Inflation is moderating and wages are finally turning positive for working-class Americans: Average hourly wages for production and non-management workers (which account for four-fifths of the workforce) reached $30.27 in August. Latest Report From the Bureau of Labor Statistics.
My organization's analysis shows that inflation-adjusted wages for working-class Americans are only slightly higher than they were on Election Day in 2020. The average working-class American can now answer “yes” to the question, “Are you better off now than you were under Donald Trump?”
This is obviously important as political symbolism. But the real wage milestone also explains a lot about why Americans have felt so pinched by inflation in the past. Food and housing prices matter, but they matter even more when price increases outpace wage increases.
Inflation-adjusted, or “real,” wages are a key measure of the health of the economy because they summarize the balance between price increases and wage growth.
Biden’s campaign was battling economic headwinds in part because of a sharp rise in inflation that caused average real wages to fall in 2021 and 2022. It’s no wonder that voters didn’t trust Biden on the economy, despite low unemployment and robust GDP growth.
However, the wage picture has improved ahead of the election. Weekly private sector wages in the first quarter of 2024 are $1,527 per weekThat's the highest first-quarter weekly pay in at least the past two decades, adjusted for inflation, and the biggest year-over-year inflation-adjusted wage increase since 2021, according to figures released Aug. 21 by the Bureau of Labor Statistics.
The rise in real wages is spreading across industries and regions.
For example, the food service and accommodation sector has seen real wages for manufacturing and non-managerial workers increase substantially since Election Day 2020. The same is true in the warehousing industry, which includes e-commerce fulfillment facilities distributed widely across the country.
In battleground states such as Georgia, Michigan, Nevada, North Carolina and Wisconsin, average weekly wages increased by more than 3.5% over the past year, outpacing national inflation.
Why are real wages rising? The key is the recovery in U.S. productivity. During the inflationary period of 2021-22, output per hour actually fell, in part due to supply chain bottlenecks. Lower productivity made it harder for employers to pay higher wages.
But the latest numbers show that U.S. nonfarm productivity is well above 2020 levels. This doesn't simply mean the post-pandemic turmoil is over. Rather, productivity and real wage growth is being driven by a combination of strong government and corporate investment.
The Biden-Harris administration has invested significant political capital in pro-investment policies.Infrastructure Investment and Jobs Act,CHIPS and science lawandInflation Control LawFederal non-defense investments in physical, human, and research and development capital surged to more than 2 percent of GDP, the highest four-year average since the 1980s.
Meanwhile, domestic investment by large companies also increased sharply.
According to Investment Hero ReportOver the first three years of the Biden-Harris Administration, from 2021 to 2023, the top 25 U.S. companies ranked by domestic capital investment have invested more than $900 billion in the U.S. economy, nearly 40% more than the comparable totals over the first three years of the Trump-Pence Administration.
More investment means more jobs, more productivity, and higher real wages — not just now, but for years to come — and that is the surest path to greater prosperity for all.
Michael Mandel is chief economist and vice president at the Progressive Policy Institute.
