COMP NEWS – The COVID-19 pandemic shocked the economy in a number of ways – leading to a period of high inflation, an era of work-from-home jobs, shifting employer-employee relationships, and many more material changes. A survey has found one other underreported change – that low-wage earners in the U.S. saw uncommonly high real wage growth during the pandemic era.

Over the past 40 years, low- and middle-wage workers in the U.S. labor market have experienced only a few short years of strong growth in real (inflation-adjusted) wages. The current business cycle is a notable exception for the lowest-paid workers in our economy. Even in the face of rising prices, low-wage workers have experienced historically fast real wage growth.

Large policy investments, combined with a tight labor market, made these strong gains possible. Women and Black and Hispanic workers have particularly benefited. But these workers still face steep wage gaps relative to men and white workers. And the nation’s lowest-paid workers still receive wages that are inadequate to meet most families’ basic needs. Policymakers need to strengthen labor standards so that workers can lock in the gains made and continue to build on them, even in weaker labor markets.

Though many earners feel the burn of inflation and slow-rising wages, those at the bottom of wage distribution saw an uncharacteristicly large bump between 2019 and 2022.

Between 2019 and 2022, hourly wage growth was strongest at the bottom of the wage distribution. The 10th-percentile real hourly wage grew 9.0% over the three-year period. When we look across the wage distribution, we see wage growth declining for each successive wage group until we reach the high-wage group. Compared with the 9.0% wage growth at the bottom, growth was less than half as fast for lower-middle-wage workers (3.9%) and less than one-third as fast for middle-wage workers (2.4%) between 2019 and 2022. Upper-middle wages grew even more slowly at 1.8% over the three-year period, while the 90th-percentile wage grew 4.9%—faster than the middle wages, but not as fast as the 10th-percentile wage.

Despite low-wage workers’ faster-than-average growth, wage disparity is still on the rise, leading to the top earners to amass a greater share of earnings.

While our analysis finds fast wage growth at the 10th percentile and wage compression within the bottom 90% of the wage distribution, highly unequal wage growth has led the very top to amass a greater share of the overall earnings distribution, contributing to worsening inequality.

Changes at the very top of the wage distribution cannot be measured using the CPS, but Social Security Administration data reveal that between 2019 and 2021, annual earnings of the top 1% and top 0.1% rose 16.1% and 29.2%, respectively, while the bottom 90% experienced an overall loss of 0.2% (Gould and Kandra 2022b). Comparing the share of earnings of the bottom 90% with that of the top 5% in 2021, the bottom of the wage distribution, which is 18 times as large as the top, collected just 58.6% of total earnings, while the top earned almost 30%.

To read the survey on low-wage workers’ real wage growth, click here.

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