Economic Policy Institute invites you to join in a conversation on how current policies are impacting working people and families, along with solutions that create a more affordable life for everyone.

On Thursday, July 9, Director of the Program on Race, Ethnicity, and the Economy Valerie Wilson, Senior Economist Elise Gould, and Chief Economist Josh Bivens

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Originally held Thursday, April 9, 2026.

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Key takeaways:

• Real wages declined 0.3% for low-wage workers in 2025, a stark departure from the unusually strong wage gains they had experienced over the previous five years.
• This reversal was not inevitable—it was caused by policy decisions that weakened the labor market.
• Meanwhile, middle- and high-wage workers saw modest wage growth in 2025.
• Low- and middle-wage workers have suffered from decades of slow and suppressed wage growth. To improve affordability, policymakers can and must raise wages. 

Low-wage workers saw their real (inflation-adjusted) wages decline in 2025, a sharp reversal from the historically fast real wage growth they had experienced over the previous five years. Middle- and high-wage workers continued to experience modest gains in 2025, according to our new analysis (see Figure A).

We examine wage growth across deciles, using the Current Population Survey (CPS) Outgoing Rotation Group microdata. Note: Due to the federal government shutdown and a lack of funding at the Bureau of Labor Statistics (BLS), there are no CPS wage data for October 2025. That means that 2025 wages are calculated based on reported wages from the other 11 months of the year.

Figure A

A weakening labor market halted low-end wage growth in 2025

In 2025, the 10th-percentile wage—the hourly wage at which 10% of workers are paid less and 90% of workers are paid more—fell 0.3% to $14.56. The median wage—the wage at the middle of the wage distribution—grew 0.8% to $25.67 in 2025 while the 90th-percentile wage increased 0.4% to $64.52 (see Figure B).

Figure B

These outcomes are a stark departure from the post-2019 pattern in which low-wage workers consistently experienced faster real wage growth than those in the middle and upper parts of the wage distribution. During that period, policymakers engineered a fast and full recovery from the pandemic recession, which provided unusual leverage to low-wage workers as employers scrambled to hire or rehire the workers they lost in the pandemic. Low-wage workers were able to secure historically fast real wage growth, despite the pandemic- and war-driven inflationary spike in 2021–2022.

But in 2025, a softening labor market halted low-wage workers’ progress. The Trump administration chaotically imposed historically high tariffs, conducted cruel mass deportations, and implemented massive layoffs among federal agencies that provide key inputs to private-sector economic growth and security. All of this led to increased economic uncertainty, and promised growth failed to materialize—particularly in areas such as manufacturing employment.

Payroll employment growth slowed notably as average monthly job gains fell from 168,000 in 2024 to only 49,000 in 2025. The average unemployment rate ticked up from 4.0% to 4.3%. By December 2025, the unemployment rate stood at 4.4%, fully a percentage point higher than the 3.4% low point reached in April 2023. Groups that are often affected first by an economic downturn—such as young workers and Black workers—experienced a much faster uptick in unemployment. Most concerning is the depressed hires rate, which is currently at levels similar to 2013 when the economy was still recovering from the Great Recession. Should layoffs pick up even a bit, this low hires rate would see the unemployment rate rise quickly.

The 2026 outlook for wages remains uncertain. While higher unemployment and depressed hires point to a cooling labor market, it is unclear that conditions will continue to deteriorate: Unemployment insurance claims remain stable and consumer spending has held up. At the same time, economic risks loom large, including geopolitical instability, Trump’s immigration policy and cuts to social programs, and the possibility of a stock market and investment collapse if the AI-driven stock market bubble deflates rapidly.

Wage inequality has declined since 2019, but low-end wage levels are still insufficient to make ends meet

Even with last year’s decline, the 10th-percentile wage of $14.56 represents a significant improvement from 2019 in inflation-adjusted terms. And there was still substantial wage compression between 2019 and 2025, as wages at the 10th percentile grew twice as fast (15.0%) as wages at the 90th percentile (7.4%). These findings are consistent with economist Arindrajit Dube’s recent Substack article, which documents strong wage compression over this period. Importantly, Dube shows that these patterns persist even after controlling for compositional changes in the population, meaning that faster wage growth at the bottom is not explained by shifts in worker demographics such as age, education, or gender.

But this low wage is still far from sufficient to make ends meet. Even if that 10th-percentile worker worked full time throughout the year, their annual pay would only be $30,279—which is not enough to attain a modest yet adequate standard of living in any U.S. county or metro area, according to EPI’s Family Budget Calculator.

Low-wage workers have seen little wage growth for much of the last 50 years

While the gains over recent years are welcome, longer-term trends show lower-wage workers losing ground. Figure C shows wage growth at the 10th, 50th, and 90th percentiles from 1979 to 2025. Over this period, 90th-percentile wages grew by an average of 1.1% per year, compared with just 0.5% at the 10th percentile. In fact, it wasn’t until 2015 that lower-wage workers finally reliably surpassed their 1979 real wage. If wages at the 10th and 50th percentiles had grown at the same rate as the 90th percentile since 1979, they would have been $18.58 and $32.40, respectively, or about 27% higher. For all wage deciles over time, including data by demographic characteristics, visit the EPI data library.

Figure C

While workers at the 90th percentile have benefited more than lower-wage workers, their gains pale in comparison to those at the very top of the distribution. The gulf between the lowest- and highest-wage workers cannot be fully captured in the CPS data because it isn’t possible to accurately measure what’s happening with very high-end wages. Using Social Security Administration (SSA) data, we previously found that wages for the top 1% skyrocketed 182% from 1979 to 2023, roughly triple the growth rate of the 90th percentile and about seven times the growth of the 10th percentile.1 As a result, inequality between the top 1% and the rest of workers substantially worsened over this period.

It is also true that productivity growth—the change in the amount of goods produced or services provided in an hour of work—has outpaced the wages of the vast majority of workers since 1979.2 While higher earners have fared better, every worker should benefit when the economy expands and productivity increases. Had low-end wages grown in line with productivity since 1979 (as they almost surely did in previous decades), the 10th-percentile hourly wage would be $21.04—or 45% higher than it is now. Similarly, the median wage would be 43% higher—or $36.69. Our forthcoming wage calculator will allow users to input any wage level and find how much higher their wages would be if they had in fact grown as fast as productivity.

Policymakers can and must raise wages to address affordability concerns

Making life more affordable for working families is not just about slowing the rate of increase of prices, it’s about ensuring continued wage gains at the bottom and middle of the wage distribution after decades of slow and suppressed wage growth before the COVID pandemic. In 2025, wages for the lowest-wage workers lost the race against prices, making it more difficult for them to afford necessary goods and services.

Policymakers must identify raising wages as the key lever to making life more affordable for working families, and they can do that by raising the minimum wage, reforming labor law to ensure workers can freely exercise their right to unionize, and maintaining full employment. Ignoring these policy levers to raise wages makes the affordability proposition even more difficult to attain.

1. To be clear, this isn’t an apples-to-apples comparison because we are comparing two different data sets and one uses annual earnings (SSA) and the other uses hourly wages (CPS).

2. Productivity growth is the percent change between 1979 and the most recent four quarters. At the time of writing, 2025 Q4 was not available.

This paper focuses on the historical divergence between typical workers’ compensation and economy-wide productivity, and the implications of this divergence for workplace inequality. Commonly referred to as the “pay-productivity gap”, we show that while inflation-adjusted pay and productivity grew in lock step from the end of WWII until the 1970s, productivity has outpaced pay since 1979. We use publicly available data sources to document this gap and discuss key methodological considerations.

We argue that the equal growth in pay and productivity before 1979 and the subsequent fracturing were driven near-entirely by intentional policy decisions. Beginning in 1979, the efforts by employers and capital-owners to undercut the bargaining power of typical workers in labor markets through policies such as deregulation, corporate-led globalization, erosion of the minimum wage, deunionization, macroeconomic policies that tolerated excess unemployment, and tax cuts for high earners led to a divergence in pay and productivity that has yet to be remedied. Not only have these intentional policy decisions created a large pay-productivity gap since 1979, but they have also coincided with a productivity slow-down across the total economy during this time period, resulting in growth that was slower and less equal.

Productivity-Pay Gap

Key takeaways:

• Real median wages grew too slowly and only in fits and starts over the last 45 years. This pattern was even starker for low-wage workers.
• Median wages grew only one-third as fast as economy-wide productivity growth.
• Wage growth was reasonably healthy during tight labor markets but almost zero in other years.
  • While tight labor markets persisted only in the clear minority of years since 1979, the last decade has been largely characterized by persistent low unemployment and this has been good for wage growth.
  • Unfortunately, the Trump administration’s chaotic and harmful policy agenda threatens these recent gains.

Our recently released State of Working America wages report includes new data on wages through 2024. Cumulative median wage growth was just 29% since 1979—or less than 0.6% per year on average.

This was far slower than the economy’s potential to deliver wage growth for all workers. In fact, as Figure A shows, median wage growth was only one-third as fast as how much could have been delivered to all workers by growing productivity. This disconnect between pay and productivity is why we now refer to the post-1979 trajectory of wages as “wage suppression” rather than “wage stagnation.”

Figure A

Too often, the bar for policy success on wage growth has been set at anything greater than zero. So long as literal wage stagnation was avoided, discussion about the urgent task of boosting typical workers’ wage growth could be forestalled.

This is too lax a standard for labor market success. Outside years of extreme crisis, capitalist (and even non-capitalist) economies in the modern world almost always grow in per-capita terms. The relevant questions are whether this overall economic growth could be faster and whether this growth lifts all boats near-equally or concentrates at the top. In the United States, overall growth has slowed significantly since 1979 and the fruits of this slower growth have concentrated significantly at the top. Relative to these key benchmarks, U.S. wage growth has been very poor.  

This slow post-1979 median wage growth happened in fits and starts, with gains only occurring in those rare years that saw tight labor markets. Further, even the potential to deliver faster growth for typical workers slowed significantly after 1979. For example, economy-wide productivity growth (value of output produced in an average hour of work in the economy) averaged 2.5% annually in the 30 years before 1979, but has just averaged 1.4% since.

Figure B illustrates cumulative median hourly wage growth between 1979 and 2024. Green segments of the line identify the periods when the labor market was tight and there was consistently healthy wage growth for workers at the middle of the wage distribution. Periods with little or no growth are identified in the dotted red line segments. If it hadn’t been for the strong wage growth from 1996–2002 and over the last 10 years, median real wages would have been flat over the entire post-1979 period. The underlying wage levels can be found in EPI’s new data library.

Figure B

In Figure C, we convert this wage growth into average annualized changes. On average, the median wage grew 1.7% annually in real terms during the 16 years when labor markets were tight but failed to grow at all during the other 29 years. During the periods when real wage growth averaged zero, the unemployment rate averaged 6.9%. Meanwhile, the average unemployment rate during the faster wage growth periods was 4.8%, even when including the huge spike in unemployment during the first year of the pandemic. In short, tighter labor markets deliver for middle-wage workers.

Figure C shows even more striking results for lower-wage workers during this same period. In tighter labor markets, low-wage workers experienced 2.7% real annual wage growth on average. However, low-end real annual wages fell 0.6% on average during the 29 other years. Without the stronger periods of lower unemployment, wages at the 10th percentile would have fallen outright. The last set of bars shows that median wages kept pace with productivity during years of tight labor markets but lagged far behind in other years. In other work, we’ve shown that accounting for non-wage benefits does not materially close this gap at all.

Figure C

The healthy wage growth of the past decade has been driven by a long stretch of low unemployment. Unfortunately, recent policy decisions are on track to reverse the gains made from maintaining full employment in recent years. Even with the strong economy the Trump administration inherited, their pursuit of a deeply chaotic policy agenda has led to a rise in economic uncertainty and brewing economic distress. Policy changes that strengthen workers’ bargaining power in labor markets are needed to not just keep pace with productivity growth but to regain some of the losses incurred by typical workers in previous decades.

Rising inequality has been a major social and economic problem for the United States for decades. The policy agenda to stop or even reverse this inequality must start with a clear understanding of what drove it. In our view, inequality has come from the labor market, and more particularly from a range of intentional policy decisions that disempowered typical workers when they have sought wage increases from employers. In an effort to disseminate facts about labor market trends more broadly, the Economic Policy Institute has constructed the State of Working America Data Library, which allows users to easily browse and collate detailed data on wages, incomes, and employment. We hope this tool fosters a broadly shared understanding of the labor market changes we need to achieve a fairer society.

Despite recent reductions in inequality, decades of policy failures fueled public discontent and enabled billionaire public influence

In any single year since 1979 there has been a maddening gap between what the U.S. economy could be delivering for working families and what it actually delivered. The richest country in the history of the world has routinely failed to offer broad-based economic security and prosperity through a cascade of policy failures. This gap between the potential and the reality of what typical families eke out of the U.S. economy has shown up directly in skyrocketing incomes for the richest households.

There is a strong case to be made that the 2024 economy—despite just being a few years clear of two global economic catastrophes (the COVID-19 pandemic and the Russian invasion of Ukraine)—had re-attained its pre-crisis performance in record time and in a way that directed more benefits to the lowest-paid workers.

Yet the anxieties driven by the crisis, the unfamiliar burst of inflation, and a decades-long legacy of typical families rightly feeling they weren’t the main focus of policymakers made U.S. households extremely sour about the economy. A fairer distribution of economic rewards in the decades before the crises might have made the public more optimistic about the rocky economic road of 2020–2024 and less willing to take a chance on the extreme policy shift that will come as a result of their election of Donald Trump.

Read the full piece in The Briefing Book. 

Findings: Between 2019 and 2024, there has been a notable reversal of long-term trends in wage growth. Low-wage workers experienced historically fast real wage growth (adjusted for inflation) and the strongest wage growth compared with workers at all other parts in the wage distribution. The hourly wage for the lowest-paid workers at the bottom 10% grew a tremendous 15.3% over this period. The wage growth at the lower end of the wage distribution was exceptional, significantly faster than their average growth in the prior 40 years and faster than higher-wage workers over the same five-year period. Wage growth for low-wage workers also far exceeded the 2.1% wage loss that characterized the five years following the start of the last pre-COVID business cycle (2007–2012).

Faster wage growth at lower-wage levels has resulted in a compression of wages (or a narrowing of the wage distribution among the bottom 90% of wage earners). In addition, Black and Hispanic workers, young workers, and workers with lower levels of educational attainment experienced relatively fast wage growth over the last five years. Nevertheless, because pay at the bottom of the distribution started at such a low point in 2019, low-wage workers today continue to suffer from wages that are grossly inadequate to sustain families, and significant wage gaps exist at all points in the distribution across demographic groups.

Implications: Policymakers responded to the pandemic recession with actions that made a real difference in people’s lives: Wages grew for those who needed it most. Thoughtful policymaking going forward can help ensure that lower-wage workers continue to see improvements in their standard of living.

Recommendations: Policymakers can choose to prioritize a strong labor market that continues to deliver these gains for lower-wage and historically marginalized demographic groups. Unfortunately, recent actions from the Trump administration will put downward pressure on wage growth and raise the risk of a recession. Policymakers should:

• reverse the general assault on the public sector, restoring federal employment levels and federal payments
• reject cuts to benefit programs like Medicaid and SNAP, critical parts of the safety net for low-wage workers and their families
• prevent an escalation of deportations, which will lower employment and wages across the economy
• oppose across-the-board tariffs that lower real wages without delivering key industrial benefits that a more strategic trade policy approach could realize

Introduction

The current business cycle is a notable reversal of historic trends that increased wage inequality in the United States labor market. Between 1979 and 2019, lower-wage workers experienced only a few short years of strong wage growth in real (inflation-adjusted) wages, and their wage growth over that period significantly lagged behind the wage growth of higher-wage workers. But, between 2019 and 2024, workers in the bottom of the wage distribution have seen fast wage growth compared with their historical norm and with higher-wage workers. This stronger relative growth for lower-wage workers has led to a compression, or a narrowing, of the gap between hourly wages near the bottom and the top of the wage distribution.

Policy choices in the wake of the pandemic and the strong labor market have made these unusually fast gains possible. Historically disadvantaged groups—such as Black and Hispanic workers, young workers, and workers with less than a college degree—have experienced particularly strong wage growth in recent years. Of course, this recent growth has only just begun to narrow these large wage gaps, 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 and continue to build on them, even in weaker labor markets.

Wage growth continued to be strongest for low-wage workers between 2019 and 2024

In this report, we analyze the wage distribution at deciles from the 10th to the 90th percentile of the wage distribution, using Current Population Survey (CPS) Outgoing Rotation Group microdata (EPI 2025a). In our analysis, we employ a new methodology to better smooth our wage deciles by using information from nearby percentiles, described in detail in the appendix. Notably, the labor market story the data tells is unaffected by these changes in methodology. Regardless of method, it is important to note that our estimates of the 90th percentile wage do not fully capture the earnings of those at the very top of the wage distribution, which is better captured with other data sets, discussed briefly later on.1

Our analysis focuses on changes in real wages between 2019 and 2024, as well as historical comparisons of real wage changes between 1979 and 2019. Figure A displays wage growth at each decile of the wage distribution. Between 2019 and 2024, hourly wage growth was strongest at the bottom of the wage distribution. The 10th-percentile real hourly wage grew 15.3% over this five-year period.

Figure A

To be clear, these are real (inflation-adjusted) wage changes. Overall inflation grew 21.3%, or about 3.9% annually, between 2019 and 2024.2 Even with this historically fast inflation, particularly in the immediate aftermath of the pandemic recession, low-end wages grew substantially faster than price growth. Nominal wages (i.e., not inflation adjusted) for these lower-wage workers rose 39.8% cumulatively since 2019.

Lower-end wages grew faster than any other group within the bottom 90% of earnings. In fact, across the wage distribution, we see the pace of wage growth declining for each successive wage group until we reach the highest wage groups.3 Compared with the 15.3% wage growth at the 10th percentile, growth was less than half as fast at the median or 90th percentile.

The bounceback low- and middle-wage workers experienced was stronger than in any business cycle since 1979

Figure B shows just how exceptional this recovery has been in achieving strong wage growth for low-wage workers. The figure presents real changes in the 10th-percentile wage and the 50th-percentile wage five years from the prior peak in each business cycle since 1979. Wage growth at the 10th percentile was positive in only one other five-year recovery cycle (1989–1994), and even compared with then, the current 10th percentile wage growth is seven times as fast.

Middle-wage workers experienced slower gains in the recent business cycle compared with low-wage workers. However, the slower middle-wage growth over the last five years was still significantly faster than that found in the four prior business cycles, more than twice as fast as the next fastest growth rate across business cycles.

Figure B

Wage compression in the most recent period contrasts sharply with the prior 40 years

This wage compression is in stark contrast with the experience of workers in the prior four decades.4 Figure C displays wage growth between 2019 and 2024 compared with wage growth between 1979 and 2019. This time we report annualized wage changes—which allow for comparison across periods that span different numbers of years (e.g., a five-year span versus a 40-year span).

Figure C

The differences in wage growth between these periods are striking because the recent pattern is so contrary to historical trends. Whereas in the most recent period, wage growth was stronger among each successive lower-wage group starting with 70th percentile workers on down, the opposite pattern occurs in the earlier forty-year period. Each successive higher-wage group displays wage growth at least as fast as the previous one. In the most recent period, middle-wage workers’ growth was not far behind growth for the highest-wage workers—about four-fifths as fast—but in the 1979-2019 period, their wage growth was less than half as fast. The difference is even more extreme for the lowest-wage workers: only an average of 0.3% growth over the 40-year period versus nearly 2.9% annualized growth over the past five years. All wage groups experienced annualized wage growth faster in the most recent period as between 1979 and 2019 and much faster among roughly the bottom 60% of the wage distribution. Had the median wage grown over the last 44 years at the 1.1% rate it did from 2019–2024, it would be over $31 per hour today rather than its current value of just under $25 per hour.

While the strongest growth in the recent period swamps the slower growth in the prior period, the overall trend since 1979 is still one of rising inequality since the prior period is nearly 10 times as long as the most recent period being analyzed. (See EPI’s new State of Working America data library for the full complement of data years and trends (EPI 2025f).)

Wage compression over the last five years narrowed the 90–10 wage ratio

Another way to analyze wage inequality or quantify the extent of wage compression across periods is to analyze the wage ratios between different points in the wage distribution. The 90–50 and 90–10 wage ratios are measured by the 90th percentile wage divided by the 50th or 10th percentile wage, respectively. For instance, the 50th and 90th percentile wages were $24.87 and $62.75, respectively.5 Therefore, the 90–50 wage ratio is 2.5, which means that higher-wage workers are paid about two-and-a-half times as much as middle-wage workers on an hourly basis. The average annual change in the wage ratios is determined by comparing these ratios over time and dividing by the number of years in each period.

Figure D displays changes in the 90–50 and 90–10 wage ratios over the 1979–2019 and 2019–2024 periods. Over the 1979 to 2019 period, we see inequality ticking up, with a widening between high-wage workers and both middle- and low-wage workers through the growth in both the 90–10 and 90–50 wage ratios.

Between 2019 and 2024, there was a slight increase in the 90–50 wage ratio because wages at the middle grew just a bit slower than wages at the top. On the other hand, much faster low-end wage growth has shrunk the 90–10 wage ratio considerably over the last five years. While this wage compression is welcome news, it still does not reverse the decades-long growth in equality when measured over the entire 1979 to 2024 period.

Figure D

The very top continues to amass larger shares of the overall pie

Changes at the very top of the wage distribution cannot be accurately measured using the Current Population Survey, given the censoring of high-end wages and the possibility that high earners do not accurately report their income, but Social Security Administration (SSA) data reveal what’s happening within the top 10%, 5%, 1%, and even 0.1% of the annual earnings distribution.6 Between 2019 and 2023 (the latest data available), average annual earnings also showed signs of wage compression: The bottom 90% grew by 5.0%, and the top 5% and top 1% grew by 2.3% and 0.6%, respectively. But, like the long-term pattern we observed in hourly wages, the five-year compression of wages pales in comparison with the four-plus-decade increase in inequality. Between 1979 and 2023, the average earnings of the bottom 90% grew 43.7%, while the top 5% grew 135.4% and the top 0.1% jumped 353.9% (Gould and Kandra 2024).

Faster wage growth for low-wage workers was driven by policy decisions and a tight labor market

The fast growth over the last five years, particularly for low-wage workers, didn’t happen by chance: It was largely the result of intentional policy decisions that addressed the pandemic and subsequent recession at the scale of the problem. Wage growth in the most recent five-year period far exceeded that of the last four business cycles, including notably, the downright losses following the start of the last pre-COVID business cycle (2007–2012). In the aftermath of the Great Recession, policymakers learned a lesson about the pitfalls of austerity: The pursuit of austerity led to a slow and prolonged economic recovery.

Several large spending bills were passed in the first year of the pandemic, which provided enhanced and expanded unemployment insurance, economic impact payments, aid to states and localities, child tax credits, and temporary protection from eviction among other measures (Gould and Shierholz 2022). These actions provided relief to workers and their families to help them weather the recession. These measures also fed the surge in employment, which gave low-wage workers better job opportunities and leverage to see strong wage growth.

Though ticking up slightly in 2024, the unemployment rate remained low, averaging 4.0% over the year, and the share of the population ages 25–54 with a job—the prime-working-age employment to population ratio (EPOP)—remained high in 2024 at 80.7%, surpassing even the pre-pandemic peak in 2019 of 80.0%. 

This tightening labor market further bolstered workers’ leverage. Low unemployment means that workers are relatively scarce, which requires employers to work harder to attract and retain workers and lessens their discretion to discriminate without facing a profitability penalty. In low-unemployment labor markets, lower-wage and historically marginalized workers experience better labor market outcomes and faster wage growth (Bivens and Zipperer 2018; Wilson and Darity 2022).

In addition, the sudden loss of millions of low-wage jobs at the start of the pandemic, followed by the extraordinarily fast employment recovery, meant that the frictions that tie workers to particular jobs—that is, the barriers that would normally keep workers from searching for better employment opportunities—were not constraining workers looking for work in this period. This “severed monopsony” in a time of furious rehiring reduced the normal drag on wage growth imposed by these frictions (Bivens 2023). High numbers of low-wage workers quit and found better jobs, increasing churn in the low-wage labor market (Autor, Dube, and McGrew 2023). This phenomenon increased low-wage workers’ leverage, which further contributed to faster wage growth. Employers, and particularly employers of low-wage workers, simply had to work harder to attract and retain the workers they wanted.

Higher minimum wages can lock in the gains made by low-wage workers

The minimum wage is an essential labor standard that establishes a baseline for earnings, strengthens the negotiating power of low-wage workers, and helps reduce gender, racial, and ethnic wage disparities. Robust labor standards—like the minimum wage—complement tight labor markets by accelerating wage growth for lower-wage workers. Higher minimum wages help sustain these gains, providing stability for low-income workers during both economic downturns and periods of growth.

Despite the federal minimum wage remaining stagnant at $7.25 per hour since 2009, since then more than half of U.S. states have implemented increases (EPI 2025d). By analyzing wage growth trends across states that have and have not raised their minimum wage, we can assess whether these increases have contributed to wage growth for lower-wage workers.

Before 2019, state minimum wage increases did more to bolster wages at the bottom

Between 2016 and 2017, wage growth for workers at the 10th percentile was twice as fast in states that raised their minimum wage compared with those that did not (Gould 2017). For women at the 10th percentile, wage growth was 2.5 times higher in states with minimum wage increases than in those without, contributing to a reduction in the gender wage gap among low-wage workers.

From 2013 to 2019, leading up to the pre-pandemic economic peak, low-end wages grew by 17.6% in states that increased their minimum wage at least once, almost twice as high as the 9.3% in states that kept it unchanged (Gould 2020). However, the gap in wage growth was smaller during the 2017–2019 period due to a tightening labor market. As previously mentioned, when the unemployment rate is low, the minimum wage has less of an impact, as employers must already offer higher wages to attract and retain workers, which reduces the number of employees directly affected by minimum wage increases. While these increases may not bite in good times, higher state minimum wages can help workers lock in those gains when the labor market softens and lower-wage workers lose the leverage they may have had in the tighter labor market.

A tight labor market and state minimum wage increases worked in tandem to generate immense low-end wage growth

In the most recent period between 2019 and 2024, 29 states and the District of Columbia raised their minimum wage through legislation, referendum, or indexing. To analyze the relationship between these state-level increase and low-end wage growth, we group all 50 states (plus D.C.) into three categories, as shown in Figure E: states with no minimum wage increase, states with a small increase, and states with a large increase.7

Figure E

In the last five years, nearly every state with a higher minimum wage than the federal minimum of $7.25 experienced an increase in their minimum wage.8 The average nominal increase (not adjusted for inflation) in the minimum wage between 2019 and 2024 among states with any increase was 37.8%. Even with relatively fast inflation of about 21% over this period, average minimum wage increases outpaced inflation.

Figure F compares real wage increases at the 10th percentile, overall and for women, across these three groups of states.9 The key result is clear: Regardless of minimum wage changes, low-wage workers experienced extremely fast wage growth in all states. Even in states with no minimum wage increase, low-wage workers experienced an 11.7% wage increase between 2019 and 2024. Low-end wages grew at incrementally faster rates in states with small and large minimum wage changes compared with states without any change in their minimum wage, 13.7% and 14.8% compared with 11.7%, although these differences were not statistically significant at conventional levels of significance.10

For lower-wage women, specifically, the findings are stronger. The 10th percentile wage for women grew 10.8% in states with no minimum wage change, but low-end wage growth in states with large minimum wage increases was far faster at 15.6%, an extra 4.8 percentage points of wage growth due to the minimum wage. In this case, the wage growth in states with large minimum wage changes was statistically larger than wage increases in states without a minimum wage change.11

Figure F

Research shows that a tightening labor market alone leads to stronger wage growth among lower-wage workers (Bivens and Zipperer 2018). The 10th-percentile wage grew across all states regardless of changes in state minimum wages because of enhanced relief measures and reduced frictions that boosted low-wage workers’ leverage. It is also important to note that low-wage workers in states with minimum wage increases saw even faster growth than low-wage workers in states without such increases.

Minimum wage increases are crucial to lock in low-wage workers’ gains and build on them

It is essential that we increase the federal minimum wage in order to secure the real wage gains for low-wage workers over the last five years. Unfortunately, Congress has failed to increase the federal minimum wage in the last 15 years, and it is now at its lowest value in real terms in 68 years (Cooper, Hickey, and Zipperer 2022; Zipperer 2024).

Many states and localities have continued to increase their minimum wages in response to federal inaction. On January 1, 2025, 21 states increased their minimum wage, benefiting more than 9.2 million workers (Hickey 2024). Among those affected, 20.4% are in families with incomes below the poverty line, while nearly half (48.5%) have incomes below twice the poverty line (Hickey 2024).

Low-wage workers experienced vital gains due to the tight labor market and legislative measures enacted early in the pandemic recovery. To secure these gains and have protection from weaker labor markets, these workers need strong labor standards such as a higher minimum wage.

Despite historic wage growth, low-wage workers continue to suffer from grossly inadequate wages

Although tight labor markets and, to some extent, minimum wages have bolstered wages at the low end of the wage distribution, millions still work for grossly inadequate wages. Federal policy action is needed to aid working families across the United States in making ends meet.

In 2024, the 10th-percentile hourly wage was $14.26. While this represents a significant improvement from 2019, it is still far from sufficient to make ends meet: Even if that 10th-percentile worker worked full time, their annual pay would be only $29,661. In states that saw increases in the minimum wage between 2019 and 2024, the average 10th-percentile hourly wage was $15.24 in 2024, more than 18% higher than in states that saw no minimum wage increase ($12.85).12

Even with 15.3% wage growth since 2019, it is still difficult—if not impossible—for a 10th-percentile worker to make ends meet. According to EPI’s Family Budget Calculator, whether a worker is making $12.85 an hour or $15.24 an hour, they are still not earning enough to attain a modest, yet adequate, standard of living (a basic family budget for a single individual with no children) in any county or metro area in the United States (EPI 2025b). In fact, there is nowhere in the country where a minimum-wage worker is paid enough to meet the requirements of their one-person local family budget on their wages alone (deCourcy and Gould 2025; Gould, Mokhiber, and deCourcy 2024).

Wage compression meant faster growth for historically marginalized workers

Long-standing discrimination and occupational segregation have led women and Black and Hispanic workers to be disproportionately overrepresented in the low-wage workforce (Bahn and Cumming 2020; Wilson and Darity 2022). Young workers and workers with lower levels of educational attainment also face higher unemployment and lower wages than their more experienced or more educated counterparts.

Table 1 provides wage levels at the middle of the wage distribution—the 50th percentile—for select demographic groups in 1979, 2019, and 2024. We use this to examine how wages within groups have changed in recent times (the last five years) compared with the prior 40 years, with wage changes calculated on an annualized basis for better comparability.

Wage growth has been fastest for Black workers, young workers, and less educated workers

Historically disadvantaged demographic groups experienced far faster wage growth over the last five years compared with the prior 40 years. Although women experienced significant wage growth between 1979 and 2019 due to the increase in labor market opportunities, their wage growth was even greater in the most recent period. Men and white workers’ wages grew in line with overall gains, while Black workers saw the greatest boost in wage growth.

Middle-wage Black men saw the biggest boost in wage growth compared with the earlier period. After increasing at an annualized rate of only 0.1% between 1979 and 2019, Black men’s wages increased at an annualized rate of 1.7% between 2019 and 2024. Black women saw the fastest wage growth over the past five years (1.8%), after experiencing only moderately paced growth in the earlier period (0.7%).

Table 1

Middle-wage young workers — aged 16-24— and workers with lower levels of educational attainment—with less than a bachelor’s degree—also experienced dramatically faster wage growth between 2019 and 2024 than in the 40 years prior. Both groups saw extremely sluggish growth between 1979 and 2019 (0.2% and 0.1%, respectively), while young workers saw 20 times faster annualized growth (2.6%) and less educated workers saw 10 times faster annualized growth (1.1%) in the most recent period.

Key wage gaps narrowed but still remain large

The wage levels by race/ethnicity and by race/ethnicity and gender in Table 1 can be used to calculate the wage gaps between groups for 1979, 2019, and 2024. For example, the Black-white wage gap is calculated by subtracting the median Black wage ($21.40) from the median white wage ($27.28) and then dividing this number by the white wage. In 2024, this equates to Black workers being paid 21.6% less than white workers. We go one step further and calculate an annualized percentage point change in these racial and gender wage gaps over the most recent period and the prior 40 years (Figure G).

After widening between 1979 and 2019, the wage gaps between Black and white workers overall and between Black and white men, specifically, narrowed over the past five years. Notably, the gap between Black and white men closed at an average annual rate of 0.7 percentage points between 2019 and 2024, making a significant dent in the gap between these groups. The gap between Hispanic and white men also narrowed during this period, but at a slower rate (0.4 percentage points). Black and Hispanic women each experienced significant narrowing compared with white men in the last five years (0.6 and 0.7 percentage points, respectively), much faster than compared with the prior 40 years.

Although these data show promising signs for racial and gender wage equality, significant progress is still needed. In 2024, middle-wage Black workers are still being paid $5.88 less per hour than their white counterparts, while the gap for middle-wage Hispanic workers is even larger ($6.94). For full-time workers, this gap translates to more than $12,200 lower pay for Black workers and $14,400 lower pay for Hispanic workers than white workers. These gaps are even larger between White men and Black and Hispanic women. White men at the median are paid $9.09 and $10.36 more than 50th percentile Black and Hispanic women, which translates to annual earnings gaps of more than $18,900 and $21,500, respectively.

Figure G

Policy matters

The source of much of the remarkable wage growth and compression over the last five years was a very tight labor market: high aggregate demand and “severed monopsony” (Bivens 2023), breaking the frictions that tie workers, especially low-wage workers, to certain jobs. An expansion of child tax credits, unemployment insurance benefits, food assistance, and direct payments all contributed to the economic recovery from the COVID-19 pandemic and made the labor market the strongest it has been in a generation (Gould and Shierholz 2022).

The Trump administration, however, is currently taking concrete and alarming steps to reverse these accomplishments. Its general assault on the public sector, by terminating the employment of tens of thousands of federal government workers, will directly reduce incomes and demand throughout the country (EPI 2025c). The administration’s elimination of grants and contracts will further weaken the labor market, shrinking universities, charities, and possibly even the entire domestic semiconductor industry (García 2025; Mickle and Swanson 2025). All these efforts will weaken the demand for employment and, therefore, reduce wage growth.

An escalation of deportations will reduce employment of foreign-born and U.S.-born workers alike, and the resulting decrease in demand due to lower incomes is likely to put downward pressure on average hourly wage rates (East et al. 2023). SNAP cuts and Medicaid reductions would eviscerate an already threadbare safety net for low-income families and reduce workers’ fallback position and bargaining power for higher wages (Bergh 2025; Bivens, Wething, and Morrissey 2025). In addition, the Trump administration’s broad-based tariffs will raise prices and reduce real wages in every state (Hersh and Bivens 2025) without providing any benefits that might accrue from a more strategic approach that targeted protection at the specific sectors that need it.

Even after two months there is not a single development or pronouncement from the Trump administration or Congress that is consistent with broad-based wage growth. Instead of coasting on a historically strong economy, the Trump administration seems willing to trash it, and the only question is this: How deep of a hole will they dig for the vast majority of workers who depend on a strong labor market to make ends meet?

Appendix

Calculating wage percentiles

In this report, we calculate real hourly wage percentiles (10th–90th) to analyze changes to wages across the wage distribution. One challenge that researchers face when calculating percentiles is that wages reported in survey data tend to be bunched at round values. For example, in 2019, about 80% of hourly workers paid between $20 and $20.99 reported an hourly wage of exactly $20.00. This bunching arises because people are more likely to be paid at certain round wages (Dube, Manning, and Naidu 2020); survey respondents are more likely to respond to questions about pay with round values; and beginning in 2023, the Census Bureau (Census) began rounding wage and earnings survey responses (Census 2022).

Bunching in survey data is problematic for estimating year-to-year wage growth at specific percentiles because it can increase variability or noise in wage growth estimates. Even in an environment where wages are growing, bunching can cause the median wage, for example, to stay constant for two years at $20 per hour and then in the third year suddenly jump to $21 per hour. In that hypothetical example, median wage growth would be 0% between year 1 and year 2, and 5% between year 2 and year 3, instead of the average growth of 2.5% each year.

To reduce bunching-related problems in measuring wage levels and wage growth, this report adopts the averaged percentile smoothing method recommended by Tedeschi (2024). Specifically, we calculate a given percentile using a weighted average of 9 neighboring percentiles in the distribution. For example, the median wage (50th percentile) is calculated using the weighted average of the 46th through 54th percentiles with weights 1/25, 2/25, 3/25, 4/25, 5/25, 4/25, 3/25, 2/25, 1/25, respectively. This smooths out wage clumps in the wage distribution with an unbiased estimate of the value of a percentile. The averaged percentile method is the method of choice in EPI’s new State of Working American data library (EPI 2025f).

Appendix Figure A shows real wage growth from 2019 to 2024 at each wage percentile using the smoothed averaged percentile method and an unsmoothed percentile. When no smoothing method is applied, wage growth is extremely volatile. On the other hand, averaging the percentiles before calculating wage growth greatly reduces the observed volatility.

Appendix Figure A

Researchers have also used other methods to smooth percentiles estimated from bunched wage and income data. Autor, Dube, and McGrew (2023) use locally weighted regressions to smooth wage percentiles from the CPS. The Bureau of Labor Statistics smooths median usual weekly earnings from the CPS by linearly interpolating between $50 weekly earnings bins (BLS 2025). Similarly, in the past, researchers at EPI have estimated wage percentiles using linear interpolation between $0.25 hourly earnings bins and have estimated average wages within quintiles (Gould and deCourcy 2023; Gould and deCourcy 2024). This report and the new State of Working America data library uses the averaged percentile method described above (EPI 2025f).

An additional complication with CPS wage data is that high values of earnings are censored or “top coded” by the Census. For example, in 2022, about 6% of all wage earners and 13% of non-hourly wage earners had wage values that were top coded at the Census maximum of about $2,885. Beginning in April 2023, Census gradually transitioned to a dynamic top-code regime, adjusting the threshold every month to censor the top 3% of non-hourly and hourly wage earners.

Prior to the new dynamic top-code regime, we impute weekly earnings to those non-hourly workers by fitting year- and gender-specific Pareto distributions to weekly earnings above the 80th percentile and assigning those top-coded with the implied mean values; in 2022, those means were $4,803 and $5,903 for women and men.

Since April 2023, we impute wages for those top-coded by using the Census-provided mean above the top code; for those workers in this time period still subject to the static top code of $2,885, we impute their weekly wages by assigning the implied mean above $2,885 in a given month, using the sample of workers with dynamically assigned top codes and means. Given these new weekly earnings, we calculate hourly wages for non-hourly workers using usual hours worked at the main job.

In order to avoid how the imputation choices for high values of earnings may affect high values of hourly wages, when calculating the averaged 90th percentile in this report, we average only the 89th, 90th, and 91st percentiles, using weights 1/4, 1/2, 1/4, respectively, instead of averaging nine percentiles as we do for the other deciles.

Appendix Figure B shows the 90th percentile 2019–2024 wage growth using our preferred 89th–91st averaged percentile, as well as the 86th–94th averaged percentile, and the unsmoothed 90th percentile. Whether and how one smooths the 90th percentile has a noticeable effect on estimated wage growth because of the clumpiness of the wage distribution and perhaps because of the change in Census-provided top-code thresholds. Our preferred 3-bin 89th—91st percentile method suggests slightly faster growth at the 90th percentile than the 9-bin method and relatively similar growth to the unsmoothed method.

Appendix Figure B

A focus of this report is describing changes to wages of people in the middle of the wage distribution. Appendix Figure C reports the median wage of the smoothed averaged percentile method, the unsmoothed classic method of calculating percentiles, the quintile averaging method (the average of all people between 40th–60th percentiles) used in Gould and deCourcy 2023, and the binned linear interpolation method used in earlier EPI reports. Just as with the 90th percentile, the exact choice of method yields slightly different results. Our preferred averaged method suggests the 50th percentile grew by 5.8%, slightly below the 6.9% growth rate of the 90th percentile, but the range of estimates across methods in Appendix Figures B and C suggests that the growth rates for the two wage percentiles were broadly similar.

Appendix Figure C

Notes

1. Further, as we discuss in the appendix, wage changes at the top of the wage distribution are difficult to measure because of changes in how the Census Bureau censors high-end earnings.

2. Here and throughout this report, we measure inflation using an extended version of the Chained CPI-U, following the recently updated methodology the Census Bureau uses for its historical income series. Given this change, wage levels and trends are not directly comparable to earlier EPI reports, but differences between the points in the wage distribution—measured inequality—are unaffected. Specifically, in this report we use the annual values of the extended Chained CPI-U from version 0.19.0 of the R realtalk package (EPI 2025e).

3. In the appendix, we show that because of reported wage bunching and censoring, there is some uncertainty about the exact growth rate of the 90th percentile, with plausible estimates ranging from about 5.4% to 7.2%, all consistent with our conclusion in this report that lower-end wages grew much faster than those at the top between 2019 and 2024.

4. These findings are consistent with our State of Working America wage reports from prior years, as well as other research. See for instance, Gould and deCourcy 2024 and Autor, Dube, and McGrew 2023.

5. For all wage levels, please visit EPI’s State of Working America data library (EPI 2025f).

6. Wages in the CPS are censored—or hidden—for very high earners because of confidentiality concerns.

7. States with small increases saw nominal increases of less than or equal to 33.3% over the 2019–2024 period, while states with large increases saw nominal increases of more than 33.3% over the same period. We chose this nominal increase threshold because 33.3% is the unweighted median increase, which makes the number of states in each group relatively similar.

8. West Virginia is the one exception; the state’s minimum is higher than the federal, but its last increase was in 2015 (EPI 2025d).

9. In our state-level analysis, we exclude workers whose wages were allocated or imputed by the Census Bureau. The wage allocation model does not include the state (Census 2021), which can artificially mute or flatten differences in wages between states. 

10. In case there’s any confusion, the 10th percentile nationally is not just a weighted average of 10th percentiles in states with and without state minimum wage increases, which is why both growth rates can be lower than the overall 10th percentile reported earlier in this report. Here we calculate the 2024 employment-weighted average of the state-specific changes in the 10th percentile wage.

11. Among women, low-end wage growth in large change states was statistically significantly larger at the 5% level than in no change states, (using a one-tailed t-test, p = 0.032). For all workers, the difference was less precise (p = 0.075). For the 10th percentile for men (not shown), there was essentially no difference in wage growth between the state groups.

12. EPI analysis of Current Population Survey Outgoing Rotation Group microdata (EPI 2025a). The 10th-percentile wage in each state group is a weighted average of the states’ 10th-percentile wages. We exclude workers whose wages were allocated or imputed in these calculations.

References

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Bahn, Kate, and Carmen Sanchez Cumming. 2020. “Four Graphs on U.S. Occupational Segregation by Race, Ethnicity, Gender.” Washington Center for Equitable Growth, July 2020.

Bergh, Katie. 2025. Millions of Low-Income Households Would Lose Food Aid Under Proposed House Republican SNAP Cuts. Center on Budget and Policy Priorities, February 2025.

Bivens, Josh, Hilary Wething, and Monique Morrissey. 2025. Cutting Medicaid to Pay for Low Taxes on the Rich Is a Terrible Trade for American Families. Economic Policy Institute, February 2025.

Bivens, Josh. 2023. “Learning the Right Lessons from Recent Inflation: Why Macroeconomic Overheating Was the Problem and Austerity Is the Wrong Cure.” American Prospect, January 10, 2023. 

Bivens, Josh, and Ben Zipperer. 2018. The Importance of Locking in Full Employment for the Long Haul. Economic Policy Institute, August 2018. 

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Cooper, David, Sebastian Martinez Hickey, and Ben Zipperer. 2022. “The Value of the Federal Minimum Wage Is at Its Lowest Point in 66 Years.” Working Economics Blog (Economic Policy Institute), July 14, 2022.

DeCourcy, Katherine, and Elise Gould. 2025. “EPI’s Updated Family Budget Calculator Shows that States Like Virginia Need a Higher Minimum Wage.” Working Economics Blog (Economic Policy Institute), February 6, 2025.

Dube, Arindrajit, Alan Manning, and Suresh Naidu. 2020. “Monopsony and Employer Mis-Optimization Explain Why Wages Bunch at Round Numbers.” National Bureau of Economic Research Working Paper no. 24991, Revised January 2020. 

East, Chloe N., Annie L. Hines, Philip Luck, Hani Mansour, and Andrea Velásquez. 2023. “The Labor Market Effects of Immigration Enforcement.” Journal of Labor Economics 41, no. 4: 957–996.

Economic Policy Institute (EPI). 2025a. Current Population Survey Extracts, Version 1.0.61, https://microdata.epi.org. 

Economic Policy Institute (EPI). 2025b. Family Budget Calculator. Last updated January 2025.

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García, Uriel J. 2025. “Texas Refugee Aid Group Sues to Unfreeze $36 Million in Federal Funds.” Texas Tribune, March 3, 2025.

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Gould, Elise, and Jori Kandra. 2024. “Wage Inequality Fell in 2023 Amid a Strong Labor Market, Bucking Long-Term Trends: But Top 1% Wages Have Skyrocketed 182% Since 1979 While Bottom 90% Wages Have Seen Just 44% Growth.” Working Economics Blog (Economic Policy Institute), December 11, 2024.

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The current business cycle is a notable reversal of fortune for lower-wage workers in the U.S. labor market. Between 1979 and 2019, low- and middle-wage workers in the U.S. labor market experienced only a few short years of strong growth in real (inflation-adjusted) wages. But, between 2019 and 2023, workers in the bottom half of the wage distribution have seen historically fast wage growth, even in the face of high inflation.

Policy choices in the wake of the pandemic and the strong labor market have made these strong gains possible. Historically disadvantaged groups—such as women, Black and Hispanic workers, young workers, and workers with less than college degree—have experienced particularly strong wage growth in recent years. Of course, even recent strong growth has not totally closed these wage gaps, 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.

Wage growth strongest for low-wage workers between 2019 and 2023

In this analysis, we divide the wage distribution into roughly five groups to uncover recent wage trends at different wage levels. Figure A displays wage growth at the 10th percentile (“low-wage”), the average of the 20th–40th percentiles (“lower-middle-wage”), the average of the 40th–60th percentiles (“middle-wage”), the average of the 60th–80th percentiles (“upper-middle-wage”), and the 90th percentile (“high-wage”) using Current Population Survey (CPS) Outgoing Rotation Group microdata (EPI 2024a). Gould and deCourcy (2023) provide a more detailed discussion of these data measures and their robustness. Note that the 90th percentile as “high-wage” does not capture the earnings of those at the very top, and is better captured with other data sets which are discussed briefly later on.

Our analysis focuses on changes in real wages between 2019 and 2023, as well as historical comparisons of real wage changes between 1979 and 2019. Our focus on 2019 and 2023 allows us to largely ignore the dramatic swings in employment and wages in 2020 and 2021, which were most impacted by the pandemic recession and initial recovery.1

Real wage growth at the 10th percentile was exceptionally strong—even in the face of high inflation

Between 2019 and 2023, hourly wage growth was strongest at the bottom of the wage distribution. The 10th-percentile real hourly wage grew 13.2% over the four-year period. To be clear, these are real (inflation-adjusted) wage changes. Overall inflation grew nearly 20%, or about 4.5% annually, between 2019 and 2023. Even with this historically fast inflation, particularly in the immediate aftermath of the pandemic recession, low-end wages grew substantially faster than price growth. Nominal wages (i.e., not inflation-adjusted) rose by roughly 34% cumulatively since 2019.

Across the wage distribution, we see the pace of wage growth declining for each successive wage group until the 90th percentile. Compared with the 13.2% wage growth at the bottom, growth was less than half as fast for lower-middle-wage workers (5.0%) and less than one-third as fast for middle-wage workers (3.0%) between 2019 and 2023. Upper-middle wages grew 2.0% over the four-year period, while the 90th-percentile wage grew 4.4%.

Figure A

Wage compression in the most recent period contrasts sharply with prior 40 years

Because wages grew much faster at the 10th percentile than at the other four points we measure within the 20th to 90th percentiles, wage compression has occurred. These findings—disproportionately strong wage growth at the bottom leading to wage compression—are consistent with the other research (see, for instance, Autor, Dube, and McGrew 2023).

This wage compression between 2019 and 2023 is in stark contrast with the experience of workers in the prior four decades. Figure B displays wage growth between 2019 and 2023 compared to wage growth between 1979 and 2019 for the same five wage groupings: low-wage, lower-middle-wage, middle-wage, upper-middle-wage, and high-wage. This time we report annualized wage changes in wages—which allow for comparison across periods which span different numbers of years, e.g. a four-year span versus a forty-year span.2

The differences in wage growth between these periods are striking. Whereas in the most recent period wage growth was stronger among each successive lower wage group starting with upper-middle-wage workers on down, the opposite pattern occurs in the earlier forty-year period. Each successive higher wage group displays wage growth at least as fast as the previous one, except for between the lower-middle to the middle-wage group where there’s a small decrease. In the most recent period, middle-wage workers experience growth nearly two-thirds (63.6%) as fast as high wage workers, but in the 1979-2019 period their wage growth was one-third as fast. The difference is even more extreme for the lowest wage workers: close to zero growth over the forty-year period versus more than 3% annualized growth over the past four years. All wage groups experienced wage growth at least as fast in the most recent period as between 1979 and 2019, and much faster among roughly the bottom half of the wage distribution.

Figure B

The very top continues to amass larger shares of the overall pie

Changes at the very top of the wage distribution cannot be measured using the CPS, but Social Security Administration (SSA) data reveal what’s happening within the top 10%, 5%, 1%, and even 0.1% of the annual earnings distribution. Between 1979 and 2019, the bottom 90% grew 0.6% on an annualized basis, while the top 5% grew 2.0% and the top 0.1% grew 3.8% (Gould and Kandra 2023). There are vast differences not only between the top and the vast majority, but also within the top of the earnings distribution.

The latest SSA data only extends to 2022. The 2019–2022 period is characterized by relatively even growth, primarily because stock market declines in 2022 drove losses among the highest earners. After dropping significantly in 2022, the stock market rebounded greatly in 2023 (Trackinsight 2024). Therefore, very top earnings are likely to show a solid rebound in 2023, continuing the concentration of wages at the high end. 

The bounceback low-wage workers experienced was stronger than in any business cycle since 1979—and smart policy was a key factor

Figure C shows just how exceptional this recovery has been in achieving strong wage growth for low-wage workers. The figure presents the real changes in the 10th-percentile wage and the middle wage four years from the prior peak in each business cycle since 1979. Wage growth at the 10th percentile in the current business cycle is more than twice as fast as the next closest period over the last 40 years.

Middle-wage workers—workers between the 40th and 60th percentiles of the wage distribution—experienced slower gains in the recent business cycle compared to low-wage workers. However, the slower middle-wage growth over the last four years was significantly faster than that found in the four prior business cycles.

Figure C

Faster growth for low-wage workers was driven by policy decisions and a tight labor market

The fast growth over the last four years, particularly for low-wage workers, didn’t happen by luck: It was largely the result of intentional policy decisions that addressed the pandemic and subsequent recession at the scale of the problem. Policymakers learned from the aftermath of the Great Recession, in which the pursuit of austerity led to a slow and prolonged economic recovery.

Several large spending bills were passed in the first year of the pandemic, which provided enhanced and expanded unemployment insurance, economic impact payments, aid to states and localities, child tax credits, and temporary protection from eviction, among other measures (Gould and Shierholz 2022). These actions provided relief to workers and their families to help them weather the recession. These measures also fed the surge in employment, which gave low-wage workers better job opportunities and leverage to see strong wage growth.

Unemployment fell to 3.6% in 2022 and held steady in 2023 as both the labor force and employment grew. The share of the population ages 25-54 with a job—the prime-working-age employment to population ratio (EPOP)—rose to 80.7% in 2023, surpassing even the pre-pandemic high of 80.0% in 2019. In fact, we have to go back to 2000 to find a prime-working-age EPOP that exceeds the level reached in 2023.

This tightening labor market further bolstered workers’ leverage. Low unemployment means that workers are relatively scarce, which requires employers to work harder to attract and retain workers and lessens their discretion to discriminate without facing a profitability penalty. In low-unemployment labor markets, lower-wage and historically marginalized workers experience better labor market outcomes and faster wage growth (Bivens and Zipperer 2018; Wilson and Darity 2022).

In addition, the sudden loss of millions of low-wage jobs at the start of the pandemic, followed by the extraordinarily fast employment recovery, meant that the frictions that tie workers to particular jobs—that is, the barriers that would normally keep workers from searching for better employment opportunities—were not constraining workers looking for work in this period. This “severed monopsony” in a time of furious re-hiring reduced the normal drag on wage growth imposed by these frictions (Bivens 2023). High numbers of low-wage workers quit and found better jobs, increasing churn in the low-wage labor market. This phenomenon increased low-wage workers’ leverage, which further contributed to faster wage growth. Employers simply had to work harder to attract and retain the workers they wanted.

Higher minimum wages can lock in the gains made by low-wage workers

The minimum wage is a crucial labor standard that serves as a valuable wage floor; bolsters the bargaining power of low-wage workers; and narrows wage gaps between workers by gender, race, and ethnicity. Strong labor standards—such as the minimum wage—work hand-in-hand with tight labor markets to provide faster wage growth for lower-wage workers. Higher minimum wages lock in the gains made in tight labor markets and bolster low wages in downturns as well as in expansionary periods.

While the federal minimum wage has been stuck at $7.25 an hour since 2009, over half of states have increased their minimum wage since then (EPI 2024c). We can see if there is a relationship between these state-level minimum wage increases and low-end wage growth by comparing differences in wage growth between states with and without changes to their minimum wage.

In past years, state minimum wage increases have done more to bolster wages at the bottom

Between 2016 and 2017, 10th-percentile wage growth was twice as fast in states with minimum wage increases as in states without (Gould 2017); wage growth was 2.5 times as fast for a woman at the 10th percentile in states that raised their minimum wage compared with a 10th-percentile woman in states that didn’t. This growth at the bottom helped to narrow the gender wage gap between 10th percentile workers.

Over the entire period from 2013 to 2019 leading up to the peak before the pandemic recession, low-end wage growth was 17.6% in states that increased their minimum wage at least once over that period, compared with 9.3% in states that didn’t (Gould 2020). The differential in wage growth isn’t as large when we look at just the period from 2017 to 2019; that’s because the labor market was tightening over those two years. When the unemployment rate is low, the minimum wage is less likely to bind—that is, employers already have to pay higher wages to attract and retain workers, so fewer workers are directly affected by minimum wage increases.

In the pandemic recovery, a tight labor market and state minimum wage increases were important for the tremendous low-end wage growth

We turn now to the current period. Twenty-nine states and the District of Columbia raised their minimum wages between 2019 and 2023, either through legislation, referendum, or indexing. To analyze the relationship between these state-level increases and wage growth at the bottom, we group all 50 states (plus D.C.) into two categories, as shown in Figure D: states with and without a minimum wage increase over the entire period.

Figure D

All states with a higher minimum wage than the federal minimum of $7.25 experienced an increase in their minimum wage in the last four years.3 The average nominal increase in the minimum wage between 2019 and 2023 among states with any increase was 28.6%. To be clear, this is a nominal increase, not a real increase. Again, inflation grew just under 20% over this period. Still, these minimum wage increases are, on average, about 6.5% annualized over the four-year period.

In Figure E, we compare real wage increases at the 10th percentile across these two sets of states. The key result is clear: Low-wage workers experienced fast wage growth in all states, regardless of changes to their minimum wage.4 Even in states without an increase to their minimum wage, low-wage workers experienced a 7.3% wage increase between 2019 and 2023. Also, low-end wages grew about 50% faster in states with minimum wage changes compared to states without any change in their minimum wage, 11.0% versus 7.3%.5

Figure E

It is the case that a tightening labor market on its own leads to stronger wage growth among lower-wage workers (Bivens and Zipperer 2018). Further, as discussed above, enhanced relief measures and reduced frictions boosted low-wage workers’ leverage, thereby increasing the 10th-percentile wage across all states regardless of changes in state minimum wages. It is also the case that low-wage workers in states with minimum wage increases saw significantly faster growth than low-wage workers in states without minimum wage increases.

Minimum wage increases are crucial to lock in low-wage workers’ gains and build on them

We need to lock in the real wage gains that occurred for low-wage workers over the last four years. Increasing the federal minimum wage is the best way to do that. Unfortunately, Congress has failed to increase the federal minimum wage in the last 14 years, and it is now at its lowest value in real terms in 67 years (Cooper, Hickey, and Zipperer 2022).6

In response to sustained inaction at the federal level, many states and localities have continued to increase their minimum wages, as 22 states did on January 1, 2024 (Hickey 2023). Nearly 10 million workers benefited from those increases in their state’s minimum wage (Hickey 2023). Among those affected, 19.7% are in families with incomes below the poverty line, while nearly half (47.4%) have incomes below twice the poverty line (Hickey 2023).

The tight labor market along with legislative measures earlier in the pandemic recovery provided vital gains to low-wage workers. However, these workers need the support of strong labor standards, including a higher minimum wage, to keep from falling behind when the labor market weakens.

Despite historic wage growth, low-wage workers continue to suffer from grossly inadequate wages

Despite the meaningful impact of minimum wage hikes at the state and local levels, wage rates remain insufficient for individuals and families working to make ends meet across the United States. Federal policy action is needed.

In 2023, the 10th-percentile wage was $13.66. While this was a 13.2% increase from 2019, it is still far from sufficient to make ends meet: Even if that 10th-percentile worker worked full time, their annual pay would be only $28,410. In states that saw increases in the minimum wage between 2019 and 2023, the average 10th-percentile wage was $14.59 in 2023, almost 20% more than in states that saw no minimum wage increase ($12.19).7

Even with 13.2% wage growth since 2019, it is still difficult—if not impossible—for a 10th-percentile worker to make ends meet. According to EPI’s Family Budget Calculator, whether a worker is making $12.19 an hour or $14.59 an hour, they are still not earning enough to attain a modest yet adequate standard of living—a basic family budget for a single individual with no children—in any county or metro area in the United States (EPI 2024b). In fact, any wage rate below $15 an hour is insufficient to meet a one-person basic family budget in any county or metro area in the United States (Gould, Mokhiber, and DeCourcy 2024).

Wage compression meant faster growth for historically marginalized workers

Women and Black and Hispanic workers remain disproportionately represented in the low-wage labor market relative to their shares within the overall workforce due to long-standing patterns of discrimination and occupational segregation (Bahn and Cumming 2020; Wilson and Darity 2022). Young workers and workers with lower levels of education attainment also face higher unemployment and lower wages than their more experienced or more educated counterparts. Further, parents—particularly mothers—face barriers to maintaining work and decent wages and working conditions, particularly in the face of the pandemic (Aaronson, Hu, and Rajan 2021; Landivar and deWolf 2022).

Table 1 provides wage levels at the middle of the wage distribution—average of the 40th-60th deciles—for select demographic groups in 1979, 2019, and 2023. This allows us to look at how wages within groups have changed in the last four years compared to the prior forty. At the bottom of the chart, we compare wage levels between groups to measure changes in wage gaps for middle wage workers across demographic groups.

Faster wage growth for Black men, young workers, and mothers

Historically disadvantaged demographic groups experienced far faster wage growth over the last four years compared to the prior forty. Both men and women experienced faster growth than in prior years, though women notably experienced significant increases between 1979 and 2019 as their opportunities in the labor market expanded. Middle-wage Black workers saw the biggest boost in wage growth, particularly Black men. After not at all increasing between 1979 and 2019, Black men’s wages increased at an annualized rate of 1.5%, twice the overall rate, between 2019 and 2023.

Table 1

Middle wages for young workers—disproportionately found at the lower end of the wage distribution—experienced tremendous growth between 2019 and 2023. After growing 0.1% annualized between 1979 and 2019, their wages grew a whopping 2.1% annualized between 2019 and 2023. Similarly, workers with lower levels of educational attainment—specifically those with less than a four-year bachelor’s degree—saw zero wage growth between 1979 and 2019, then experienced a striking 0.6% growth in wages over the last four years.

Parents—particularly mothers—also experienced strong wage growth between 2019 and 2023. Women with a child under 18 years old saw 1.7% annualized wage growth between 2019 and 2023.

Key wage gaps narrowed but remain large

The wage gaps at the bottom of the chart are simple comparisons of wage levels between each of the demographic groups listed. After worsening between 1979 and 2019, both the Black-white and Hispanic-white wage gaps narrowed between 2019 and 2023. The gender wage gap narrowed at a fast pace between 1979 and 2019 because of educational upgrading and expanding labor market opportunities for women; it did continue to narrow between 2019 and 2023, albeit at a slower pace.

After widening between 1979 and 2019, the wage gap between Black and white men narrowed sharply between 2019 and 2023, making a significantly dent in the gap between those groups. There were similar gains for Hispanic men vis-à-vis white men. Black and Hispanic women experienced equal narrowing in both periods, though they saw much faster narrowing in the last four years compared to the prior forty.

As with the gains in wages for workers without a college degree, it’s not surprising that the education wage gap also narrowed. After widening between 1979 and 2019, the narrowing over the last four years indicates promising opportunities for these less credentialed workers.

Policy matters

The recent gains in low-end wage growth may be short-lived if policymakers curtail the recovery. The most immediate threat to the continued recovery is if the Federal Reserve keeps rates higher than is needed to normalize inflation. This policy failure could not only constrain the full recovery but also cause a recession. Even a mild recession would be highly regressive, hitting the most vulnerable and historically disadvantaged groups the hardest. If policy mistakes or unforeseen shocks do lead to a downturn, only congressional policymakers have the tools to shelter those harmed. This is worrying given the current state of U.S. politics.

While great strides were made during the pandemic recession and in its immediate aftermath with vital relief and recovery measures, divided partisan control of the House and Senate means that there is not any easy path to countercyclical measures being legislated if a recession hits again soon. It seems the lessons from the pandemic recession have been all but forgotten. Necessary long-term investments in our unemployment insurance system have not been made and many of the relief measures that increased economic security during the pandemic, such as the child tax credits, have long since lapsed.

Policymakers can and should ensure that low-wage workers lock in the gains made over the past four years and continue to increase their ability to make ends meet. We also need policy measures to boost wages for middle-wage workers, such as making it easier for workers to collectively bargain and bolstering public-sector employment.

In short, we need robust wage growth and worker power at the center of economic policymaking. To stem inequality and see healthy wage growth for the vast majority of workers, we need to use all the tools in our toolbox to reverse these policy trends—including prioritizing full employment, strengthening and enforcing labor standards, and removing obstacles to workers forming unions. This policy agenda would provide more broadly shared prosperity so that low- and middle-wage workers alike have opportunities to improve their standard of living.

Notes

1. In 2020, the bottom dropped out of the labor market as low-wage and low-hours workers lost their jobs in disproportionate numbers (Gould and Kandra 2021; Gould and Kassa 2021). As the recovery took hold in 2021, swings in the composition of the workforce by gender, race/ethnicity, education, work hours, industry, and occupation made it necessary to account for these differences in measuring wage changes in the pandemic labor market (Gould and Kandra 2022). By 2022, the dramatic compositional shifts in the pandemic labor market had mostly resolved (Gould and DeCourcy 2023). In the latest year of data, most measurable spikes in the workforce by demographic and job characteristics normalized in the last year. As a percent of the workforce, white workers, workers with lower levers of educational attainment, and leisure and hospitality workers are found at slightly lower rates in 2023 than in 2019.

2. Appendix Figure A provides a look at cumulative real wage changes over the entire period, 1979 to 2023, to get a sense of overall wage trends. Even though the most recent period exhibited wage compression, it’s clear that the much longer forty-year period of unequal growth remains the most striking finding from the overall period.

3. West Virginia is the one exception; their minimum is higher than the federal, but they last increased it in 2015 (EPI 2024c).

4. For state-based analysis, we exclude workers whose wages were allocated or imputed. The wage allocation model does not include a state indicator (Census 2021). This can mute or flatten differences in wages between states. When imputed wages are included, the wage differential shrinks to 2.5 percentage points as the estimates 10th percentile wage increase in state without minimum wage increases is measured as 7.6% and the 10th percentile wage increase in state with minimum wage increases is measured as 10.1%.

5. In case there’s any confusion, the 10th percentile nationally is not just a weighted sum of states with and without state minimum wage increases, which is why both growth rates can be lower than the overall reported earlier in this report.

6. Although the report referenced only provides evidence through 2022, it is clear from the lack of federal minimum wage increases and rising prices that minimum wage has hit a 67-year low.

7. EPI analysis of Current Population Survey Outgoing Rotation Group microdata (EPI 2024a). The 10th-percentile wage in each state group is a weighted average of the states’ 10th-percentile wages.

Appendix

Appendix Figure A

References 

Aaronson, Daniel, Luojia Hu, and Aastha Rajan. 2021. Did Covid-19 Disproportionately Affect Mothers’ Labor Market Activity? Federal Reserve Bank of Chicago, January 2021. 

Autor, David, Arindrajit Dube, and Annie McGrew. 2023. “The Unexpected Compression: Competition at Work in the Low Wage Labor Market.” National Bureau of Economic Research Working Paper no. 31010, March 2023. 

Bahn, Kate, and Carmen Sanchez Cumming. 2020. Four Graphs on U.S. Occupational Segregation by Race, Ethnicity, Gender. Washington Center for Equitable Growth, July 2020. 

Bivens, Josh. 2023. “Learning the Right Lessons from Recent Inflation.” American Prospect, January 10, 2023. 

Bivens, Josh, and Ben Zipperer. 2018. The Importance of Locking in Full Employment for the Long Haul. Economic Policy Institute, August 2018. 

Census Bureau. 2021. “Imputation of Unreported Data Items” (web page). Accessed February 2024. 

Cooper, David, Sebastian Martinez Hickey, and Ben Zipperer. 2022. “The Value of the Federal Minimum Wage Is at Its Lowest Point in 66 Years.” Working Economics Blog (Economic Policy Institute), July 14, 2022. 

Economic Policy Institute (EPI). 2024a. Current Population Survey Extracts, Version 1.0.48, https://microdata.epi.org. 

Economic Policy Institute (EPI). 2024b. Family Budget Calculator. Last modified January 2024. 

Economic Policy Institute (EPI). 2024c. Minimum Wage Tracker. Last updated January 1, 2024. 

Gould, Elise. 2017. The State of American Wages 2016: Lower Unemployment Finally Helps Working People Make Up Some Lost Ground on Wages. Economic Policy Institute, March 2017. 

Gould, Elise. 2020. State of Working America Wages 2019: A Story of Slow, Uneven, and Unequal Wage Growth over the Last 40 Years. Economic Policy Institute, February 2020. 

Gould, Elise, and Katherine deCourcy. 2023. Low-wage Workers Have Seen Historically Fast Real Wage Growth in the Pandemic Business Cycle. Economic Policy Institute, March 2023.  

Gould, Elise, and Jori Kandra. 2021. Wages Grew in 2020 Because the Bottom Fell Out of the Low-Wage Labor Market. Economic Policy Institute, February 2021. 

Gould, Elise, and Jori Kandra. 2022. State of Working America 2021: Measuring Wages in the Pandemic Labor Market. Economic Policy Institute, April 2022. 

Gould, Elise, and Jori Kandra. 2023. “Wage Inequality Fell in 2022 Because Stock Market Declines Brought Down Pay of the Highest Earners.” Working Economics Blog (Economic Policy Institute), December 11, 2023. 

Gould, Elise, and Melat Kassa. 2021. Low-Wage, Low-Hours Workers Were Hit Hardest in the COVID-19 Recession. Economic Policy Institute, May 2021. 

Gould, Elise, Zane Mokhiber, and Katherine deCourcy. 2024. What Constitutes a Living Wage? Economic Policy Institute, January 2024. 

Gould, Elise, and Heidi Shierholz. 2022. “The Economy Is Recovering Fast. But We Need to Ensure It Works for Everyone.” CNN Business Perspectives, March 3, 2022. 

Hickey, Sebastian Martinez. 2023. “Twenty-two States Will Increase Their Minimum Wages on January 1, Raising Pay for Nearly 10 Million Workers.” Working Economics Blog (Economic Policy Institute), December 21, 2023. 

Landivar, Liana Christin, and Mark deWolf. 2022. Mothers’ Employment Two Years Later: An Assessment of Employment Loss and Recovery During the COVID-19 Pandemic. Economic Policy Institute, May 2022. 

Trackinsight. 2024. “The Year of the Rebound” (website). Accessed February 2024. 

Wilson, Valerie, and William Darity Jr. 2022. Understanding Black–White Disparities in Labor Market Outcomes Requires Models That Account for Persistent Discrimination and Unequal Bargaining Power. Economic Policy Institute, March 2022. 

What this report finds: Between 2019 and 2022, low-wage workers experienced historically fast real wage growth. The 10th percentile real hourly wage grew 9.0% over the three-year period. This tremendous real wage growth at the lower end of the wage distribution was exceptional, significantly faster than in any other business cycle peak since 1979. Nevertheless, low-wage workers, who are disproportionately women and Black and Hispanic, continue to suffer from grossly inadequate wages: The 10th-percentile wage in 2022 was $12.57, or $26,145 annually for a full-time worker.

Why it matters: Policymakers responded to the pandemic recession with actions that made a real difference in people’s lives: Wages grew for those who needed it most. Thoughtful policymaking going forward can help ensure that low-wage workers continue to see improvements in their standard of living.

What we can do about it: The recent gains in low-end wage growth may be short-lived if policymakers curtail the recovery. The Federal Reserve should refrain from raising interest rates too fast in the name of controlling inflation. Even a “mild” recession resulting from these actions will do significant harm to low-wage workers and their families. In addition, policymakers should:

• raise the federal minimum wage;
• make long-term investments in our unemployment insurance system;
• strengthen and enforce labor standards; and
• remove obstacles to workers forming unions.

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.

Wage growth was strongest for low-wage workers over the last three years

Our analysis focuses on changes in real wages between 2019 and 2022. In this report, we largely ignore what happened in the intervening years—2020 and 2021—given labor market dynamics that caused dramatic swings in job losses and gains.1

We divide the wage distribution into roughly five groups to uncover recent wage trends at different wage levels. Figure A displays wage growth at the 10th percentile (“low-wage”), the average of the 20th–40th percentiles (“lower-middle-wage”), the average of the 40th–60th percentiles (“middle-wage”), the average of the 60th–80th percentiles (“upper-middle-wage”), and the 90th percentile (“high-wage”) using Current Population Survey (CPS) Outgoing Rotation Group microdata (EPI 2023a). See the appendix for more information about why and how we selected these data measures and their robustness to our conclusions throughout this report.

Real wage growth at the 10th percentile was exceptionally strong—even in the face of high inflation

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.

Figure A

Faster wage growth at the bottom led to wage compression

Because wages grew much faster at the 10th percentile than at the other four points we measure within the 20th to 90th percentiles, wage compression occurred. These findings—disproportionately strong wage growth at the bottom leading to wage compression—are consistent with the findings of other recently released research (Autor, Dube, and McGrew 2023).

However, the wage compression shown here is very much isolated to the bottom 90% of the wage distribution. Very-high-end (top 1% and top 0.1%) wages rose much faster than bottom 90% wages through 2021.

The very top continues to amass larger shares of the overall wage pie

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%.

The bounceback low-wage workers experienced was stronger than in any business cycle since 1979—and smart policy was a key factor

Figure B shows just how exceptional this recovery has been in achieving strong wage growth for low-wage workers. The figure presents the real changes in the 10th-percentile wage three years from the prior peak in each business cycle since 1979. Wage growth in the current business cycle is nearly three times as fast as the next closest period over the last 40 years.

Figure B

Growth for low-wage workers was driven by smart policy decisions

The fast growth for low-wage workers over the last three years didn’t happen by luck: It was largely the result of intentional policy decisions that addressed the pandemic and subsequent recession at the scale of the problem. Policymakers learned from the aftermath of the Great Recession, in which the pursuit of austerity led to a slow and prolonged economic recovery.

Several large spending bills were passed in the first year of the pandemic, which provided enhanced and expanded unemployment insurance, economic impact payments, aid to states and localities, child tax credits, and temporary protection from eviction, among other measures (Gould and Shierholz 2022). These actions provided relief to workers and their families to help them weather the recession. These measures also fed the surge in employment, which gave low-wage workers better job opportunities and leverage to see strong wage growth.

A tightening labor market further drove wage gains for low-wage workers

As unemployment continued to drop over 2021–2022, it further bolstered workers’ leverage. Low unemployment means that workers are relatively scarce, which requires employers to work harder to attract and retain workers and lessens their discretion to discriminate without facing a profitability penalty. In low-unemployment labor markets, lower-wage and historically marginalized workers experience better labor market outcomes and faster wage growth (Bivens and Zipperer 2018; Wilson and Darity 2022).

‘Severed monopsony’ also boosted low-wage workers’ leverage

In addition, the sudden loss of millions of low-wage jobs at the start of the pandemic significantly reduced the frictions that tie workers to particular jobs—that is, the barriers that in normal times keep workers from searching for better employment opportunities. These barriers include, for example, the lack of time or other resources to engage in a job search or a lack of awareness of better opportunities (Manning 2003; Jäger et al. 2021).

Bivens (2023) coined the term “severed monopsony” to describe this phenomenon of reduced frictions. 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 moved out of the area, moved on to better jobs, or become more aware of other opportunities and less willing to settle for what their former employer offers.

In the pandemic recovery, this phenomenon opened up opportunities and led to increases in hires and quits (“churn”) in the low-wage labor market. This increased churn—on top of a tightening labor market and the need to incentivize workers to take “front-line” jobs with pandemic exposure—increased low-wage workers’ leverage, which led to faster wage growth.2

Middle-wage workers didn’t see as much wage growth as low-wage workers—but their wage growth was still faster than in previous business cycles

Middle-wage workers—workers between the 40th and 60th percentiles of the wage distribution—didn’t experience similar gains in the recent recovery. This is probably at least in part because they did not benefit from widespread severing of monopsony power. In addition, it’s possible that a prolonged recovery for public-sector workers has been a drag weighing on middle-wage employment and wage growth. The public-sector jobs shortfall—particularly in state and local employment—is about the same size as the shortfall in leisure and hospitality, which suffered far greater losses in the pandemic than other industries; as of February 2023, both sectors have about 400,000 fewer jobs than when the pandemic began (Gould 2023).

However, even the slower middle-wage growth over the last three years was much faster than that found in the four prior business cycles (EPI 2023a). Policy investments helped middle-wage workers—as they helped low-wage workers—with improved unemployment insurance, economic impact payments, and child care tax credits, among other provisions.

Higher minimum wages can lock in the gains made by low-wage workers

The minimum wage is a crucial labor standard that serves as a valuable wage floor, bolsters the bargaining power of low-wage workers, and narrows wage gaps between workers by gender, race, and ethnicity. Strong labor standards—such as the minimum wage—work hand-in-hand with tight labor markets to provide faster wage growth for lower-wage workers. Higher minimum wages lock in the gains made in tight labor markets and bolster low wages in downturns as well as in expansionary periods.

While the federal minimum wage has been stuck at $7.25 an hour since 2009, over half of states have increased their minimum wage since then (EPI 2023c). We can see if there is a relationship between these state-level minimum wage increases and low-end wage growth by comparing differences in wage growth between states with and without changes to their minimum wage.

In past years, state minimum wage increases have done more to bolster wages at the bottom

Between 2016 and 2017, 10th-percentile wage growth was twice as fast in states with minimum wage increases as in states without (Gould 2017); wage growth was 2.5 times as fast for a woman at the 10th percentile in states that raised their minimum wage compared with a 10th-percentile woman in states that didn’t. This growth at the bottom helped to narrow the gender wage gap.

Over the entire period from 2013 to 2019 leading up to the peak before the pandemic recession, low-end wage growth was 17.6% in states that increased their minimum wage at least once over that period, compared with 9.3% in states that didn’t (Gould 2020). The differential in wage growth isn’t as large when we look at just the period from 2017 to 2019; that’s because the labor market was tightening over those two years. When the unemployment rate is low, the minimum wage is less likely to bind—that is, employers already have to pay higher wages to attract and retain workers, so fewer workers are directly affected by minimum wage increases.

In the pandemic recovery, state minimum wage increases were less of a factor in wage growth than in previous years

We turn now to the current period. Twenty-eight states and the District of Columbia raised their minimum wages between 2019 and 2022, either through legislation, referendum, or indexing. To analyze the relationship between these state-level increases and wage growth at the bottom, we group all 50 states (plus D.C.) into three categories, as shown in Figure C. Light blue states had no minimum wage increase, medium blue states had a small minimum wage increase (10% or less), and dark blue states had a relatively larger minimum wage increase (greater than 10%).3

Figure C

In Figure D, we compare real wage increases across these three sets of states. The key result is clear: Low-wage workers experienced fast wage growth in all states, regardless of changes to their minimum wage. Low-end wages grew between 6.2% and 8.5% across the three groups of states.

Figure D

It is not surprising that differences between states are smaller than what has been seen in earlier years. A tightening labor market on its own leads to stronger wage growth among lower-wage workers (Bivens and Zipperer 2018). Further, as discussed above, enhanced relief measures and reduced frictions boosted low-wage workers’ leverage, thereby increasing the 10th-percentile wage across all states regardless of changes in state minimum wages.

In the pandemic recovery, wage compression occurred across the states

We find wage compression in all three sets of states similar to what we find at the national level. That is, wage growth at the bottom of the wage distribution was faster than at the middle of the wage distribution (not shown in chart; EPI 2023a).

Minimum wage increases are crucial to lock in low-wage workers’ gains and build on them

We need to lock in the real wage gains that occurred for low-wage workers over the last three years. Increasing the federal minimum wage is the best way to do that. Unfortunately, Congress has failed to increase the federal minimum wage in the last 13 years, and it is now at its lowest value in real terms in 66 years (Cooper, Hickey, and Zipperer 2022).

In response to sustained inaction at the federal level, many states and localities have continued to increase their minimum wages, as 23 states and D.C. did on January 1, 2023 (Hickey and Cooper 2022). More than 8 million workers benefited from those increases in their state’s minimum wage. Among those affected, 23.2% are in families with incomes below the poverty line, while another 26.5% have incomes between 100% and 200% of the poverty line (Hickey and Cooper 2022). Some states are even accelerating the pace of minimum wage growth to ensure low-wage workers continue to see increases in their living standards in upcoming years (Cox 2023).

The tight labor market and pandemic measures such as unemployment insurance expansion, economic impact payments, and child tax credits have provided vital gains to low-wage workers. However, these workers need the support of strong labor standards, including a higher minimum wage, to keep from falling behind when the labor market weakens.

Despite historic wage growth, low-wage workers continue to suffer from grossly inadequate wages

Despite the meaningful impact of minimum wage hikes at the state and local levels, wage rates remain insufficient for individuals and families working to make ends meet across the U.S. Federal policy action is needed.

In 2022, the 10th-percentile wage was $12.57. While this was a 9.0% increase from 2019, it is still far from sufficient to make ends meet: Even if that 10th-percentile worker worked full time, their annual pay would be only $26,145. In states that saw increases in the minimum wage between 2019 and 2022, the average 10th-percentile wage was $13.60 in 2022, almost 15% more than in states that saw no minimum wage increase ($11.85).4

Even with 9.0% wage growth since 2019, it is still difficult—if not impossible—for a 10th-percentile worker to make ends meet. According to EPI’s Family Budget Calculator, whether a worker is making $11.85 an hour or $13.60 an hour, they are still not earning enough to attain a modest yet adequate standard of living—a basic family budget for a single individual with no children—in any county or metro area in the United States (EPI 2023b). In fact, any wage rate below $15 an hour is insufficient to meet a one-person basic family budget in any county or metro area in the United States (Zipperer and Kamper 2023).

Low-wage workers are disproportionately women and Black and Hispanic

Women and Black and Hispanic workers remain disproportionately represented in the low-wage workforce relative to their shares within the overall workforce due to long-standing patterns of discrimination and occupational segregation (Bahn and Cumming 2020; Wilson and Darity 2022).

As Figure E illustrates, women make up 48% of the overall workforce but nearly 58% of the low-wage workforce, which is defined as workers in the bottom 20% of the wage distribution. Similarly, Black and Hispanic workers make up larger shares (by 4 and 6 percentage points, respectively) of the bottom 20% than the overall workforce. The data also show that workers with less than a high school diploma, a high school diploma, or some college are overrepresented in the bottom 20% relative to their shares of the overall workforce (not shown in chart; EPI 2023a).

Figure E

When we examine the low-wage workforce in terms of who and how many workers in the U.S. were paid less than $15 an hour, the results are astounding: In 2022 more than 20 million workers, or 15% of the workforce, were paid less than $15 an hour (Zipperer 2023). Looking across gender lines, 18% of working women (12.1 million) but just 12% of working men (8.5 million) were paid less than $15 an hour. Black and Hispanic workers were also disproportionately more likely to be paid less than $15 an hour: 20% of Black workers (3.6 million) and 19% of Hispanic workers (5.0 million) were, while only 13% of white workers (10.7 million) were.

The Black–white wage gap narrowed, while the gender gap and the Hispanic–white wage gap did not

Given the faster wage growth that occurred at the bottom of the distribution, disproportionately impacting women and Black and Hispanic workers, we would expect to see gender and racial wage gaps narrow. However, when we look at the 2019–2022 period, we see that the gender wage gap widened across three measures: the median, the average, and a regression-adjusted average (EPI 2023d).

Over the same time period, the Hispanic–white wage gap also saw no improvements, holding steady between 2019 and 2022.

However, the Black–white wage gap did narrow across all metrics: For instance, the Black–white wage gap at the median narrowed from 24.4% to 21.5% and the regression-adjusted Black–white wage gap fell 1.7 percentage points from 14.9% to 13.2%. It is possible that the rise in awareness about and overall impact of social movements like Black Lives Matter has had a role in the difference in outcomes between the Black and Hispanic wage gaps between 2019 and 2022.5 However, this would be extremely difficult to measure.

Policy matters

The recent gains in low-end wage growth may be short-lived if policymakers curtail the recovery. The most immediate threat to the continued recovery is the Federal Reserve raising interest rates too fast in the name of controlling inflation. If the Fed does overshoot on interest rates, this could cause a recession. Even a mild recession would be highly regressive, hitting the most vulnerable and historically disadvantaged groups the hardest. If the Federal Reserve pushes too hard or moves too fast, only congressional policymakers have the tools to shelter those harmed.

While great strides were made during the pandemic recession and in its immediate aftermath with vital relief and recovery measures, divided partisan control of the House and Senate means that there is not any easy path to countercyclical measures being legislated if a recession hits again soon. It seems the lessons from the pandemic recession have been all but forgotten. Necessary long-term investments in our unemployment insurance system have not been made and many of the relief measures that increased economic security during the pandemic, such as the child tax credits, have long since lapsed.

Policymakers can and should ensure that low-wage workers lock in the gains made over the past three years and continue to increase their ability to make ends meet. We also need policy measures to boost wages for middle-wage workers, such as making it easier for workers to collectively bargain and bolstering public-sector employment.

In short, we need robust wage growth and worker power at the center of economic policymaking. To stem inequality and see healthy wage growth for the vast majority of workers, we need to use all the tools in our toolbox to reverse these policy trends—including prioritizing full employment, strengthening and enforcing labor standards, and removing obstacles to workers forming unions. These policy investments will provide more broadly shared prosperity so that low- and middle-wage workers alike have opportunities to improve their standard of living.

Acknowledgments

The authors would like to acknowledge participants of EPI’s research department seminars for their engagement with our work, specifically Josh Bivens and Ben Zipperer for contributions to the methodology and David Cooper and Valerie Wilson for framing of specific issues. We also appreciate Krista Faries for her high-quality editorial work.

Appendix: Wage measurement

The objective of this report is to measure real hourly wage changes over the current business cycle across the wage distribution. Historically, EPI has measured wages at nine deciles of the wage distribution (10th through 90th) and at the 95th percentile (EPI 2023d). Here we take a slightly different approach, though our findings are robust to alternative methods. 

As noted above, EPI typically measures wages across the wage distribution by reporting deciles. Using this method, the 10th-percentile wage is the wage at which 10% of workers are paid less and 90% are paid more. Because wages are often clumped at certain values—for instance, $15 an hour, or the hourly equivalent of $40,000 a year—we created a function—binipolate—that linearly interpolates to create consistent cutoff wage values (Zipperer and Mokhiber 2020).

One drawback to this method is that, because it measures wages at specific percentiles, it doesn’t always give a clear picture of how workers are doing generally at different wide swaths of the distribution. For instance, sometimes trends at the 40th, 50th, and 60th percentiles conflict and therefore make the results harder to interpret. Additionally, we are unable to accurately measure wages and wage changes at the 95th percentile because of top-coding (Gould, deCourcy, and Mokhiber 2022). The Bureau of Labor Statistics will be addressing the top-coding issue in future analyses (beginning in April 2023); however, they will not be adjusting prior years (U.S. Census Bureau 2023).

Our new approach analyzes trends for middle-wage workers using the average wages of the three quintile ranges at the middle of the wage distribution (20th–40th, 40th–60th, and 60th–80th percentiles) rather than focusing on specific percentiles in the middle (e.g., 40th, 50th, 60th). Average wages can provide a better summary measure, particularly if we are interested in how workers in the broad middle are doing. It is also less volatile over time compared with the decile cutoff value method. Clumping at quintile cutoffs is no longer a concern because we are using all the data in the group to form the average and can simply allocate the appropriate share to make the groups of equal size. Making equally sized groups is appealing for consistency over time as well as for reasons outside this particular study.

There is a drawback to this method, however: Average wages at the top and the bottom of the distribution are heavily influenced by some observations that have either extremely high or extremely low wages. At the top of the distribution, the average wage also relies heavily on our estimates of wages above the top code.

Appendix Figure A compares the real wage growth, from 2019 to 2022, of the 10th, 50th, and 90th percentiles against the average wage growth of the bottom, middle, and top quintiles. Regardless of the method employed, the data show strong wage growth at the bottom and weaker growth at the middle of the distribution. Some very low wages appear to pull down the average of the bottom 20% relative to the 10th percentile. Because of vast inequality in the U.S., the skewed distribution at the very top and faster high-end wage growth pull the top-20% average higher than the 90th percentile. Arguably, the top-20% average is a better measure of high-end wage growth than the 90th percentile, but its reliance on estimates of the top-coded wages makes it less appealing as a form of measurement.

Appendix Figure A

With these considerations in mind, we measure low wages at the 10th percentile and high wages at the 90th percentile. We measure wages of the middle three quintiles using the average wages of the 20th–40th percentiles, 40th–60th percentiles, and 60th–80th percentiles. This approach allows us to avoid the issue of very low and high wages affecting our estimates at the bottom and top of the distribution, and it allows us to obtain a less volatile and better summary measure of how workers in the middle of the distribution are actually doing.

Notes

1. In 2020, the bottom dropped out of the labor market as low-wage and low-hours workers lost their jobs in disproportionate numbers (Gould and Kandra 2021; Gould and Kassa 2021). As the recovery took hold in 2021, swings in the composition of the workforce by gender, race/ethnicity, education, work hours, industry, and occupation made it necessary to account for these differences in measuring wage changes in the pandemic labor market (Gould and Kandra 2022a). By 2022, the dramatic compositional shifts in the pandemic labor market had mostly resolved. While leisure and hospitality—a notably low-wage sector—still has the largest employment shortfall relative to pre-pandemic employment and, on average, workers were more educated in 2022 than in 2019, most measurable spikes in the workforce by demographic and job characteristics normalized in the last year. As of mid-2022, payroll employment had returned to its pre-recession level and unemployment rates across race and ethnic groups were close to or even below their pre-pandemic levels.

2. Autor, Dube, and McGrew (2023) make similar arguments about the increased competition for low-wage workers driving wage gains in 2021–2022.

3. These minimum wage categories are based on changes in the nominal value of the minimum wage, not adjusted for inflation. In states with no changes, their minimum wage fell in real terms.

4. EPI analysis of Current Population Survey Outgoing Rotation Group microdata (EPI 2023a). The 10th-percentile wage in each state group is a weighted average of the states’ 10th-percentile wages.

5. Despite the lack of legislation, social mores can have lasting impacts on the thoughts, feelings, and actions of individuals in society (Miller 2017).

References

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Bahn, Kate, and Carmen Sanchez Cumming. 2020. Four Graphs on U.S. Occupational Segregation by Race, Ethnicity, Gender. Washington Center for Equitable Growth, July 2020.

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Bivens, Josh, and Ben Zipperer. 2018. The Importance of Locking in Full Employment for the Long Haul. Economic Policy Institute, August 2018.

Cooper, David, Sebastian Martinez Hickey, and Ben Zipperer. 2022. “The Value of the Federal Minimum Wage Is at Its Lowest Point in 66 Years.” Working Economics Blog (Economic Policy Institute), July 14, 2022.

Cox, Erin. 2023. “The First 9 Policies Wes Moore Pitched to Maryland Lawmakers.” Washington Post, February 4, 2023.

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Hickey, Sebastian Martinez, and David Cooper. 2022. “More Than 8 Million Workers Will See a Raise on New Year’s Day: 23 States and D.C. Will See Minimum Wage Hikes Ranging from $0.23 to $1.50 an Hour.” Working Economics Blog (Economic Policy Institute), December 22, 2022.

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Wilson, Valerie, and William Darity Jr. 2022. Understanding Black–White Disparities in Labor Market Outcomes Requires Models That Account for Persistent Discrimination and Unequal Bargaining Power. Economic Policy Institute, March 2022.

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As the nation pivoted to recovery, readers sought information on ways to remedy the economic injustices laid bare by the pandemic. Given the heavy burden borne by low-wage front-line workers, it is no surprise that raising wages, boosting worker power, and scrutinizing excessive compensation of people at the top were highest on the reading list. Here’s a countdown of EPI’s most-read reports in 2021.