US wage growth has slowed significantly since peaking during the COVID-19 pandemic, with the lowest-paid workers being hit the hardest.
Why it matters: The slowdown in wage growth is compounding existing financial stresses for many Americans, particularly those in lower-income brackets, and exacerbating income inequality.
The details:
- Last month, wages for new job postings increased by just 2.9% year over year, down from the peak growth of 9.4% in January 2022.
- Wage growth for the lowest-paid quarter of workers decelerated to an annual rate of 3.7% in June, a significant decline from a peak of 7.5% in late 2022.
- Higher-income workers have also experienced a slowdown in wage growth, though the impact has been less severe, with pay for the top quarter increasing by 4.7% over the year to June.
- The Paycheck-to-Paycheck Index reached a new high of 68.4% in May, indicating that 684 out of every 1,000 Americans are spending their monthly income on essential payments.
The slowdown in wage growth is attributed to weaker hiring demand and a shift back to pre-pandemic labor market trends. However, the impact is not uniform across all professions, with some sectors like electrical engineering, legal, and marketing roles still seeing higher wage growth.
What they’re saying:
- “We’re seeing that weaker hiring demand show up in wage growth numbers,” said Cory Stahle, a senior economist at Indeed Hiring Lab.
- “It takes a tighter labor market for them to have any leverage,” said Elise Gould, a labor market expert at the Economic Policy Institute, referring to the impact on lower-paid workers.
- “The wage growth lines are pointing down for all but the top quartile. If there is a silver lining from this, it’ll be lower inflationary pressures,” tweeted Mohamed El-Erian, chief economic adviser at Allianz.
The other side: Despite the challenges for workers, the slower wage growth could be advantageous for employers looking to hire, as it presents opportunities to attract workers who were hard to hire a few years ago.
What’s next: The conversation around wage stagnation and growing income disparity remains a critical topic in economic discussions, particularly as the US grapples with various economic challenges. The impact of these trends on both workers and the broader economy will continue to be closely monitored.