Following a strong recovery from the COVID-19 pandemic, wage growth has begun to slow down, and this decline is particularly steep for those at the lower end of the income bracket.
This situation marks a notable shift from the post-pandemic period, when minimum wage workers experienced the fastest increases in earnings. Economists are now dubbing this trend “wage reduction.”
As this trend develops, it may also lead to higher prices for various goods, as these lower-wage workers could feel the impacts of increased customs duties.
The shift toward declining wages is stark. Currently, those earning the least are experiencing the slowest wage growth, whereas higher earners are seeing more substantial increases.
Recent statistics from the Atlanta Federal Reserve reveal that median annual wages for individuals earning less than $806 per week grew at an annual rate of just 3.7% in July. This figure pales in comparison to the second half of 2022, when the lowest earners enjoyed a 7.5% growth.
In contrast, wages for individuals earning above $1,887 a week have risen at a rate of 4.7% in July, slightly below the 4.8% growth seen in late 2022.
Until 2023 and 2024, wage growth for different income groups followed a gradual trend. However, in February, the earnings of the lowest earners took a sharp downturn, falling 0.3% in March and an additional 0.2% in April.
These figures are nominal and do not factor in inflation, which disproportionately impacts lower-income households. These families typically allocate the majority of their monthly income to essential expenses like rent and groceries.
“The wage growth trackers from Atlanta align with our findings this year. Wages for those in the 10th percentile are lagging significantly behind those in the middle,” remarked Josh Bivens, chief economist at the Economic Policy Institute, while speaking to Hill.
There are concerns among Republicans regarding the reversal of this trend, particularly since they partly associate it with the tariff policies from the Trump administration, amid newly rising inflation.
Inflation has been a crucial factor contributing to economic unrest among voters who supported Republicans in the previous election. The worry is that if this pain continues into next year, the political landscape could shift.
The consumer price index dropped to 2.3% in April but then rose to 2.7% in July. Similarly, after falling to 2.2% in April, the personal consumption expenditure price index climbed to 2.6% in July.
In response to the situation affecting low-income wage growth, the White House recently released an analysis promoting a “real blue-collar wage boom” of 1.4%.
This refers to the increase in real average hourly wages for both production and non-supervisory workers, which remains within a recent historical range.
Treasury officials communicated to Hill that inflation during the first half of the year was a significant factor contributing to this rise.
However, economists are expressing a more pessimistic view about the current trends.
“Price increases are outpacing slower labor market conditions, which is hampering wage growth, partly due to tariffs,” Bivens stated. “It seems like a complete lock after previously rapid growth in real wages post-pandemic, especially for lower-wage workers who are now in a worse position looking at 2025.”
Treasury officials noted that the tangible benefits for blue-collar workers stemmed from significant tax cuts and spending reductions enacted earlier this summer under Trump’s directives.
These officials cited bonus depreciation (tax cuts that enable immediate expense claims for capital investments) as crucial for future wage growth.
Since the end of the pandemic recession in June 2020, the Consumer Price Index has increased by 25.3%, while wages have only risen by 24%. Essentially, wage increases haven’t kept pace with inflation during this five-year span.
“Not all workers are affected by inflation to the same degree,” commented Sarah Foster, an economic analyst at Bankrate. “Wage growth is trailing in sectors like education, construction, finance, professional services, and manufacturing.”
Over time, it seems wages do little more than keep pace with inflation, as rising labor costs dictate production expenses and market prices. The purchasing power of wages has only slightly improved since 1964, according to research from Pew.
Nevertheless, in the short term, discrepancies in wage movements compared to prices can have significant impacts on households and may carry political ramifications.
Inflation and economic issues are expected to be key topics in the 2024 election, potentially influencing the perception of Trump, who voters previously considered strong on economic matters.
The increases in wages for lower-income workers may have played a vital role in the 2022 midterm elections, helping Democrats counter a predicted Republican wave in swing states.
The changes in wage dynamics for lower-income workers have been described by economists as “a significant shift in the US labor market.”
According to Alinduve, an economist at the University of Massachusetts, “the unexpected compression mirrors some major wage compressions from the 1940s—the rapid growth is primarily concentrated among those under 40 without university degrees.”
Some economists also assert that Trump’s tariffs might be disproportionately affecting low-wage workers.
A report from the Institute for Taxation and Economic Policy indicated that tariffs can impose a tax burden equivalent to around 6.2% of income for the lowest fifth of American earners.
