lower-wage families.”

Lower-paid workers face bigger inflation woes:

Economists say that lower-income households are more vulnerable to the damaging effects of inflation.

“Lower-income households are being hit hard by higher food prices, higher energy prices, higher shelter costs,” Richard Moody, chief economist at Regions Financial Corp., told the Journal. “It’s taking bigger proportions of their budget so it’s leaving them with much less discretionary income as opposed to higher-income households.”

Lower-income households tend to spend a higher share of their budgets on necessities -- rent, energy, eggs, beef -- all of which have grown in price more than the overall rate of inflation.


Related News