Why wage growth hasn't necessarily boosted real incomes for lower-earning workers

published 14 September 2021

The lowest-earning workers in the United States saw a year-over-year wage growth rate of 4.8 percent in August, the highest mark since 2002, according to data analyzed by the Federal Reserve Bank of Atlanta. It was 2 percentage points above the wage increases for the country's highest earners, as well, The Wall Street Journal notes.

But it hasn't necessarily translated to a real-word boost for many people thanks to inflation. Because consumer prices rose 5.3 percent in August from a year earlier and are hovering at a near a 13-year high, "real" wages — pay adjusted for inflation — for lower-earning workers actually dropped 0.5 percent from August 2020, the Atlanta Fed and the Labor Department have found.

That's because "lower-income households spend proportionately more on many commodities whose prices have gone up the most" during the COVID-19 pandemic, meaning they effectively face a higher inflation rate, the Journal writes. "Lower-income households are being hit hard by higher food prices, higher energy prices, higher shelter costs," Richard Moody, the 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." Read more at The Wall Street Journal.

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Tim is a staff writer at The Week and has contributed to Bedford and Bowery and The New York Transatlantic. He is a graduate of Occidental College and NYU's journalism school. Tim enjoys writing about baseball, Europe, and extinct megafauna. He lives in New York City.

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