Bold fiscal relief and recovery measures passed in response to the pandemic boosted the economy and helped millions of Americans avoid joblessness and poverty in 2020 and 2021. While the economic recovery has continued to strengthen since then, most of the government relief measures that helped workers and families weather the economic shock have now expired. Upcoming Census Bureau data on earnings, income, and poverty for 2022—released on Tuesday—will reflect how these policy choices impacted the economic well-being of workers, families, and children across the country. 

To help place the upcoming data release in context, we highlight key economic trends that have characterized the recovery since 2021. We also show how the current labor market is already on pace to becoming a better year for workers and families with expanding job opportunities and falling inflation. 

In summary, we find:

1. The U.S. economy in 2022 continued to experience a strong and broad-based labor market expansion with strong job growth and lower unemployment across demographic groups, particularly those often left behind by economic growth.
2. While both payroll employment and nominal wages grew between 2021 and 2022, the inflationary shocks resulting from pandemic distortions and the Russian invasion of Ukraine eroded much of the gains, leading to a decline in real wage growth during this period. This will be a drag on what would have otherwise been meaningful improvements in living standards.
3. Pandemic relief measures significantly strengthened the U.S. social safety net in 2020 and 2021, demonstrating what a more robust U.S. welfare state could accomplish in reducing poverty and fostering economic security. Unfortunately, none of these pandemic expansions persisted into 2022, and their pullback will lead to a significant tempering of labor market gains as well as higher poverty rates for families and children.
4. Even though pandemic safety net expansions remain expired, the labor market continued to pull workers off the sidelines in 2023 while inflation fell. Livings standards for 2023 have likely increased significantly for the large majority of U.S. households. Next week’s data release will only look back at 2022 and not include these gains.

The labor market recovery strengthened in 2022

The labor market experienced a tremendous bounceback from the depths of the pandemic recession. Large-scale policy interventions, such as unemployment insurance reform measures and economic impact payments, helped families stay afloat and drove a recovery several times faster than the drawn-out recovery from the Great Recession. It took just two years to regain the pre-pandemic prime-age employment-to-population ratio—the share of the population 25–54 years old with a job—compared with about 10 years to reach the same point following the Great Recession.

Between 2021 and 2022, the labor market continued to expand for all workers, but particularly for Black and Hispanic workers. The United States has a long history of occupational segregation, persistent discrimination, and unequal bargaining power, which has translated into lower unemployment rates for white workers relative to other demographic groups. While disparities remain, this means that the stakes for a robust labor market recovery are even higher for historically marginalized groups. Figure A shows that Black and Hispanic unemployment rates fell faster than the overall rate between 2021 and 2022 (2.5 percentage points versus 1.7 percentage points).

In the right set of bars, Figure A illustrates the gains in the employment-to-population (EPOP) ratio overall and for “prime-age” workers 25–54 years old (including by gender). It’s important to examine this narrower age group, which excludes younger workers who may be seeking further education and older workers who are growing in numbers and may be leaving the labor force. What we find is that the prime-age EPOP grew between 2021 and 2022 as more workers reentered the labor market and found jobs.

All else equal, these improvements in the labor market typically would translate into broad-based gains in household incomes and reductions in poverty in the Census data out next week. However, the inflationary shock of 2022 and the expired pandemic safety net expansions will instead have driven reductions in living standards for the vast majority of workers, families, and children.

Strong gains in jobs and nominal wages could not blunt the inflation shocks

Figure B shows that payroll employment grew by 4.3% between 2021 and 2022, part of the best stretch of job creation in nearly 40 years. At the same time, average nominal hourly wages grew 5.4% over the year. Wage gains were even faster for workers at the lower end of the wage distribution.

In most years, more workers and higher wages would translate into higher family incomes and lower poverty. Unfortunately, persistent supply-chain bottlenecks, shifting consumer demand, and Russia’s invasion of Ukraine led to higher inflation in 2022. Over the year, prices increased 8.0%, swamping much of the labor market gains. Therefore, real wages fell by over 2% over this period.

Taken together, we have more jobs and hours worked on the plus side and falling real wages on the minus side. The exact net of this in the Census data to be released is not completely predictable, but it does suggest real household earnings (and likely incomes) will be disappointing—at best—for 2022, given the strength of the labor market. Overall, high inflation will be a drag on what would have otherwise been meaningful improvements in living standards. Fortunately, inflation has been falling this year, a sign that outcomes have already turned around from the losses we expect to see in the Census data next week.

The expiration of government relief measures further heightened economic insecurity

The federal response to the pandemic served as a reminder that poverty is a policy choice. Public expansions of social safety net programs, like unemployment insurance and the Child Tax Credit (CTC), kept millions of Americans out of poverty in 2021. The end of these expansions and other relief measures in 2022 means that upcoming income and poverty statistics are likely to reflect an increase in the economic insecurity and vulnerability of low-income families and children.

To best capture the effectiveness of public policy in sheltering families from poverty, it is helpful to examine changes in the supplemental poverty measure (SPM). The U.S. Census Bureau began to release annual estimates of the SPM in 2011 to complement the official poverty measure. Unlike the official poverty measure, the SPM factors geographic differences in housing costs and it accounts for major government benefits that help families meet their basic needs—including the in-kind transfers and refundable tax credits that helped families and children stay afloat in 2020 and 2021. 

The supplemental child poverty rate can serve as an important metric to assess economic progress and equity. This is because child poverty depends on a variety of factors that impact the well-being of families, like the employment and income security of caregivers and families’ access to adequate and equitable social protection.

In 2021, the supplemental poverty rate for children fell to a historic low as a result of the expanded social safety net, as shown in Figure C. The expansion of the CTC and other relief measures helped reduce the supplemental child poverty rate by more than half between 2019 and 2021, with declines across racial and ethnic groups. Both Black and Hispanic children experienced nearly identical and large declines in poverty during the same period—though they continue to be about three times as likely as white, non-Hispanic children to be poor, reflecting the impact of structural inequities that demand continued attention.

At least three major factors are likely to influence the upcoming 2022 child poverty rates, including the expiration of the CTC expansion, the inflation shock of 2022, and the strong and broad-based labor market recovery that benefited low-wage workers. Unfortunately, the first two of these factors are likely to dominate the 2022 annual estimates, leading to a meaningful increase in the supplemental child poverty rate. Hopefully, the growing economy and fall in inflation will lead to improved outcomes when the 2023 data are released next year.

2023 Census data will be better as inflation has fallen while the labor market has continued to expand

While the valuable safety net expansions of 2020 and 2021 have not been reinstated, the economy continued to expand in 2023, adding nearly 1.9 million jobs this year so far. Women’s prime-age employment-to-population ratio has hit its highest level on record, and the unemployment rate of young adults ages 16 to 24 reached a 70-year low. At the same time, inflation has come down considerably over the last year.

Figure D illustrates nominal wage growth, inflation, and real wage growth over the pandemic labor market. Inflation grew quickly through 2021 and the first half of 2022, but has been falling steadily since then. Nominal wage growth has been slowly decelerating to 4.3% over the last year, a pace fairly consistent with inflation targets, long-run productivity growth, and a reasonable clawing back of labor share of corporate sector income, which has continued to tilt in favor of higher profits. Slowing inflation, even in the face of decelerating nominal wage growth, has translated into real wage gains over the last few months. It is likely that these gains will continue if policymakers—like the Federal Reserve—allow the labor market to continue its march toward full employment and better opportunities for workers and their families.

Overall, next week’s Census data will likely be disappointing regarding how families fared in 2022, but it will already lag behind the current state of the economy. We are optimistic that gains made in 2023 so far have translated into better outcomes and likely a rosier picture in next year’s Census data.