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A new report from the left-leaning Economic Policy Institute analyzes wage growth from 2019 to 2022.
Researchers found that the lowest-earners saw the highest real wage growth out of the groups analyzed.
That growing pay was due to pandemic policy and need for workers, but those policies have ended.
The lowest-earning workers got a big pay bump during the pandemic, but those wage gains probably won’t stick, as policies that bolstered wallets, helped keep children out of poverty and hunger, and kept people in their homes have all come to an end.
A new analysis from the Economic Policy Institute, a left-leaning think tank, finds that from 2019 to 2022, real wages grew at a breakneck speed for the lowest 10% of earners. Authors Elise Gould and Katherine deCourcy calculate wages grew by 9.0% for the lowest earners over this time — the highest rate of growth among the five income groups analyzed.
The skyrocketing wages for the lowest-paid Americans can be chalked up to a few factors. Massive stimulus spending, on everything from enhanced unemployment to checks to the child tax credit — alongside eviction moratoriums — helped keep the economy afloat. That meant that when reopening began, there was a slew of opportunities and jobs for low-wage workers to fill.
EPI looked at how the real wage growth of 9.0% for the lowest-paid workers compared to earlier business cycles and recessions. Between 2007 and 2010, the change was a much smaller 1.1%, and growth between 2001 and 2004 didn’t even cross 1.0%. As EPI stated, “smart policy was a key factor” to “the bounceback” that these workers saw compared to their peers in earlier downturns.
As workers came in from the sidelines, businesses needed a lot of them, and fast. That meant that companies were competing with one another to lure in the workers who were ready for jobs — and that often took the form of higher wages. After all, why stay at the restaurant you’re working at when the one down the street will pay you more for similar work?
Firms’ decisions to mass lay-off workers early in the pandemic have also come back to bite them, at least when it comes to wages. While it might sound counterintuitive that job losses lead to higher wages, EPI identifies this phenomenon as something called “severed monopsony.”
Monopsony refers to companies’ ability to hold power in the labor market and set wages; even in our tight post-vaccine labor market, monopsony power — which comes in the form of everything from schedule-setting to making workers sign noncompetes — makes wages lower than they would be in a perfectly competitive labor market.
However, under severed monopsony, laid-off workers were cut-off from the employers that may have been suppressing their wages. As EPI explains: “Once the employer-employee ties have been severed, employers’ power to rehire those same workers at the same pay and working conditions is greatly reduced.” The workers may have simply migrated away, or gotten new jobs, or demanded more out of work.
But while wage gains were notable, and likely impacted the lives of many low-earners, the lowest-paid Americans are still lagging far behind their wealthier peers. As EPI calculates, those workers — who are disproportionately Black, Hispanic, and female — saw an average hourly wage of $12.57 in 2022. Meanwhile, the top 10% of wage-earners made 41.4% of total earnings in the US in 2021.
EPI concludes that policies like hiking the minimum wage, stronger unemployment insurance, and removing barriers to union organizing might help preserve and bolster wage gains by the lowest earners. However, the current political appetite for cuts, paired with a GOP-controlled House, means all of those proposals would likely be dead on arrival if they ever made it to Congress.
“It seems the lessons from the pandemic recession have been all but forgotten,” Gould and deCourcy write.