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.

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.

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. 

Bureau of Labor Statistics (BLS). 2025. “Handbook of Methods, Current Population Survey: Concepts.” Retrieved February 26, 2025.

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

Census Bureau. 2022. “Improving Disclosure Avoidance Procedures for the Current Population Survey Public Use File.” Retrieved March 13, 2025.

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.

Economic Policy Institute (EPI). 2025c. How Many Federal Employees Live in Your State? Last updated January 2025.

Economic Policy Institute (EPI). 2025d. Minimum Wage Tracker. Last updated January 1, 2025.

Economic Policy Institute (EPI). 2025e. realtalk R package, Version 0.19.0, https://economic.github.io/realtalk/.

Economic Policy Institute (EPI). 2025f. State of Working America Data Library. Last updated January 2025.

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

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: Policy Investments Translate into Better Opportunities for the Lowest-Paid Workers. Economic Policy Institute, March 2023.

Gould, Elise, and Katherine deCourcy. 2024. Fastest Wage Growth over the Last Four Years Among Historically Disadvantaged Groups: Low-Wage Workers’ Wages Surged After Decades of Slow Growth. Economic Policy Institute, March 2024.

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.

Gould, Elise, Zane Mokhiber, and Katherine deCourcy. 2024. What Constitutes a Living Wage? A Guide to Using EPI’s Family Budget Calculator. 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. 

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Hickey, Sebastian Martinez. 2024. “Over 9.2 Million Workers Will Get a Raise on January 1 from 21 States Raising Their Minimum Wages.” Working Economics Blog (Economic Policy Institute), December 17, 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

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.

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.

Economic Policy Institute (EPI). 2023a. Current Population Survey Extracts, Version 1.0.27, https://microdata.epi.org.

Economic Policy Institute (EPI). 2023b. Family Budget Calculator. Last modified March 2023.

Economic Policy Institute (EPI). 2023c. Minimum Wage Tracker. Last updated January 1, 2023.

Economic Policy Institute (EPI). 2023d. State of Working America Data Library. Last modified March 2023.

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. 2023. “The labor market continues strong in February 2023, payroll jobs up 311,000.” Twitter thread, @eliselgould, March 10, 2023, 8:46 a.m.

Gould, Elise, Katherine deCourcy, and Zane Mokhiber. 2022. “Stagnant Top-Code Thresholds Threaten Data Reliability for the Highest Earners and Make Inequality Difficult to Accurately Measure.” Working Economics Blog (Economic Policy Institute), April 26, 2022.

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. 2022a. Inequality in Annual Earnings Worsens in 2021: Top 1% of Earners Get a Larger Share of the Earnings Pie While the Bottom 90% Lose Ground. Economic Policy Institute, December 2022.

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

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, 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, 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.

Jäger, Simon, Christopher Roth, Nina Roussille, and Benjamin Schoefer. 2021. “Worker Beliefs About Outside Options.” National Bureau of Economic Research Working Paper no. 29623, December 2021.

Manning, Alan. 2003. Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton, N.J.: Princeton Univ. Press.

Miller, Conrad. 2017. “The Persistent Effect of Temporary Affirmative Action.” American Economic Journal: Applied Economics 9, no. 3: 152–190.

U.S. Census Bureau. 2023. “2023 Current Population Survey User Note.” February 8, 2023.

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.

Zipperer, Ben. 2023. “How Many Low-Wage Workers Are in the US?” (interactive online calculator). Last modified 2023.

Zipperer, Ben, and Dave Kamper. 2023. “Workers Are 46% More Likely to Make Below $15 an Hour in States Paying Only the Federal Minimum Wage.” Working Economics Blog (Economic Policy Institute), January 13, 2023.

Zipperer, Ben, and Zane Mokhiber. 2020. Binipolate: A Stata function to bin data and linearly interpolate percentiles. https://github.com/Economic/binipolate.

In 2020, the U.S. economy took a hit like none other in recent history. This report is the first in a series of reports examining the effects of the COVID-19 pandemic on the labor market and the living standards of workers and their families. This series will look at 2020 in historical perspective, examining the peculiarity of the 2020 recession in terms of job losses, wages, labor force participation, and unemployment. Because the 2020 recession was driven by a highly unusual cause—the need to control the pandemic and keep people safe—its first-round impacts were far different than most previous recessions in terms of which sectors, wage levels, and workers were hit hardest and most durably.

As we look at the impact of the recession on U.S. workers and their families, it is important to remember the state of the economy as we entered the recession. Our annual State of Working America reports have long documented the rising wage inequality and slow and uneven hourly wage growth for the vast majority of workers that characterized much of the last four decades in the United States. Our State of Working America Wages 2019 report, published in February 2020, found that in only 10 of the last 40 years did most workers see any consistent positive wage growth (Gould 2020). For most of the last 40 years, typical workers’ wage growth was slow and lagged far behind gains in productivity. Wage growth was not only unequal by wage level, but also by race, with significant and widening gaps in wages for Black and white workers. And, while more education leads to better labor market outcomes in general, our analysis of wages showed that education does not inoculate workers against slow wage growth or widening racial and gender wage gaps.

This year’s series of reports begins with an examination of wage changes at different wage levels across the wage distribution. This report shows that what may appear to be strong overall wage growth is actually just an odd byproduct of how skewed job losses in 2020 were toward the lower end of the wage distribution. In other words, the faster wage growth between 2019 and 2020 reported here is largely a result of the changing composition of the workforce. It is not an accurate indicator of the amount of economic devastation and pain experienced by millions of workers and their families in 2020, nor is it an indicator that workers found themselves in a better bargaining position in 2020 that allowed them to wring some exceptional raises out of employers.

Unusually fast wage growth in a recession

Let’s start with the basic facts. Unless otherwise noted, all data in this report are from EPI’s Current Population Survey (CPS) Extracts (EPI 2021). Using these data for analysis, inflation-adjusted average hourly wages grew 7.2% between 2019 and 2020. Similarly, real median hourly wages—the wage growth from the middle of the wage distribution in 2019 to the middle of the wage distribution in 2020—grew 6.9% between 2019 and 2020. (Workers at the median are often referred to as “typical workers.”)

These average and median growth rates between 2019 and 2020 far exceed any single-year wage growth over the prior 45 years of data available and exceed the second fastest single-year wage growth by 80% to 90%, depending on the measure.

Another government data source also shows strong wage growth, but not of the same magnitude. According to the Current Employment Statistics, a survey of establishments rather than households (the CPS collects data on individuals in households), average hourly earnings of all private-sector employees and average hourly earnings of production and nonsupervisory workers each grew 3.6% in inflation-adjusted terms between 2019 and 2020 (BLS-CES 2021). (Production and nonsupervisory workers are also considered a proxy for typical workers in the U.S. economy.)

The stronger wage growth in the CPS may be due in part to volatility in the data because of smaller sample sizes as well as nonrandom nonresponse in the household survey (with difficulties in the pandemic data collection and the uneven economic devastation affecting sample sizes and response rates) (Rothbaum and Bee 2020; Ward and Edwards 2020). This nonrandom nonresponse would add to the composition effect on wage growth that we will discuss in a bit more detail below. Regardless of these differences, all four measures of average and typical worker wages show strong wage growth, not what one would expect to see during a recession. The truth is that in recessions and early recoveries there will tend to be a composition effect—a change in wages produced by a change in who is working, versus a change in how workers fare over time. But the extent of the composition effect in 2020 is like a recessionary effect on steroids. Remember, this pandemic recession is highly unusual.

While it would be quite instructive to be able to analyze wage data within 2020—as opposed to the year as a whole—the sample sizes in the CPS are small enough even during normal years to introduce too much volatility for this to be of much use. And, because of stark changes in the labor market throughout 2020, including record job losses in March and April as well as a significant bounce back in May and June, these issues just became far more constraining this year. In this report, we compare the full year 2019 data with the full year 2020 data.

Table 1 shows hourly wage growth at different points of the wage distribution for select years between 1979 and 2020, as well as the annualized percent changes in wage growth over each business cycle from 1979 to 2020 and from 2019 to 2020. Figure A provides the cumulative change from 1979 to 2020 for select deciles, notably the 10th, 50th, and 90th percentiles of the wage distribution to summarize the experience of very low-, middle-, and very-high-wage workers. As noted, the 50th-percentile worker or median worker is often used as a proxy for a typical worker.

Table 1

Figure A

Taken together, these exhibits make three key points. The first is that over each business cycle (except for the 1990s) and for the entire period from 1979 to 2020, wage growth was strongest for workers in the highest-wage categories. From 1979 to 2020, wage growth at the 90th percentile was more than twice as fast as at the median and nearly five times as fast as at the bottom. Wage growth at the 95th percentile was even faster, a whopping 87.9%.1 The second point from these exhibits is that wage growth for very low- and moderate-wage workers was relatively slow for most of that last 40 years. Even with the unusually strong wage growth over the last year, the cumulative wage growth of these workers was only 11.6% and 23.1%, respectively, over the 40-year period. The third key point that is readily apparent from these exhibits is that wage growth across the wage distribution in the past year was unusually fast. That’s clear from the sharp upturn in the figure between 2019 and 2020 as well as the fact that wage growth ranged from 3.3% at the low end of growth (for the 30th-percentile worker) to 15.2% at the high end (for the 95th-percentile worker).

Low-wage workers experienced the brunt of the job losses in 2020

The fast wage growth discussed in the previous section is not good news, as it does not represent broad-based wage growth or improvements in living standards for workers in the pandemic recession. Our analysis of CPS data for Figure A captures wages of workers in repeated cross-sections in each year. Federal Reserve Board of Atlanta (2020) analysis of continuously employed workers shows that wages did not accelerate from 2019 to 2020 for the median of the wage distribution.

Instead of being good news, the rapid wage growth shown in Table 1 and Figure A is largely the result of a very sharp compositional change in the workforce, one that was driven by which parts of the economy lost jobs during the COVID-19 recession. It is largely understood that job losses disproportionately occurred in sectors that require face-to-face interactions, such as leisure and hospitality. The average wage in leisure and hospitality is the lowest of all the major industrial sectors (BLS-CES 2021). Similarly, using median wages of each major occupation, Federal Reserve Bank of New York researchers find that lower wage occupations have experienced the sharpest employment losses since February 2020 (Abel and Deitz 2021).

While those researchers use major industries or occupations to examine where the job losses occurred, analysis on job losses across the wage distribution generally are harder to come by. Researchers who want to measure wage changes across time only have access to wage data for people actually working. (To be very clear on this: those not working are not assigned a wage of zero in these samples; they are just completely removed from the analysis). Given this measurement difficulty, analysts might try to proxy for wages using other metrics, such as education, that can predict wages. In the exhibits to come, we use a different method. We allocate the 2019 workforce to hourly wage bands or bins, then look at employment levels within those bands in both 2019, the base year, and 2020, the recession year.

In Figure B, the blue bars represent the difference between the number of jobs paying that wage level in 2019 and the number of jobs paying that wage level in 2020. We divide the annual employment into months for comparison with analysis in the next section. Note that with the exception of the first and last ones, the wage bands are labeled by the midpoint value of the band. So, for example the bar at $11 represents the loss in jobs with hourly wages from $8.50 to $13.49. As the figure shows, there were large employment losses at the low end of the wage distribution and a big gain at the highest end of the distribution.

Figure B

The red dots on the chart are provided as benchmarks—they show how much employment would have contracted at each wage level from 2019 to 2020 if jobs had contracted proportionately across the entire wage distribution. Thus, if a bar extends left of the y-axis but not beyond its dot, job losses were slower than proportionate at that wage level. If a bar extends left of the y-axis beyond its dot, job losses were faster than if they had been proportionate to their employment shares at that wage. And finally if a bar extends right of the y-axis, jobs increased.

What should be clear from this picture is that workers at the lower end of the wage distribution—those earning under about $14 an hour—lost far more jobs than their proportionate shares would have predicted, while workers earning more than roughly $25 not only beat expectations of job losses simply based on their employment share, they typically saw job gains.

Figure C simplifies the picture by showing actual and proportionate employment changes for each wage quartile. Using the 25th-, 50th-, and 75th-percentile values in the 2019 wage distribution, each bin contains 25% of workers.2 With the same wage cutoff values in both 2019 and 2020, employment changes from 2019 to 2020 are reported in each wage group. As with Figure B, the red dots represent employment losses for that wage group if losses were proportionate to overall job losses. Here we find that nearly 7.9 million of the 9.6 million net job losses were among low-wage workers (the bottom fourth of the wage distribution, here meaning those earning $13.67 or less per hour). This means that over 80% of the job losses were among the lowest 25% of wage earners. This is more than three times as much as would have occurred if job losses were even across the wage distribution. Furthermore, the top half of the wage distribution experienced outright gains in employment in 2020. These results are consistent with findings the Federal Reserve reported early in the pandemic recession. Using data from the payroll processor ADP, the Federal Reserve finds evidence that employment declines were far more severe for low-wage workers than middle- or high-wage workers (Figure A from Federal Reserve Board of Governors 2020).

Figure C

To further solidify the finding that low-wage workers were most hurt by the pandemic recession, we used the longitudinal capacity of the CPS to track those working in 2019 to examine their labor force behavior in 2020 (EPI 2021, Flood et al. 2020). By design, half of survey respondents in each month of 2019 data are resurveyed the same month the following year. (Half of the 2019 respondents would have been initially surveyed in 2018.)

As in the earlier analysis, we use the 25th-, 50th-, and 75th-percentile values in the 2019 wage distribution to sort workers by wage level. Figure D presents these workers’ outcomes in 2020. The sample is those with jobs in 2019 who were also in the 2020 survey. We sort 2019 workers into two labor market outcomes for 2020: employed or not. The not employed category includes workers who are unemployed as well as those who are not in the labor force (i.e., they were not actively looking for work so are not counted as unemployed). The same issue of survey nonresponse discussed earlier arises here and may even be exacerbated when households were returned into the survey in the same month a year later. As before, it is likely that nonrespondents were more likely to be among those who lost their jobs in the interim. If true, this means that the results presented here are a lower bound on job losses.

Figure D

The results clearly indicate that the higher one’s wage in 2019, the more likely one is to still be working in 2020. Less than 75% of low-wage workers—in the bottom 25% of the wage distribution—were still working in 2020 compared with more than 90% of high-wage workers.3 This analysis only accounts for the flows out of the workforce. To be clear, there were many new entrants to the labor force in 2020: those who didn’t work in 2019 but did work in 2020. Even so, this analysis makes clear that far greater numbers of lower-wage workers left employment in 2020 than did higher-wage workers.

Low-wage workers have not always borne the heaviest burden in recessions

The extreme wage growth between 2019 and 2020 due primarily to the compositional effect of large and disproportionate job losses among low-wage workers is strong evidence that the pandemic recession was an atypical recession. This is sufficient evidence that this downturn is unique in historical terms, but it would take a deeper analysis to further confirm the downturn is as unusual as the data would suggest in its impact on low-wage workers. The extent of job losses in and of itself makes the pandemic recession an outlier. Only the Great Recession, which began in December 2007, compares to the sheer volume of job losses experienced in the last year.

While workers lost a great number of jobs during the Great Recession, that recession is different from the pandemic recession for a number of reasons. One key reason, which makes direct comparisons difficult or impossible, is the fact that job losses dragged on for so long. There were significant job losses in 2008, 2009, and even 2010, after the official recession had ended (the National Bureau of Economic Research uses economic measures to pinpoint the official end but the labor market fallout often lingers well beyond that date). Therefore, we cannot use the longitudinal nature of the CPS to measure employment changes between workers by wage level in the Great Recession, as was done in Figure D for the pandemic recession. And, it’s even inadvisable to compare wage quartiles (as in Figure C) across multiple years because of economic and policy changes that will impact the composition of the workforce outside of the effect of the recession itself, such as normal inflation or changes to the minimum wage, which occurred in both 2008 and 2009. Therefore, to make the case, we return to the data exercise in Figure B.

Figure E displays in the blue bars the employment changes by wage interval between 2007 and 2010 (with annual changes converted to average monthly changes). The red dots on the chart are provided as benchmarks—they show what employment change would have been at each wage level if jobs had contracted proportionately across the entire wage distribution between 2007 and 2010. For comparison, refer back to Figure B and recall the very clear pattern of disproportionate job losses at the bottom of the wage distribution and outright gains at the top in the coronavirus recession. In the Great Recession, a pattern is hard to decipher. There were employment losses at the very bottom of the wage distribution for workers with wages at or below $8 an hour. These losses were greater than if they had been proportionate, but some of these may be attributed to minimum wage increases as minimum wage workers saw wage gains pushing them into higher wage levels. Perhaps as further evidence of that phenomenon, it appears that there were job gains just a bit higher up the wage distribution—in the $9 to $11 range—offsetting the losses at the very bottom.

Figure E

Moving further up the wage distribution, we see additional disproportionate employment losses in the $14 to $18 range, just below the median in 2007 (see Table 1). We can discern no clear pattern in the remainder of the figure. Even at the top of the wage distribution, where the pandemic recession registered significant employment gains, Great Recession employment fell. What is clear is that job losses in the pandemic recession are quite different from those of the Great Recession.

If we conduct a similar analysis for the 2001 recession, any pattern of job loss or gain by wage level is even less apparent. Figure F displays job losses, as monthly averages, from 2001 to 2002 by wage level. Even though the official recession was in 2001, job losses in the annual CPS were between 2001 and 2002 and not 2000 to 2001, therefore those are the years we used for comparison. The job losses were far smaller overall—note the closeness of the red dots to the y-axis. And, employment losses exhibit almost a random appearance, seemingly unrelated to wage levels nearly throughout.

While not as streamlined and clear as the earlier analyses, the results of these graphs indicate the uniqueness of the pandemic recession in disproportionately harming low-wage workers. This result has been borne out by other recent research. Analysis of quartiles of the weekly earnings distribution suggest that the first seven months of this recession hit low-wage workers harder than did three prior recessions in both an absolute sense from the sheer volume of job losses, but also in a relative sense, compared with their middle and higher earning cohorts (Long et al. 2020).

Figure F

Conclusion

All of the analyses of job loss by wage level are evidence that employment losses in the pandemic recession were heavily skewed toward lower-wage workers and that these losses were far greater than what is seen in typical recessions. These findings help explain the unusually fast wage growth from 2019 to 2020. They also shed light on the absolute devastation felt across this country from a recession that disproportionately hit the more vulnerable workers and their families. These workers are among the least likely to have savings to draw on, and they strongly rely on the unemployment insurance system to keep their heads above water.

The next report in this series will examine which types of jobs were lost in the pandemic recession and will uncover not only industry differences, but also important distinctions between occupations within those industries—with the heaviest job losses in occupations employing Black and Hispanic workers as well as white women workers.

Endnotes

1. Wage growth for the 95th percentile can be calculated from Table 1. It is important to note that some of the faster wage growth at the very top of the wage distribution in the last couple of years may be due to the increasing difficulty of measuring high end earnings in the CPS, given that the top-coded value for weekly earnings has sat at the same dollar value in nominal terms since 1998, a 22-year period of growing wage inequality. For a detailed discussion of issues arising from top-coding, see Gould 2020.

2. Because of the clumping of workers at particular wage levels, we introduce a small amount of noise to the wage data in order to construct bins of equal size.

3. Lower-wage workers, in general, experience more churn in the labor market and are more likely to have spells of unemployment than higher-wage workers. The extent of the employment losses between 2019 and 2020 exceed those differences.

References

Abel, Jaison R., and Richard Deitz. 2021. Some Workers Have Been Hit Much Harder than Others by the Pandemic. Federal Reserve Back of New York, February 2021.

Bureau of Labor Statistics, Current Employment Statistics (BLS-CES). 2021. Public data series for various years accessed through the CES National Databases and through series reports. Accessed January 2021.

Economic Policy Institute (EPI). 2021. Current Population Survey Extracts, Version 1.0.14, https://microdata.epi.org.

Federal Reserve Board of Atlanta. 2020. “Wage Growth Tracker” [Excel File], Center for Human Capital Studies Data Tools, various years. Accessed February 2021.

Federal Reserve Board of Governors. 2020. Monetary Policy Report. June 2020.

Gould, Elise. 2020. State of Working America Wages 2019. Economic Policy Institute, February 2020.

Long, Heather, Andrew Van Dam, Alyssa Fowers, and Leslie Shapiro. 2020. “The COVID-19 Recession is the Most Unequal in Modern U.S. History.” Washington Post, September 30, 2020.

Flood, Sarah, Miriam King, Renae Rodgers, Steven Ruggles, and J. Robert Warren. 2020. Integrated Public Use Microdata Series, Current Population Survey: Version 8.0 [dataset]. Minneapolis, Minn.: IPUMS, 2020. https://doi.org/10.18128/D030.V8.0

Rothbaum, Jonathan, and Adam Bee. 2020. “Coronavirus Infects Surveys, Too: Nonresponse Bias During the Pandemic in the CPS ASEC.” Census Bureau Working Paper no. SEHSD WP2020-10, September 2020.

Ward, Jason M., and Kathryn A. Edwards. 2020. “Statistics in the Time of Coronavirus: COVID-19-Related Nonresponse in the CPS Household Survey.” RAND Corporation Working Paper no. WR-A842-1, September 2020. https://doi.org/10.7249/WRA842-1.

Figure A shows in green the states with minimum wage increases that occurred through legislation or referendum in 2019, while states in blue had automatic increases resulting from indexing the minimum wage to inflation. Workers in states that increased their minimum wage between 2018 and 2019 account for about 55% of the U.S. workforce. The nominal minimum wage increases ranged from $0.05 (0.5%) in Alaska to $1.00 (9.1%−10.0%) in California, Massachusetts, and Maine.

Figure A

Figure B compares 10th-percentile wage growth in states with minimum wage increases compared with those without increases. Growth at the 10th percentile in states without minimum wage increases was much slower (0.9%) than in states with any kind of minimum wage increase (4.1%). This result holds true for both men and women. The 10th-percentile men’s wage grew 3.6% in states with minimum wage increases, compared with 0.7% growth in states without any minimum wage increases, while women’s 10th-percentile wages grew 2.8% in states with minimum wage increases and 1.4% in states without.

Figure B

Strong wage growth at the 10th percentile is not simply due to stronger overall wage growth in those states. The question is whether 10th-percentile wages in those states would have risen with or without the minimum wage increases. Figure C illustrates wage growth separately for states with and without minimum wage increases between 2018 and 2019 at the 10th, 50th, and 80th percentiles of the wage distribution. Between 2018 and 2019, the median and 80th percentile wage in states with minimum wage changes increased 0.7% and 1.5%, respectively, while they increased 2.1% and 2.4%, respectively, in non-changing states. This belies any claims that strong wage growth at the 10th percentile is simply due to stronger overall wage growth in those states and that 10th-percentile wages in those states would have risen with or without the minimum wage increases.

Figure C

What about changing economic conditions? Is there any evidence of job losses in states that increased the minimum wage that could shift employment away from minimum wage jobs? Figure D compares changes in unemployment rates and the share of the population with a job—the employment-to-population ratio—between 2018 and 2019 in states that increased their minimum wage versus states that didn’t. What’s important to note is that the unemployment rate fell in both sets of states between 2018 and 2019. It fell slightly more in minimum-wage-raising states (−0.3 percentage points) than in states that didn’t increase their minimum wage (−0.2 percentage points). Similar results are found for changes in the employment-to-population ratio. Improving labor market conditions occurred in both sets of states, but there was slightly faster growth (+0.4 percentage points) in states with increases than in states without (+0.3 percentage points). While this is far from a comprehensive analysis, there doesn’t appear to be any negative economic effect from raising the minimum wage.

Figure D

It’s important to note that not only are wage increases for low-wage workers larger in minimum-wage-raising states, but their pay is significantly higher. The employment-weighted average 10th percentile wage in states that raised the minimum wage was $10.98 in 2019. In states that didn’t increase their minimum wage in 2019, the 10th percentile was $9.80. For a full-time worker, this difference totals about $2,500 over a year.

State-level increases are an improvement, but stronger minimum wage policy is needed, particularly for workers in states that continue to rely on the federal minimum wage of $7.25 per hour, which hasn’t budged in over 10 years. Furthermore, raising the federal minimum wage to $15 by 2025 would disproportionately raise pay for women. Although men make up a slightly larger share of the overall U.S. workforce, the majority of workers who would be affected by a raise to the federal minimum wage (58.3%) are women. Raising the federal minimum wage would also disproportionately benefit black workers because they are overrepresented among low-wage workers and are less likely to live in states or localities that have passed a minimum wage that is higher than the current federal minimum wage. As a result, increasing the minimum wage to $15 would mean a pay increase for 38.1% of all black workers. The U.S. House of Representatives passed this minimum wage increase in 2019, but so far the Senate has failed to act.

In sum, minimum wage policy matters for millions of low-wage workers. Low-end wage growth was stronger in states that increased the minimum wage than in states that didn’t. Further, increasing the federal minimum wage has the potential to lift wages for millions more workers.

What is the state of U.S. wages?

• Slow wage growth persists: Consistent positive wage growth has occurred in only 10 of the last 40 years.
• Inequality continues: The highest earners (95th percentile) continue to pull away from middle- and low-wage workers.
• Policy matters: Wage growth at the bottom was strongest in states with minimum wage increases in 2019.
• Black–white wage gaps persist: In 2019, black wages exceeded their 2000 and 2007 levels across the wage distribution for the first time in this recovery. Even so, black–white wage gaps are significantly wider now than in 2000.
• Gender gaps defy educational attainment: Women with an advanced degree are paid, on average, less than men with a college degree.
• College graduates are losing ground: Wages for the bottom 50% of college graduates are lower today than they were in 2000.

Rising wage inequality and slow and uneven hourly wage growth for the vast majority of workers have been defining features of the U.S. labor market for the last four decades, despite steady (if too slow) productivity growth. In only 10 of the last 40 years did most workers see any consistent positive wage growth: in the tight labor market of the late 1990s and in the last five years (2014–2019), when the unemployment rate hit its lowest point in 50 years. Despite these gains, wage inequality continues to climb and workers at the middle and bottom of the wage scale are just making up lost ground and continue to struggle to make ends meet rather than get ahead. The median hourly wage—the wage at which half the workforce is paid more and half the workforce is paid less—stands at $19.33 per hour. For a full-time, full-year worker, this would translate into about $40,000 per year.

This report begins with a look back at 40 years of wage data, highlighting the continued divergence of productivity and pay and the unequal and uneven wage growth for most workers. This report then takes a deeper look at the most up-to-date hourly wage trends, through 2019, across the wage distribution and across education categories, highlighting important differences by race, ethnicity, and gender. By looking at real (i.e., inflation-adjusted) hourly wages by percentile, we can compare what is happening over time for the lowest-wage workers (those at the 10th and 20th percentiles) and for middle-wage workers (those at or near the 50th percentile) with wage trends for the highest-wage workers (those at the 90th and 95th percentiles).

The data show not only rising inequality through the 2000s, but also the persistence—and in some cases worsening—of wage gaps by gender and race. What also stands out in this last year of data is that, while wages are growing for most workers, wage growth continues to be slower than would be expected in an economy with historically low unemployment.

Finally, we dispel some rather pervasive but uninformed myths about why wage growth has been so slow for most workers over the last 40 years. Slow wage growth cannot be explained away by positing education shortages, by including benefits and looking at total compensation, or by changing the price deflator (changing the way wages are adjusted for inflation). To the contrary, the potential for wage growth has been squandered on the very few at the top, leaving the vast majority of the U.S. workforce without economic power and the means to achieve a decent standard of living.

Slow and unequal wage growth is the result of a series of policy decisions that have reduced the leverage of most workers to achieve faster wage growth. At the conclusion of this report, we discuss an array of solutions to reverse these trends.

Summary of key findings

Below is a summary of the key findings of this report. These findings are outlined in greater detail in subsequent sections of the report.

Slow wage growth and rising inequality is the norm. Over the last 40 years, wages for the vast majority of the U.S. workforce have grown slower than their potential and much slower than for those at the top.

• Without the wage growth spurred by exceptionally low unemployment in the late 1990s and the last five years, wages for most workers would be lower today (in real terms) than they were 40 years ago.
• Even with recent wage growth, the median wage—the wage at the center of the wage distribution—is only $19.33 an hour, which translates into about $40,000 for a full-time, full-year worker.

Wage inequality. From 2000 to 2019, wage growth was strongest for the highest-wage workers, continuing the trend in rising wage inequality since 1979.

• Since 2007, the labor market peak before the Great Recession, the strongest wage growth has continued to be within the top 10% of the wage distribution.
• From 2018 to 2019, the fastest growth continued at the top (4.5% at the 95th percentile), while median wages grew 1.0% over the year and wages at the bottom fell (-0.7% at the 10th percentile).

Wage inequality by gender. While wage inequality has generally been on the rise for both men and women, wage inequality is higher and growing more among men than among women.

• In recent years, it has become increasingly difficult to accurately assess 95th-percentile hourly wages for men. This is because the CPS does not provide data for weekly earnings above $2,884.61 (i.e., earnings are “top-coded”) and an increasing share of men have earnings above this amount. (See “What is top-coding and how does it affect data reliability?” below.) We use an imputation procedure (described in Gould 2019) to estimate men’s wage growth at the 95th percentile.
• We find that men at the 95th percentile saw the largest wage gains since 2000 (37.1%), almost twice the gains at the 90th percentile (19.9%), while the median wage rose only 3.4% over the entire 19-year period. Low-wage men fared better than those at the middle, rising 11.9% and 10.2% at the 10th and 20th percentiles, respectively. Between 2018 and 2019, low-wage male workers saw the largest increases in earnings.
• Since 2000, wage inequality has grown slower among women compared with men. Women have experienced more equal wage growth, ranging from 10.1% at the 40th percentile to 30.0% at the 95th percentile. Between 2018 and 2019, the median woman’s wage grew 3.5% while the 95th-percentile wage grew 3.1% and the 10th-percentile wage grew 2.0%.

Gender wage gap. The “gender wage gap” refers to the historically persistent difference between what men and women are paid in the workplace. While significant gender wage gaps remained across the wage distribution, the gender wage gap at the median continued to shrink over the last year, with a typical woman paid 85 cents on the typical man’s dollar in 2019 (or, facing a 15% wage gap).

• The gender wage gap at the 10th percentile remained the smallest across the wage distribution, at 9.2%, though it is about where it was in 2000.
• As inequality among men has continued to increase, it is not surprising that the gender wage gap at the top grew significantly and that 95th-percentile women were paid 29.2% less in 2019 than 95th-percentile men.
• The regression-adjusted average gender wage gap narrowed slightly from 2000 to 2019, to 22.6%. This measure accounts for differences in educational attainment, age, and other potentially relevant characteristics for wages, and reports the gender wage gap remaining after these statistical controls are used.

Wage growth in states with minimum wage increases. From 2018 to 2019, wages of the lowest-wage workers grew more in states that increased their minimum wage than in those that did not.

• On average, in the 27 states without minimum wage increases in 2019, the 10th-percentile wage rose 0.9%; in states with minimum wage increases in 2019 (including the District of Columbia), the average 10th-percentile wage rose by 4.1%.
• The differential is larger when looking across recent years with many minimum wage increases: Between 2013 and 2019, when 26 states and D.C. experienced at least one minimum wage increase, the 10th-percentile wage grew much faster in those states (and in D.C.) than in states without any increase (17.6% vs. 9.3%).
• In both comparison periods, men and women at their respective 10th percentiles saw greater wage growth in states with minimum wage changes versus those without.

Wage growth by race and ethnicity. At every decile, wage growth since 2000 was faster for white and Hispanic workers than for black workers.

• In this analysis, workers are grouped into three mutually exclusive categories: Hispanic, black non-Hispanic, and white non-Hispanic. Sample sizes make it difficult to conduct reliable data analysis for any other race or ethnic group.
• After suffering declines in the aftermath of the Great Recession, in 2019, for the first time, wages at all deciles of the black wage distribution exceeded their 2000 and 2007 levels.
• Because wages of 95th-percentile white workers exceed the top-coding threshold, their wages have to be imputed (as described in Gould 2019). Regardless of measurement, between 2018 and 2019, the strongest wage growth among white workers was at the top and bottom of the wage distribution.
• Over the entire period from 2000 to 2019, Hispanic workers experienced more broadly based wage growth, with strong growth at the top as well as at the median and at the bottom. Over the last year, Hispanic workers’ wage growth was strongest among moderate-wage workers while the 10th percentile lost ground.

Black–white and Hispanic–white wage gaps. Wage gaps by race and ethnicity describe how much less African American and Hispanic workers are paid relative to white workers. Throughout the wage distribution, black–white wage gaps were larger in 2019 than in 2000; conversely, Hispanic workers have been slowly closing the gap with white workers in the bottom 70% of the wage distribution.

• After widening for most years since 2000, the regression-adjusted black–white wage gap (controlling for education, age, gender, and region) has narrowed over the last year.
• While the Hispanic–white wage gap has narrowed slightly over the last 19 years (12.3% in 2000 compared with 10.8% in 2019), the black–white gap was significantly larger in 2019 (14.9%) than it was in 2000 (10.2%). In 2000, the regression-adjusted Hispanic–white wage gap was larger than the regression-adjusted black–white wage gap. By 2019, the reverse was true.

Wage growth by education. From 2000 to 2019, the strongest wage growth occurred among those with advanced degrees, those with college degrees, and those with less than a high school diploma.

• In this report, education attainment is reported in five mutually exclusive categories: less than high school, high school diploma, some college (two-year degree or part of a two- or four-year degree), college (four-year) degree, and advanced degree.
• For the first time in this recovery, workers with some college in 2019 just exceeded the 2007 “some college” wage level.
• Over the last year, the strongest wage growth occurred among those with some college and those with college degrees.
• The wages of those with a college degree rose faster than the wages of those with a high school diploma over the last year, widening the gap between college and high school wages, after it had widened from 2016 to 2018. As a result, the college wage premium—the regression-adjusted log-wage difference between the wages of college-educated and high-school-educated workers—rose to 49.5% in 2019, though it remained below where it was in 2016 (50.6%).
• Between 2000 and 2019, the college wage premium rose slightly, from 47.0% to 49.5% over that whole period. The growth in the college wage premium was nowhere near fast enough to explain the total rise in wage inequality over that time.

Wage growth by education and gender. Since 2000, wage growth for those with a college or advanced degree has been faster for men than for women, while wage growth for those with some college, a high school diploma, or less than high school has been faster for women than for men.

• In general, the women’s wage distribution by educational attainment is more compressed; that is, the wage differences between workers at different education levels are not quite as large for women as they are for men.
• For the first time in this recovery, wages of men with some college have finally reached their 2000 levels.
• While there has been a slow narrowing of gender wage gaps since 2000 for those with less than high school, a high school diploma, or some college, gender wage gaps are wider than in 2000 among those with college or advanced degrees.
• At every education level, women are paid consistently less than their male counterparts, and the average wage for a man with a college degree is higher than the average wage for a woman with an advanced degree.

Wage growth by education and race and ethnicity. From 2000 to 2019, wage growth for white and black workers was faster for those with a college or advanced degree than for those with lower levels of educational attainment.

• Average wages grew faster among white and Hispanic workers than among black workers for all education groups from 2000 to 2019.
• In 2019, black workers with some college still had lower wages than in 2000.
• From 2018 to 2019, Hispanic workers were the only group that had positive wage growth across all levels of educational attainment.
• Black–white wage gaps by education were larger in 2019 than in 2000 for all education groups, while Hispanic–white wage gaps were narrower for workers at any level of educational attainment except those with some college. At nearly every education level, Hispanic and black workers were paid consistently less than their white counterparts.

Some convenient but misguided explanations of slow wage growth. Assorted explanations have been put forth for why wage growth continues to be slow; some even claim that wage growth is not slow. In this report, we examine those arguments closely and find that:

• Slow wage growth cannot be explained away by education shortages because the rise in wage inequality has been far larger than the rise in returns to education, with inequality rising sharply within educational categories.
• Slow wage growth cannot be explained away by including health insurance costs because average health benefits didn’t grow fast enough to crowd out wage growth, and because many low- and middle-wage workers do not have access to employer-sponsored health insurance, hence growth in its costs is irrelevant to their measured wage trends.
• Changing the price deflator used to adjust wages for inflation can boost measured wage growth. But wage growth would still lag far behind growth in economywide productivity, and changing price deflators does not affect measured inequality at all.

1979–2019: Slow wage growth and rising inequality has been the norm over the last 40 years

Wages for the vast majority have grown slower than their potential and much slower than for those at the top.

Since 1979, “real” (inflation-adjusted) hourly pay for the vast majority of American workers has diverged from economywide productivity, and this divergence is at the root of numerous American economic challenges. Figure A displays productivity and hourly compensation from 1947 to 2018. After tracking rather closely in the three decades following World War II, growing productivity and typical worker compensation diverged. From 1979 to 2018, productivity grew 69.6%, while hourly compensation of production and nonsupervisory workers grew just 11.6%. Productivity thus grew six times as fast as typical worker compensation.

Figure A

A natural question that arises from these data is just where did the “excess” productivity go? A significant portion of it went to higher corporate profits and increased income accruing to capital and business owners (Bivens et al. 2014). But much of it went to those at the very top of the wage distribution (Mishel and Kassa 2019). As shown in Figure B, the top 1% of earners saw cumulative gains in annual wages of 157.8% between 1979 and 2018—far in excess of economywide productivity growth and over six times as fast as average growth for the bottom 90% (23.9%). Over the same period, top 0.1% earnings grew 340.7%.

Figure B

While the Current Population Survey Outgoing Rotation Group (CPS)—the primary data set used in this report (EPI 2020a)—is not conducive to disaggregation within the top 5% of the earnings distribution (both because of top-coding and insufficient sample sizes), it is still instructive for measuring the growth in wage inequality over the last 40 years. Figure C illustrates that for all but the highest earners, hourly wage growth has been weak. Median hourly wages (wages at the exact middle of the wage distribution) rose 15.1% between 1979 and 2019, compared with an increase of 3.3% for the 10th-percentile worker (i.e., the worker who earns more than only 10% of workers and less than 90% of workers). Over the same period, the 95th-percentile worker saw wage growth of 63.2%.

Figure C

To put this growth in inequality in perspective, consider that the 10th-percentile wage grew from $9.75 to $10.07. Over this 40-year period, wages for this group increased only $0.32 in real (inflation-adjusted) terms. The median wage grew from $16.79 to $19.33, an increase of $2.54. At the top, the 95th-percentile wage grew from $41.15 to $67.14, an increase of $25.99. What’s obvious from these comparisons is that there was a modest increase in the ratio of the middle wage to the lowest wage (the 50/10 wage ratio), but by far most of the increase in inequality occurred between the top and everyone else. During the same period, the 95/10 wage ratio—which describes 95th-percentile earnings relative to 10th-percentile earnings—increased from 4.2 to 6.7, which means that top earners were paid 4.2 times as much as low-paid workers in 1979 and now top earners are paid 6.7 times as much as low-paid workers.

The gap between the top and the middle has also increased significantly. As of 2019, the 95th-percentile wage was 3.5 times as high as the median wage. Recall that the median wage–the wage at which half the workforce is paid more and half the workforce is paid less—in 2019 is $19.33 per hour. For a full-time, full-year worker, this translates into about $40,000 per year.

Except for the wage gains spurred by exceptionally low unemployment in the late 1990s and the last five years, wage growth would have been zero over the last four decades.

Figure A illustrates that typical worker compensation between 1947 and the mid-1970s was not only stronger, but also steadier, than in subsequent years. Since the late 1970s, growth has been slow and uneven, occurring only in fits and starts. Figure D zooms in on average real earnings of the bottom 90%—shown previously as the bottom line in Figure B. There were long periods of stagnant wage growth since 1979, shown in red as well as illustrated by annualized percent changes in the accompanying bar graph. Only in the tightest of labor markets did average wages for the bottom 90% rise in any meaningful way.

Figure D

Figure E provides a slightly more extreme version of this story, analyzing the median wage from the CPS, shown previously in Figure C. There was consistent positive wage growth in only 10 of the last 40 years. If it hadn’t been for a period of strong across-the-board wage growth in the late 1990s and the last five years, median wages would have fallen outright.

Figure E

2000–2019: Hourly wages have continued to grow slowly and unequally since 2000

Wage growth since the turn of the century has continued to follow this trend: slower growth for most compared with faster growth for those at the top. Table 1 shows hourly wages by wage decile (and at the 95th percentile) and includes data from 2000 (the previous business cycle peak), 2007 (the most recent business cycle peak), and the two most recent years of data (2018 and 2019).

Table 1

While the CPS remains one of the best data sets to analyze hourly wage growth across and within demographic groups, some caution should be exercised in interpreting data, because of top-coding and volatility issues. First, top-coding of weekly earnings is catching an increasing number and share of workers as inequality continues to climb, making it increasingly difficult to obtain reliable measures of 95th-percentile wages, particularly for male workers and white workers. Therefore, we make an adjustment when examining recent wage levels and trends for these workers. Second, because the CPS exhibits a fair amount of year-to-year volatility, one-year changes in wages by decile or by demographic group in the CPS—while providing new and valuable information—should be taken with a grain of salt. For a more in-depth examination of these considerations, see Gould 2019. For a full discussion of EPI’s use of the CPS-ORG data, see EPI’s Methodology for Measuring Wages and Benefits (EPI 2019).

In the full business cycle from 2000 to 2007, growth was relatively slow overall and relatively unequal; the gains at the 90th and 95th percentiles were higher than at the middle or bottom of the wage distribution. After growing at about the same rate from 2000 to 2007, wages for the bottom grew significantly faster than wages for the middle from 2007 to 2019, slightly decreasing the 50/10 wage ratio, or the ratio of wages at the middle to wages at the bottom. However, because of the large and disproportionate gains at the top, both the 95/50 ratio (the ratio of 95th-percentile wages to median wages) and the 95/10 ratio (the ratio of 95th-percentile wages to 10th-percentile wages) grew substantially from 2007 to 2019.

With the caveat that, as discussed above, we need to be careful not to assign too much meaning to one-year changes given concerns about data volatility, we note the following trends over the past year: The one-year change in the median wage from 2018 to 2019 was 1.0%, compared with 1.5% at the 20th percentile and a loss of 0.7% at the 10th percentile. The strongest growth in the overall wage distribution occurred at the 95th percentile, at 4.5%.

On the whole, the trends between 2018 and 2019 suggest a continuation of growing wage inequality, with the top in particular pulling away from the middle and bottom. The loss for low-wage workers is somewhat surprising given that the labor market continues to tighten, and tighter labor markets have historically provided disproportionate benefit to wage growth at the bottom. However, the composition of the low-wage workforce may play a role as more previously sidelined workers (re)enter the labor force and find jobs. At this point in the business cycle, these (re)entering workers are less likely to be attached to the labor force in general and wield little bargaining power to garner higher wages; this group might include, for example, workers with lower levels of educational attainment. Further, the bottom 10% of the overall U.S. workforce is increasingly found in states with a minimum wage no higher than the federal minimum of $7.25 per hour, meaning they were less likely to be affected by state-level minimum wage increases across the country (EPI 2020b).1 For more on the relationship between state-level minimum wages and wage growth for low-wage workers, see the section “Wage growth at the bottom was faster in states that increased their minimum wage in 2019” later in this report.

Figure F illustrates the trends in wages for selected deciles (and the 95th percentile), showing the cumulative percent change in real hourly wages from 2000 to 2019. The overall story of inequality is clear. The lines demonstrate that those with the highest wages have had the fastest wage growth in recent years. From 2000 to 2019, the 95th-percentile wage grew nearly four times as fast as wages at the median (30.7% vs. 8.0%). By 2019, the 95/10 ratio had grown to 6.7 from 6.0 in 2007 and 5.6 in 2000 (see Table 1). This means that on an hourly basis the 95th-percentile wage earner was paid 6.7 times what the 10th-percentile wage earner was paid ($67.14 per hour vs. $10.07 per hour). Similar trends are found in the 95/50 wage ratio, with those at the top pulling away from those in the middle. In 2019, the 95th-percentile wage earner was paid 3.5 times as much as the median worker ($67.14 vs. $19.33), compared with 3.0 times as much in 2007 and 2.9 times as much in 2000.

Figure F

The gender wage gap continues to shrink but remains significant; wage inequality is higher and growing more among men than among women.

Analyzing wages at different points in the wage distribution over time can mask different outcomes for men compared with women as well as changes in the gender composition of the workforce. Table 2 replicates the analysis of wage deciles for men and women separately, with a comparison of gender wage disparities over 2000–2019. Figures G and H accompany this table, illustrating the cumulative percent change over 2000–2019 in real hourly wages of men and women at selected wage percentiles.

It is important to keep in mind that the top-coding issue in the CPS disproportionately impacts analysis of men’s wages more than analysis of women’s wages because men’s wages are higher and, at the high-end of the wage distribution, wage growth has been much faster for men than for women over the last 20 years. Because more than 5% of men’s weekly earnings were top-coded in the CPS in 2016, 2017, 2018, and 2019, growth in the 95th-percentile men’s wage is estimated using a slightly lower point in the male wage distribution. Depending on the share that is top-coded, we alternatively apply the growth rate of the 93rd or 94th percentile for each of those years to the 95th percentile in 2015.2

Table 2

Even using the potentially slightly slower growth rate in recent years at the 93rd and 94th percentiles as a proxy, long-term trends suggest that low- and middle-wage men have fared comparatively poorly and that wage ratios between the top and the middle (the 95/50 ratio) and the top and the bottom (the 95/10 ratio) have increased more for men than for women. Men’s wages at the 95th percentile grew 37.1% from 2000 to 2019, almost twice as fast as at the 90th percentile (19.9%), while at the median, men’s wages barely rose, increasing only 3.4% over the entire 19-year period. Wage growth for lower-wage working men (at the 10th and 20th percentiles) was considerably stronger than for those at or near the middle of the wage distribution, increasing 11.9% and 10.2%, respectively (EPI 2020c).

After seeing their wages fall between 2017 and 2018 (Gould 2019), men at the middle and bottom of the wage distribution saw their wages rise in 2019: a 2.6% increase at the 50th percentile and a striking 5.7% increase at the 10th percentile, along with a 4.2% increase at the 20th percentile. Table 2 shows that our imputed 95th-percentile men’s wage grew 2.1% between 2018 and 2019, on par with its growth since 2007.

Figure G

Figure H

Women also experienced a growth in wage inequality from 2000 to 2019, with the 95th percentile continuing to pull away from the middle and bottom of the wage distribution. Wages at the 90th and 95th percentiles grew about twice as fast as for middle- and low-wage earners over the 19-year period. However, wage inequality among women in 2019 was not as high as it was among men: A 95th-percentile woman was paid 5.6 times as much as a 10th-percentile woman, while the 95/10 ratio for men was 7.2. While inequality has grown modestly among women, the growth in women’s wages is more broadly shared across the wage distribution than the growth in men’s wages. Across wage deciles, women’s wages grew between 10.1% (at the 40th percentile) and 30.0% (at the 95th percentile), while men’s wage growth spanned 3.3% (at the 30th percentile) to 37.1% (at the 95th percentile) between 2000 and 2019.

Median wages for women grew 3.5% between 2018 and 2019 compared with 2.0% at the bottom (10th percentile) and 3.1% at the top (95th percentile). (Again, we do not recommend drawing conclusions about economic trends based on a single year of data; long-term trends give a more reliable picture of what’s going on in the economy.) The largest growth over the year was found at the 20th percentile, where wages grew 6.0%. It is intriguing that faster wage growth for men was at the 10th percentile (with a wage of $10.93 in 2019) while the fastest wage growth for women was at the 20th percentile (with a wage of $11.91 in 2019). A discussion of the role of not only tight labor markets, but also state-level minimum wages for faster wage growth at the bottom of the wage distribution, follows this section.

The “gender wage gap” refers to historically persistent differences between what men and women are paid in the workplace. While significant gender wage gaps remain across the wage distribution, the gender wage gap at the median continued to shrink, with the typical woman earning 85 cents for every dollar a man earned in 2019 (that is, women faced a 15% wage gap). Unfortunately, the narrowing of the gender wage gap at the median between 2000 and 2019 was due in part to particularly slow wage growth in the median men’s wage, which rose only 3.4% over the 19-year period (or 0.2% annually), rather than tremendously fast growth for women (which rose 0.7% on an annual basis—well below economywide productivity growth). If we can stem the tide of rising inequality and claw back the disproportionate gains going to those at the top of the overall wage distribution—which led to wage growth that was about 10 times as fast at the top as at the middle for men (see Figure G)—it would be economically feasible to see both men’s and women’s median wages rise while simultaneously closing the gender wage gap (Davis and Gould 2015). The gender wage gap at the bottom of the wage distribution, while considerably narrower than at the top, has reversed recent years’ gains, and is now back to near where it was in 2000, with women’s 10th-percentile wage 9.2% less than men’s. The largest gender wage gap occurs among the highest-paid workers, with higher-earning women facing a 29.2% pay penalty.

The regression-adjusted average gender wage gap (controlling for education, age, race, and region) showed a small narrowing between 2000 and 2019, from 23.9% to 22.6% (Appendix Table 1), while much greater progress was made between 1979 and 2000; the regression-adjusted gender wage gap was 37.7% in 1979 (EPI 2020c).

Wage growth at the bottom was faster in states that increased their minimum wage in 2019.

In 2019, the minimum wage was increased in 16 states and the District of Columbia through legislation or referendum and in eight states because the minimum wage is indexed to inflation in those states. One state, New Jersey, is double-counted in this tally, as it had both a legislated and an indexed increase in 2019. Most of the minimum wage increases occurred at the start of the year, though some occurred later in the year. For this analysis, we rely on average changes in the minimum wage from 2018 to 2019; therefore, we also include any minimum wage changes that happened during the second half of 2018 without an actual change in 2019, which would imply an increase in the average minimum wage workers faced in 2019 versus 2018; this occurred only in Maryland, where the minimum wage increased from $9.25 to $10.10 in July 2018. Connecticut has the latest minimum wage change in the two-year period, occurring in October 2019, and is still counted among the minimum wage changers for this analysis.

Figure I shows in green the states with minimum wage increases that occurred through legislation or referendum in 2019; states in blue had automatic increases resulting from indexing the minimum wage to inflation. Workers in states that increased their minimum wage between 2018 and 2019 account for about 55% of the U.S. workforce. Comparing the average minimum wage in each state across 2018 with the average across 2019, the amounts of the nominal minimum wage increases, legislated or indexed, ranged from $0.05 (0.5%) in Alaska to $1.00 (9.1%−10.0%) in California, Massachusetts, and Maine.

Figure I

When we compare 10th-percentile wage growth among states that are grouped by whether they had any minimum wage increase or not, the comparison yields highly suggestive results. As shown in Figure J, when looking at 10th-percentile wages, growth in states without minimum wage increases was much slower (0.9%) than in states with any kind of minimum wage increase (4.1%).3 This result holds true for both men and women at the 10th percentile. The 10th-percentile men’s wage grew 3.6% in states with minimum wage increases, compared with 0.7% growth in states without any minimum wage increases, while women’s 10th-percentile wages grew 2.8% in states with minimum wage increases and 1.4% in states without.4

Figure J

It is not surprising that these differences are smaller than what has been seen in earlier years because as the economy gets closer to full employment,5 we would expect tighter labor markets to boost the 10th-percentile wage across all states regardless of changes in the minimum wage.6 Furthermore, 2019 changes in state minimum wages came on the heels of other recent changes to minimum wages in many of the same states in recent years. In fact, when we compare states that have had any minimum wage change since 2013—26 states plus D.C.—with states that did not have a minimum wage change during that time, the pattern is even more pronounced.

As shown in Figure K, wage growth at the 10th percentile in states with at least one minimum wage increase from 2013 to 2019 was almost 90% faster than in states without any minimum wage increases (17.6% vs. 9.3%). As expected, given women’s lower wages in general, this result is even stronger for women (16.1% vs. 7.6%), though men also experienced much faster 10th-percentile wage growth in states with minimum wage increases than in those without (16.0% vs. 9.3%).

Figure K

From 2000 to 2019, within-group wage inequality grew for white, black, and Hispanic workers.

Table 3 examines wage deciles (and the 95th-percentile wage) for white non-Hispanic, black non-Hispanic, and Hispanic workers from 2000 to 2019. From 2000 to 2019, the strongest growth among white, black, and Hispanic workers occurred at the top of the wage distribution, a sign that wage inequality is growing within each of these groups as well as among workers overall. At every decile, wage growth since 2000 has been faster for white and Hispanic workers than for black workers. After suffering declines in the aftermath of the Great Recession, 2019 is the first time wages at all deciles of the black wage distribution have exceeded their 2000 and 2007 levels.

Table 3

White workers. We estimate that the strongest wage growth among white workers from 2000 to 2019 was at the 95th percentile. To estimate wage growth for the past year only, from 2018 to 2019, we impute the growth rate for the 95th percentile using the 94th-percentile growth rate from 2018 to 2019. We do this to account for the fact that 5.5% of white workers had weekly earnings at or above the top code. Using our imputation method, we find that wage growth for white workers was much faster over the last year among the highest and lowest wage earners, with a notable 2.9% wage increase at the 10th percentile. In addition to top-coding issues, smaller sample sizes within demographic groups mean wage changes tend to be volatile from year to year, so these changes should be taken with a grain of salt. Since 2000, however, wages have grown three times as fast for white workers at the 95th percentile as for white workers at the middle or bottom of the wage distribution.

Hispanic workers. Over the entire period from 2000 to 2019, Hispanic workers experienced more broadly based wage growth, with wages increasing across their wage distribution: There was strong growth at the top (25.0%) as well as at the median (18.2%) and the bottom (15.7%). Over the last year (2018 to 2019), Hispanic workers’ wage growth was strongest among moderate-wage workers—in the 20th to 40th percentiles—while the 10th percentile lost ground.

Black workers. Between 2018 and 2019, the vast majority of black workers had stronger wage growth than in any other year since 2000; however, black wages at the top have not seen improvement since 2018, while 95th-percentile wages for Hispanic and white workers have risen 2.9% and 2.5%, respectively, since 2018. (Again, when looking at all of these numbers, we need to keep in mind that the CPS data is subject to a certain amount of volatility from year to year; for data on black wages, that volatility is likely to be even more pronounced because of the smaller data sample represented by the black population.) Before 2019, what was particularly striking about black wages was slow wage growth since 2000, nearly across the board. In 2019, the tide turned and all deciles have finally exceeded their 2000 and 2007 levels. Even so, white and Hispanic workers had much faster growth across the board since 2000 than black workers, while black workers have just been making up for lost ground as opposed to actually getting ahead.

From 2000 to 2019, the overall black–white wage gap grew, while the overall Hispanic–white wage gap narrowed slightly.

The bottom section of Table 3 displays wage gaps by race/ethnicity. Wage gaps by race/ethnicity track how much less African American and Hispanic workers are paid relative to white workers; here, black and Hispanic wages are shown as a share of white wages at each decile of their respective wage distributions. Compared with white workers, black workers have been losing ground since 2000, with larger black–white wage gaps across the entire distribution.7 In 2000, black wages at the median were 79.2% of white wages. By 2019, they were only 75.6% of white wages, representing an increase in the wage gap from 20.8% to 24.4%. Conversely, Hispanic workers have been slowly closing the gap with white workers at the bottom 70% of the wage distribution. In 2000, median Hispanic wages were 69.7% of white wages and, by 2019, they were 74.6% of white wages, representing a narrowing of the gap from 30.3% to 25.4%. The 95th-percentile Hispanic–white wage gap still remains significantly wider than its 2000 level.

The regression-adjusted black–white and Hispanic–white wage gaps (controlling for education, age, gender, and region) both narrowed over the last year (Appendix Table 1). While the regression-adjusted Hispanic–white wage gap narrowed a bit, from 12.3% in 2000 to 10.8% in 2019, the regression-adjusted black–white gap was much larger in 2019 (14.9%) than it was in 2000 (10.2%). In 2000, the Hispanic–white wage gap was larger than the black–white wage gap. In 2019, the reverse was true.

Appendix Table 1 also shows the black–white and Hispanic–white wage gaps for men and women separately. It’s worth noting that these wage gaps are much wider for men than for women, reflecting, in part, the sizeable gender wage penalty experience by white women. Further, between 2000 and 2019, the regression-adjusted black–white wage gap widened significantly for both men (+4.4 percentage points) and women (+4.8 percentage points), while the regression-adjusted Hispanic–white wage gap narrowed for men (−2.3 percentage points) and remained about the same for women (-0.1 percentage points).

Wage growth has generally been faster among the more educated, particularly among men, since 2000.

Table 4 presents the most recent data on average hourly wages by education for all workers and by gender, and Figure L displays the cumulative percent change in real average hourly wages by education. (The discussion throughout identifies each group as mutually exclusive such that those identified as having a college degree have no more than a bachelor’s degree.)

Table 4

The U.S. workforce is split roughly into thirds by educational attainment (EPI 2020c). One-third (34.1%) of U.S. workers have a high school diploma or did not complete high school. A little less than one-third (27.7%) of workers have some college, meaning they may have an associate degree or have completed part of a two- or four-year college degree. The remaining 38.1% have a bachelor’s or advanced degree. It is important to keep in mind when analyzing the labor market or discussing economic policy that 61.9% of the workforce do not have a four-year college degree. If the economy is going to deliver decent wages for most U.S. workers, it needs to deliver for the six in 10 workers who do not have a four-year college degree.

Figure L

From 2000 to 2019, the strongest wage growth occurred among those with advanced degrees (12.2%), those with college degrees (8.8%), and those with less than a high school diploma (9.8%). Given that those with less than a high school diploma are often the lowest-wage workers in general, it is likely that some of their recent gains can be attributed to state-level increases in the minimum wage. Also, these workers represent a small and shrinking share of the overall workforce, only 8.0% of workers in 2019 (EPI 2020c). The average wage for workers with some college has finally exceeded its 2007 level before the Great Recession began and is now 1.4% higher than it was in 2000, with wages for this group rising just shy of 0.1% per year over the last 19 years.

Over the last year, average wages of those with a college degree and those with some college rose the fastest, 2.0% and 1.3% respectively. After narrowing between 2016 and 2018, the gap between wages of those with a college degree and those with a high school diploma widened (EPI 2020c). However, this unadjusted college/high school wage gap remains narrower than in 2016. Similarly, the college wage premium—the regression-adjusted log-wage difference between the wages of college-educated and high school–educated workers—rose slightly from 48.4% to 49.5% between 2018 and 2019, but remains lower than in 2016 (50.6%) (EPI 2020c).

Over the entire period from 2000 to 2019, wage growth among those with a college degree rose faster than among those with a high school diploma (8.8% vs. 4.0%). Because of the faster gains for those with more credentials, the regression-adjusted college wage premium grew from 47.0% to 49.5% between 2000 and 2019. For a more thorough discussion of the college wage premium and wage inequality, see the section “Slow wage growth cannot be explained away by education shortages” later in this report.

Figures M and N display the cumulative percent change in real hourly wages by education for men and women, respectively. Since 2000, wage growth for those with a college or advanced degree was faster for men than for women, while wage growth for those with some college, a high school diploma, or less than high school was faster for women than for men. In general, the women’s wage distribution by educational attainment is more compressed; that is, the wage differences between workers at different levels of education are not quite as large for women as they are for men.

For both men and women, the largest gains since 2000 were among those with an advanced degree as well as those with a college degree or less than high school. Wages of both men and women with some college have grown the slowest among all levels of educational attainment. For the first time in this recovery, wages of men with some college have finally reached their 2000 levels.

Figure M

Figure N

While there has been a slow narrowing of gender wage gaps for those with less than high school, a high school diploma, and those with some college since 2000, gender wage gaps are wider among those with college or advanced degrees. As Figure O illustrates, women are paid consistently less than their male counterparts at every education level.

Figure O

Educational attainment has grown faster for women than for men between 2000 and 2019, and now women are nearly 6 percentage points more likely than men to have a college or advanced degree (EPI 2020c). Unfortunately, increasing educational attainment has not insulated women from large gender wage gaps: The average wage for a man with a college degree was higher in 2019 than the average wage for a woman with an advanced degree (by 3.5%).

From 2000 to 2019, wage growth for white and black workers was faster for those with a college or advanced degree than for those with lower levels of educational attainment.

Table 5 presents the most recent data on average hourly wages by education for white non-Hispanic, black non-Hispanic, and Hispanic workers. From 2000 to 2019, average wages grew faster among white and Hispanic workers than among black workers for all education groups (which is not surprising given that the same was true at all deciles of the wage distribution). Black workers with some college had lower wages in 2019 than in 2000.

Table 5

Over the last year, Hispanic workers were the only group that had positive wage growth across all levels of educational attainment. (Again, we must keep in mind that year-to-year changes are subject to volatility, particularly for smaller population cuts.) Between 2018 and 2019, Hispanic workers with the highest levels of educational attainment experienced the strongest wage growth. Black workers with less than high school experienced the strongest growth, while black workers with a college degree experienced wage losses. White workers with a college degree saw faster wage growth than any other education group, while those with a high school diploma or less than high school experienced losses.

Black–white wage gaps by education were larger in 2019 than in 2000 for all education groups, while Hispanic–white wage gaps were narrower for workers at any level of educational attainment except those with some college. At nearly every education level, black and Hispanic workers were paid less than their white counterparts in 2019, while Hispanic workers were consistently paid more than black workers (Figure P).

Figure P

Some convenient but misguided explanations of slow wage growth

Slow wage growth cannot be explained away by education shortages.

Some argue that wage inequality is a simple consequence of growing employer demand for—and a limited supply of—college-educated workers. This demand is often thought to be driven by advances in technology and corresponding technology-driven increases in required credentials. According to this explanation, because there is a shortage of college-educated workers, the wage gap between those with and without college degrees is widening as employers are forced to pay higher wages in the competition for college-degreed workers while those without college degrees are increasingly falling behind.

Despite its intuitive appeal, this story about recent wage trends being driven more and more by a higher demand for college-educated workers does not fit the facts well, especially since the mid-1990s (Schmitt, Shierholz, and Mishel 2013). The evidence suggests that the demand for college graduates has grown far less in the period since the mid-1990s than it did before then. This is difficult to square with contentions that automation or changes in the types of skills employers require have been more rapid in the 2000s than in earlier decades. Rather, automation has been slower in the recent period than in earlier decades, as seen in the pace of productivity, capital, information equipment, and software investment—and in the speed of changes in occupational employment patterns (Mishel and Bivens 2017).

Further, our research shows that the increase in the pay gap between high earners and most workers has been far larger than what can be explained by rising returns to education. The typical U.S. worker’s experience and education have increased significantly over the last 40 years, as seen in Figure Q, while median wage growth has been persistently slow and uneven over that time (recall Figure E). Figure Q plots the growing share of workers who have at least a college degree; it also plots the average age of workers in the middle fifth of the wage distribution from 1979 to 2019. Age is a proxy for experience, which, along with education, should imply higher productivity. While age is not a perfect proxy for experience, the increase in average age by about 5.5 years implies an increase in the experience—and the likely productivity—of the typical worker. And the near doubling of educational attainment should—given most interpretations of the relationship between education and productivity—lead to much faster wage growth than the typical worker has actually experienced.

Figure Q

Further, the growing inequality of note is that between the top (or very top) and everyone else. The pulling away of the very top cannot be explained by differences in educational attainment, but rather is attributable to the escalation of executive and financial-sector pay, among other factors (Mishel and Wolfe 2019).

This becomes more clear when we juxtapose the college wage premium with the 95/50 wage ratio. Figure R compares the change in the college wage premium over 1979–2000 and 2000–2019 with the change in the log 95/50 wage ratio. The college wage premium is the percent by which average hourly wages of four-year college graduates exceed those of otherwise equivalent high school graduates, controlling for gender, race and ethnicity, age, and geographic division. The 95/50 wage ratio is a representation of the level of inequality within the hourly wage distribution, comparing how much the 95th-percentile worker is paid relative to the 50th-percentile worker. Both are measured in log changes and shown as annual changes.

Figure R

The regression-adjusted college wage premium grew rather quickly between 1979 and 2000 and then rose at a much slower rate in the 2000s, about an eighth as much. It had already slowed considerably by the mid-1990s (Bivens et al. 2014). In contrast, the 95/50 wage ratio grew somewhat faster in the more recent period. When we compare the relative size of the changes in each from 2000 to 2019, it is clear that the very modest gains in the college wage premium in recent years have not been large enough to plausibly drive the continued steady growth of the 95/50 wage ratio. In fact, the log 95/50 wage ratio grew more than seven times as fast as the college premium over this period.

Between 1979 and 2000, the log 95/50 wage ratio and the regression-adjusted college wage premium grew at roughly the same pace. The idea that increased employer demand for education is a prime driver of inequality appeared to be a more plausible story then. But it is clear that in the latter period, from 2000 to 2019, gains in the college wage premium have been very modest and far less than the continued steady growth of the 95/50 wage ratio. Therefore, it is highly implausible that the growth of unmet employer needs for college graduates has driven wage inequality over the last 19 years. Given this, the correspondence in the earlier period also shouldn’t be over-interpreted as differences in education levels driving the 95/50 wage ratio.

The more salient story between 2000 and 2019 is not one of a growing differential of wages between college and high school graduates, but one of growing wage inequality between the top (and the tippy top) and the vast majority of workers. Wage inequality is driven by changes within education groups (among workers with the same education) and not between education groups. From 2000 to 2019, the overall 95th-percentile wage grew nearly four times as fast as wages at the median (30.7% vs. 8.0%). Among college graduates only, there has also been a significant pulling away at the very top of the wage distribution, with many college-degreed workers being left behind.

Figure S displays the change in college wages from 2000 to 2019 for the average wage as well as at selected deciles of the college wage distribution. As shown previously in Figure L, average wages for college graduates grew 8.8% between 2000 and 2019. Here, it’s clear that this average masks important differences at different points on the college wage distribution. The highest percentile we show here is the 90th, because the 95th wage percentile for college graduates is fraught with top-coding issues to a greater degree than for white and male workers, making it even more difficult to obtain reliable measures of high-end wages and wage growth (as discussed in more detail in Gould 2019). Even so, the 90th-percentile wage grew nearly twice as fast as the average (15.1% vs. 8.8%) while the 50th-percentile (median) wage was actually lower in 2019 than in 2000 (-0.4%): Half of all college-degreed workers have not experienced any wage growth at all since 2000.

Figure S

Between 2000 and 2019, the median high school wage grew slowly (1.7%), while the 95th-percentile high school wage grew much faster (7.5%) (EPI 2020a). The (raw) gap between median college wages and median high school wages is no wider in 2019 than in 2000. In fact, the gap actually narrowed over this period. Increases in inequality over the last 19 years clearly cannot be explained away by claims that employers face a growing shortage of college graduates and that, correspondingly, wage inequality is some unfortunate side effect of the positive gains from technological change that we neither can nor would want to alter. There are plenty of good reasons to provide widespread access to college education, but expanding college enrollment and graduation is not an answer to escalating wage inequality.

Slow wage growth cannot be explained away by including benefits or looking at total compensation.

Some have argued that to best measure pay, one should use total compensation and not simply wages. This argument is based on the theory that benefits—health benefits, in particular—have crowded out wage growth in recent years. But this argument is not borne out in the data.

Recall Figure A, which shows the divergence between productivity and pay over the last 40 years. The pay measure used in that figure includes benefits. Figure T separates out wages and measured compensation in that iconic figure, starting in 1979. The line labeled “hourly compensation,” which represents wages plus benefits, rose only slightly faster than wage growth on its own (14.9% vs. 14.0%) and therefore doesn’t do a whole lot to explain the gap between the potential for wage growth and actual wage growth. The other lines on the chart demonstrate that most of the divergence between productivity and pay over the last 40 years is due to growing inequality—both inequality in how wage income is distributed among workers and how a growing share of income accrues to (already richer) owners of capital rather than to workers.

Inequality in workers’ hourly pay can be measured by examining the divergence between average pay and median pay. This divergence has unambiguously risen and constitutes the single largest factor accounting for the overall gap between median hourly pay and economywide productivity growth. The loss in labor’s share of income represents the overall shift in how much of the income in the economy is received by workers in wages and benefits. As labor’s share falls, this means that a growing share of productivity gains are going to owners of capital. Both growing compensation inequality and changes in labor’s share of income represent growing income inequality over this period, and their combined influence explains the large majority of the overall gap between pay and productivity.8

Figure T

Further, many forms of compensation are not found equally across the wage distribution. Therefore average benefits—like average wages—tend to overstate typical worker compensation or wage growth. This is certainly true with regard to employer-sponsored health insurance (ESI). Figure U shows the incidence of ESI since 1979.9 Not only has the incidence of ESI obtained through one’s own job fallen precipitously across the board, but the share of workers with ESI obtained through their own job is far less at the bottom of the wage distribution than at the top. In fact, workers in the top fifth are three times as likely to have ESI as workers in the bottom fifth. And only 59% of middle-wage workers have health insurance on the job. Health insurance costs certainly can’t be blamed for crowding out wage growth for the millions of workers who don’t have health insurance coverage at work.

Figure U

Furthermore, research has shown that workers in firms with more low-wage workers have health insurance plans with cheaper premiums overall, but these workers actually contribute more dollars to their premiums because they are required to pay a higher share of the total cost of coverage when compared with workers in firms with fewer lower-wage workers (Claxton, Rae, et al. 2018). Not only are coverage rates lower in firms with more low-wage workers (33%) versus those in firms with fewer low-wage workers (64%), but, over the last several years, more and more workers are in plans with deductibles and those deductibles have increased (Claxton, Rae, et al. 2018). Because workers have seen slow wage growth—wage growth that is slower than health care cost growth—their ability to pay for premiums as well as out-of-pocket costs has been hampered (Claxton, Levitt, et al. 2018). And many health plan enrollees cannot rely on other resources to pay for increases in cost-sharing payments (Rae, Claxton, and Levitt 2017).

While health insurance costs are certainly squeezing workers, there is little evidence that changes in employer-sponsored health insurance premiums (or any other benefit cost) can explain more than a small portion of trends in workers’ wages.

Slow and unequal wage growth is not a statistical quirk that can be explained away by changing the price deflator.

In Figure E, we demonstrate that median wage growth was slow and uneven between 1979 and 2019. But on average over that time period median wages grew faster than zero percent per year, raising the question of just what benchmark we should use to define “slow” or “fast” wage growth. In Figure A, we show that wage growth for typical workers grew far slower than its potential—defined as economywide productivity growth—and, in Figures B and C, we show that much of that potential for wage growth went to the top or the very top of the wage distribution.

However, some analysts take issue with the argument that wage growth has been slow for most workers (see CEA 2018 for one example). In particular, they posit that wage growth is often measured using the wrong price deflator.

The price deflator is used to measure wages in constant dollars so that growth in wages can be assessed against growth in inflation or changes in the ability of wages to meet economic needs or standard of living. Two commonly used deflators are the CPI (Consumer Price Index) and the PCE (personal consumption expenditures) price index. Our findings of low-wage growth are based on using the CPI. The Census Bureau also uses the CPI for measuring real changes in incomes and earnings as it relates to changes in individuals’ and families’ standard of living. However, detractors argue that the CPI “overstates price increases and understates real wage growth” relative to the PCE price index (CEA 2018, 9).

We explore this question by comparing wage growth using the two deflators. Following the example shown in Bernstein 2018, we look first at the cumulative change in the real median hourly wage over the last 40 years (Figure V). The lighter blue line in Figure V plots wage growth based on the CPI, while the darker line calculates real wages using the PCE deflator. The fits and starts of typical wage growth are evident in both lines. By the mid-1990s, wages hadn’t grown past their 1979 wage levels using either deflator. Wages grew faster in the late 1990s as well as in the last five years (2014–2019), with notable flatness again between those periods of faster growth. While it is true that, over the entire period, real wage growth is notably faster using the PCE, typical wage growth only accumulates to 28.8%, or just under 0.7% annually—still slow relative to economywide productivity growth.

Figure V

Another way to look at the question of slow wage growth for typical workers is to compare growth at different points of the wage distribution, to find out whether changing the deflator tells a different story about inequality. Figure W shows wage growth adjusted using the PCE deflator; Figure C from our analysis shows wage growth adjusted using the CPI deflator. While growth for all groups is somewhat faster using the PCE, it does not at all change the fact that growth is much faster at the top than at the middle and the bottom of the wage distribution. Between 1979 and 2019, growth at the 95th percentile using the PCE was almost three times as fast as growth at the median and over five times as fast as growth at the 10th percentile. The choice of deflator simply does not change the overall story of unequal and uneven wage growth over the last 40 years.

Figure W

Conclusions

Wage growth over the last 40 years has been slow, uneven, and unequal. These phenomena are the result of a series of policies that have reduced the leverage of most workers to achieve faster wage growth. Such policies include tolerating (or even encouraging) excessive unemployment; failing to routinely raise the federal minimum wage to protect workers’ purchasing power; writing the rules of globalization to let employers use them as a tool for wage suppression; the enforced withering of labor standards like the overtime threshold governing how many workers are entitled to higher pay for longer hours; and sharp cuts in marginal tax rates, deregulation, and loose corporate governance oversight, which led to explosions in executive and financial-sector pay (Bivens and Zipperer 2018; Bivens 2013; Cooper, Gould, and Zipperer 2019; McNicholas, Sanders, and Shierholz 2017; Mishel and Wolfe 2019).

Declining union membership has also played a major role in slow and unequal wage growth. This erosion was not driven by workers’ declining interest in unions but rather by concerted employer opposition along with state and federal policy that has made it near impossible for workers to form unions in the face of unwilling employers (Rosenfeld, Denice, and Laird 2016; McNicholas et al. 2019).

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.

Macroeconomic policy matters. Rising wages over the last few years have happened during a period of falling unemployment, with unemployment rates dropping to historical lows. This is no coincidence. If the unemployment rate is allowed to continue to fall, eventually low unemployment should boost low- and middle-wage workers’ leverage enough to see steady and large wage gains. Full employment is one way that workers gain enough bargaining power to increase their wages; employers have to pay more to attract and retain the workers they need when workers are scarce. The lever for higher wages that comes from full employment is most important for workers at the bottom of the wage distribution, as well as for workers that have historically faced discrimination in the labor market. For a given fall in the unemployment rate, wage growth rises more for these workers, and in the absence of stronger labor standards, it is often only in the tightest of labor markets that these workers see stronger wage growth (Bivens and Zipperer 2018; Wilson 2015).

However, there is no sign that we’ve reached the limits of how much we can sustainably boost wage growth with lower unemployment—wage growth remains weaker than we should expect in a fully healthy economy. This means that confident proclamations that we’ve achieved full employment should not be made and that the Federal Reserve should continue to allow the economy to grow (see Bivens 2020).

Labor policy matters. Beyond seeking to keep labor markets tight, policymakers could take other steps to foster strong broad-based wage growth, such as raising the federal minimum wage; expanding eligibility for overtime pay; addressing gender, racial, and ethnic pay disparities; and protecting and strengthening workers’ rights to bargain collectively for higher wages and benefits. Analysis of the relationship between 10th-percentile wage growth and state-level minimum wages suggests that policy matters. For more policies that will raise wages, see EPI’s First Day Fairness Agenda (McNicholas, Sanders, and Shierholz 2018).

Acknowledgments

I would like to acknowledge Bernard and Anne Spitzer Charitable Trust, the Ford Foundation, and Open Society Foundation for their generous support of this research. I also want to thank Maria Cancian for inviting me to present in an APPAM 2019 Super Session, forcing me to think harder about some of these issues, and Katherine Swartz, who attended the session and offered up useful insights on health insurance costs. Last, I wish to thank my coworkers at EPI who have helped to get this paper across the finish line. I am particularly grateful for Melat Kassa’s programming expertise, Jori Kandra’s command of WordPress, and Krista Faries’s commitment to clarity.

About the author

Elise Gould joined the Economic Policy Institute in 2003. Her research areas include wages, poverty, inequality, economic mobility, and health care. She is a co-author of The State of Working America, 12th Edition. Gould authored a chapter on health in The State of Working America 2008/09; co-authored a book on health insurance coverage in retirement; has published in venues such as The Chronicle of Higher Education, Challenge Magazine, and Tax Notes; and has written for academic journals including Health Economics, Health Affairs, Journal of Aging and Social Policy, Risk Management & Insurance Review, Environmental Health Perspectives, and International Journal of Health Services. Gould has been quoted by a variety of news sources, including Bloomberg, NPR, The Washington Post, The New York Times, and The Wall Street Journal, and her opinions have appeared on the op-ed pages of USA Today and The Detroit News. She has testified before the U.S. House Committee on Ways and Means, Maryland Senate Finance and House Economic Matters committees, the New York City Council, and the District of Columbia Council. Gould received her Ph.D. in Economics from the University of Wisconsin at Madison.

Appendix

Appendix Table 1

Endnotes

1. While the share of the overall workforce living in states that rely on the federal minimum wage has been stable over time (37.6% since 2014), the share of the low-wage workforce that resides in those states has increased from a low in this recovery of 41.0% in 2012 to 46.3% in 2019.

2. We decide on the appropriate percentile to use in the imputation of growth rates for the 95th percentile using data on the share of weekly earnings for the group that is top-coded as well as the share in neighboring wage bins that receive the top code. Since top-coding of weekly earnings does not map exactly onto top hourly wages, we settled on a percentile difference when the top-coded share was below 10% in that hourly wage bin. For more on our imputation procedure, see Gould 2019 and the “Methodology: Wage variables” web page at EPI 2020a.

3. Including Connecticut as a changer in this analysis—even though the increase did not occur until October 2019—only serves to mute the effect. Notably, the 10th-percentile wage in Connecticut actually fell between 2018 and 2019; including Connecticut among the state-changers reduces the gap in the 10th-percentile change between those states with and without minimum wage changes in those two years; including Connecticut among the non-changers yields a growth in the 10th percentile in minimum-wage-changing states of 4.2% versus 0.9% among those without a change.

4. It is important to note that there appears to be no relationship between changes in the median wage and changes in the minimum wage. Between 2018 and 2019, the median wage in states with minimum wage changes increased 0.7% while it increased 2.1% in non-changing states. Median wage growth was faster in non-changing states for men (2.1% vs. 1.1%) and women (3.6% vs. 2.6%). These differences are much smaller and they also operate in the opposite direction from the differences at the 10th percentile. This belies any claims that strong wage growth at the 10th percentile is simply due to strong overall wage growth in those states and that 10th-percentile wages in those states would have risen with or without the minimum wage increases.

5. Full employment is defined as “the level of employment at which additional demand in the economy will not create more employment. All workers who seek a job have one, they are working for as many hours as they want to or can, and they are receiving a wage that is broadly consistent with their productivity” (Bernstein and Baker 2013).

6. See, for example, Gould 2017.

7. As always, it’s important to remember the historical and social contexts for differences in black and white labor market experiences and labor market outcomes (Razza 2019). Workers’ ability to claim higher wages rests on a host of social, political, and institutional factors outside of their control. Furthermore, occupational segregation plays a significant role in these gaps, for both black men (Hamilton, Austin, and Darity 2011) and black women (Banks 2019). Trends in black–white wage gaps found here are supported by other important research (Wilson and Rodgers 2016).

8. See Bivens and Mishel 2015 for a more thorough description of the decomposition of these factors.

9. Health insurance coverage data are for private-sector wage and salary workers ages 18–64 who worked at least 20 hours per week and 26 weeks per year. This sample is chosen to focus on those with regular employment. “Coverage” is defined as receiving health insurance from one’s own job for which one’s employer paid for at least some of the premium.

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Chairman Neal, Ranking Member Brady, and members of the committee, thank you for the opportunity to testify today on rising inequality in the United States.

My name is Elise Gould and I am an economist at the Economic Policy Institute (EPI) in Washington, D.C. EPI is a nonprofit, nonpartisan think tank that believes every working person deserves a good job with fair pay, affordable health care, and retirement security. To achieve this goal, EPI conducts research and analysis on the economic status of working America. I am an economist with particular expertise on wages and wage inequality.

My testimony establishes that the poor performance of American workers’ wages in recent decades—particularly the failure of workers’ wages to grow at anywhere near the pace of overall productivity—is one of the country’s central economic challenges. Indeed, it’s hard to think of a more important economic development in recent decades. It is at the root of the large rise in overall income inequality that has attracted so much attention in recent years. A range of other economic challenges—reducing poverty, increasing mobility, closing racial and gender wage gaps, and spurring a more complete recovery from the Great Recession—also rely largely on boosting hourly wage growth for the vast majority.

The main points of this testimony are as follows:

1. Income inequality is the primary reason why the vast majority of Americans experienced disappointing growth in their living standards over the last four decades. In other words, most Americans are seeing slow income growth because most of overall income growth is going to households at the top.
2. Labor market income represents the largest source of income for most Americans and that is why we cannot tackle income inequality without tackling wage growth.
3. Wage growth in the last four decades has been uneven, with notable growth only at the top while wages for most workers have failed to rise with productivity growth.
4. This uneven wage growth—what we can call growing wage inequality—continued through the 2000s, as wage gaps between demographic groups persisted, and, in some cases, worsened. Further, the growth in inequality cannot be explained by growing demand for college-educated workers.
5. Recent wage gains for the lowest wage workers can be explained by tight labor markets and the institution of a number of state-level minimum wage increases.
6. Going forward, policymakers should prioritize keeping labor markets tight while also strengthening institutions and policies that provide workers the leverage they will need to achieve decent wage growth even when the economy is not at full employment. These policies and institutions include strengthening and enforcing labor standards, making it easier for workers to collectively bargain, and raising the federal minimum wage.

Rising inequality helps explain the disappointing living standards growth for the vast majority

In recent decades, the vast majority of Americans have experienced disappointing growth in their living standards—despite economic growth that could have easily generated faster gains in their living standards had it been broadly shared. Figure A helps us assess the economic performance for different groups by charting the cumulative percentage increase in household income for the top 1 percent compared with the bottom 90 percent. Breaking the top 1 percent down even further would show nearly as dramatic an increase in inequality just within this top group, but it would also stretch the vertical axis so much as to make it nearly unreadable. What this shows is that income grew swiftly for a small sliver of the population while living standards for most grew far more slowly.

Figure A measures the change in comprehensive income—including cash, market-based incomes (wages and salaries, dividends, rent, capital gains, and business income); noncash income, such as employer contributions to health insurance premiums; and cash and noncash government transfers like Social Security, food stamps, Medicare, and Medicaid. It is easy to see that the rise in American inequality is extreme even when using these comprehensive income measures, which include taxes and transfers.

One striking aspect of the figure is the large decline in top 1 percent incomes following the onset of the Great Recession after 2007. However, a similarly large fall in top 1 percent incomes resulted from stock market declines following the 2001 recession as well, and as the figure shows, as of 2015, these incomes mostly recovered. Even with these losses, the top 1 percent of household income has grown 229 percent since 1979, far in excess of the slower 46 percent growth—just 1.0 percent annualized growth—for the bottom 90 percent of households.

Figure A

Most income for the vast majority of households comes from their wages

Among the bottom 90 percent of American households, labor income—including wages and wage-related income such as employer contributions to health insurance benefits for workers and Social Security and Medicare for retired workers—represents the vast majority of income. Figure B illustrates the share of total income that is composed of wages and wage-related incomes for the bottom 90 percent and the top 1 percent of household incomes. What’s clear from the figure is that the vast majority of American households get the vast majority of their incomes from wages and wage-related sources while a much smaller share of incomes for the top 1 percent comes from these sources. Over the entire period, contributions of wages and wage-related income for the top 1 percent averaged just under 40 percent, while it averaged 86 percent for the bottom 90 percent of households, more than twice as high.

In 1979, 86.9 percent of household income for the bottom 90 percent came from wages and wage-related sources. By 2015, the share had fallen slightly to 84.0 percent. Over this period, much of the rise in earnings for most households came from increasing work hours and not increasing hourly wages (Bivens et al. 2014). Because the vast majority of household income for the bottom 90 percent comes from labor income, it is clear that growing wage inequality is at the root of slow growing incomes for the vast majority of American households.

Figure B

Broad wage suppression underlies sluggish living standards growth for the vast majority

Because wages are their primary source of income, the rise in income inequality that has blocked living standards growth for the vast majority since 1979 has been driven by a pronounced reduction in the collective and individual bargaining power of ordinary American workers. As a result of their eroded bargaining power, their wages have grown agonizingly slow over the past generation. Rising wage inequality—anemic wage growth for the vast majority, combined with substantial wage gains for those at the very top—has left most Americans with an ever-shrinking portion of the overall wage bill. It is also the case that if labor incomes—i.e., wages—had not grown so unequally, then the share of total output available to be claimed by capital owners, again concentrated at the top of the income distribution, would have been significantly smaller. It is the combination of these two factors—driven by wages for the vast majority lagging productivity—that has led to the erosion of most Americans’ living standards. The resulting lackluster wage growth and inequality have afflicted men and women, and people at all levels of education; even the college educated are just treading water.

Figure C demonstrates that since 1979, “real” (inflation-adjusted) hourly pay for the vast majority of American workers has diverged from economy-wide productivity. After tracking rather closely in the three decades following World War II, growing productivity and typical worker compensation diverged. From 1979 to 2017, productivity grew 70.3 percent, while hourly compensation of production and nonsupervisory workers grew just 11.1 percent. Productivity thus grew six times faster than typical worker compensation.

Figure C

A natural question that arises from this story is just where did the “excess” productivity go? A significant portion of it went to higher corporate profits and increased income accruing to capital and business owners (Bivens et al. 2014). But much of it went to those at the very top of the wage distribution, as shown in Figure D. The top 1 percent of earners saw cumulative gains in annual wages of 157.3 percent between 1979 and 2017—far in excess of economywide productivity growth and nearly four times faster than average wage growth (40.1 percent, not shown). Over the same period, top 0.1 percent earnings grew 343.2 percent, with the latest spike reflecting the sharp increase in executive compensation (Mishel and Wolfe 2018). Over the same period, despite a growing economy and increases in productivity, the earnings for the bottom 90 percent only rose 22.2 percent. It’s important to remember this disparity. When policymakers consider policies to improve productivity growth, they also should consider ways that growth could better translate into wage growth for most workers and not just for those at the very top.

Figure D

While the CPS-ORG—the primary data set used in the remainder of this testimony—does not allow disaggregation within the top 5 percent of the earnings distribution, it is still instructive for measuring the growth in wage inequality over the last 40-odd years. Figure E illustrates that for all but the highest earners, hourly wage growth has been weak. If it hadn’t been for a period of strong across-the-board wage growth in the late 1990s, wages for most would have fallen outright. Median hourly wages rose 14.0 percent between 1979 and 2018, compared with an increase of 4.1 percent for the 10th-percentile worker (i.e., the worker who earns more than only 10 percent of workers). Over the same period, the 95th-percentile worker saw growth of 56.1 percent.

Figure E

Wage inequality continued through the 2000s

Figure F illustrates the trends in wages for select deciles (and the 95th percentile), showing the cumulative percent change in real hourly wages from 2000 to 2018. The continuing overall story of inequality is clear. From 2000 to 2018, the 95th-percentile wage grew over three times as fast as wages at the median. Additional details on recent wage trends can be found in Gould 2019a, also submitted into the written record. During this period, wage inequality among men grew more than wage inequality among women, and the gap between men and women at the top continued to widen in part because men are more likely to occupy jobs at the top of the wage distribution. Black–white wage gaps also widened between 2000 and 2018 as white wages grew more than four times as fast as black wages across most of the wage distribution (Gould 2019b).

Steep and rising wage inequality is too often blamed on growing demand for workers with higher levels of educational attainment—the more schooling you have, the more you’ll be paid, the theory goes. But research has shown that rising inequality cannot be explained by rising wages for those with more educational attainment. The more salient story between 2000 and 2018 is not one of a growing differential of wages between college and high school graduates, but one of growing wage inequality between the top relative to the vast majority of workers, as shown in Figure F. Wage inequality is driven by changes within education groups (among people with the same education) and not between education groups. Among college graduates, there has been a significant pulling away at the very top of the wage distribution. In fact, the bottom 60 percent of workers with a college degree still have lower wages than they did in 2000 (Gould 2019c).

Increases in inequality over the last 18 years clearly cannot be explained away by claims that employers face a growing shortage of college graduates and that, correspondingly, wage inequality is some unfortunate side effect of the positive gains from automation that we neither can nor would want to alter. There are plenty of good reasons to provide widespread access to college educations and skill development, but expanding college enrollment and graduation is not an answer to escalating wage inequality.

Figure F

Recent wage gains among lower-wage workers

After years of wage losses, the lowest-wage workers finally exceeded their 1979 wage levels in 2017 (as shown in Figure E.) These recent wage gains can essentially be fully explained by tight labor markets and state-level minimum wage increases.

Because the lowest-wage workers are often the most vulnerable in economic downturns, it often takes them longer to recover in economic expansions. Achieving genuine full employment is one way that low- and moderate-wage workers gain enough bargaining power to increase their wages; employers have to pay more to attract and retain the workers they need when idle workers are scarce. The “lever” for higher wages that comes from full employment is most important for workers at the bottom of the wage distribution: For a given fall in the unemployment rate, wage growth rises more for low-wage workers, and in the absence of stronger labor standards like a strong minimum wage, it is often only in the tightest of labor markets that low-wage workers see stronger wage growth (Bivens and Zipperer 2018).

Figure G illustrates how the wages of low-, middle-, and high-wage workers change in response to labor market conditions. Each bar shows the percentage-point change in the growth rate of inflation-adjusted wages following a 1-percentage-point increase in the state-specific unemployment rate, employment-to-population ratio, and prime-age employment to population ratio (among 25- to 54-year-olds), respectively. The blocks of bars show results for the 10th, 50th, and 90th percentiles of wages, corresponding to low-, middle-, and high-wage workers.

The results indicate that a 1-percentage-point drop in unemployment results in annual wage growth for workers at the 10th percentile of the wage distribution that is 0.5 percentage points faster. For example, if annual real wage growth is at 1.0 percent, then a 1-percentage-point fall in unemployment would result in annual real wage growth rising to 1.5 percent. For workers near the median of the wage distribution, wage growth is faster by 0.4 percentage points following a 1-percentage-point decline in the unemployment rate. For workers at the 90th percentile of the wage distribution, wage growth is faster by 0.3 percentage points following a 1-percentage-point decline in the unemployment rate. There are similar findings for the other measures of the labor market shown: stronger effects for low- and moderate-wage workers than for the highest-wage workers. What this tells us is that low- and moderate-wage workers do relatively worse in bad times, but also see a relatively larger boost in good times. That alone can explain the recent rise in wages for the lowest-wage and for middle-wage workers over the last few years as shown in Figure F.

Another policy lever was pulled in a number of states over the last few years. In 2018, the minimum wage was increased in 13 states and the District of Columbia through legislation or referendum, and in eight states because the minimum wage is indexed to inflation in those states. And, these changes in state minimum wages came on the heels of other recent changes to minimum wages in many of the same states over the previous couple of years. In fact, when we compare states that have had any minimum wage change since 2013 with states that did not have a minimum wage change during that time, the results—as shown in Figure H—are highly suggestive. Wage growth at the 10th percentile in states with at least one minimum wage increase from 2013 to 2018 was more than 50 percent faster than in states without any minimum wage increases (13.0 percent vs. 8.4 percent). As expected, given women’s lower wages in general, this result is even stronger for women (13.0 percent vs. 6.0 percent), though men also experienced much faster 10th-percentile wage growth in states with minimum wage increases than in those without (12.0 percent vs. 8.6 percent).

Figure G

Figure H

Policies to increase wage growth for the vast majority will increase Americans’ living standards

Beyond seeking to keep labor markets tight, policymakers could take other steps to foster strong broad-based wage growth, such as raising the federal minimum wage, expanding eligibility for overtime pay, addressing gender and racial pay disparities, and protecting and strengthening workers’ rights to bargain collectively for higher wages and benefits. Going forward, policymakers should do two things. They should prioritize wage growth by continuing to push toward genuine full employment. And they should provide workers with the leverage to achieve decent wage growth even when the economy is not at full employment by strengthening and enforcing labor standards and making it easier for workers to collectively bargain.

The right to collectively bargain is tightly linked to wages and incomes. In fact, the spread of collective bargaining that followed the passage of the National Labor Relations Act in 1935 led to decades of faster and fairer economic growth that persisted until the late 1970s. But since the 1970s, declining unionization has fueled rising inequality and stalled economic progress for the broad American middle class. Figure I shows that when unions are weak, the highest incomes go up even more, but when unions are strong, the bottom 90 percent enjoy more income growth.

Figure I

This correlation is no accident. Unions have strong positive effects not only on the wages of union workers but also on the wages of comparable nonunion workers, as unions set standards for entire industries and occupations (Rosenfeld, Denice, and Laird 2016). Further, the union wage boost is largest for low-wage workers and larger at the middle than at the highest wage levels, larger for black and Hispanic workers than for white workers, and larger for those with lower levels of education—wage increases for these groups help narrow wage inequalities.

We know how big a force for equality unions are by looking at how much their decline has contributed to inequality between middle- and high-wage workers: union decline can explain one-third of the rise in wage inequality among men and one-fifth of the rise in wage inequality among women from 1973 to 2007. Among men, the erosion of collective bargaining has been the largest single factor driving a wedge between middle- and high-wage workers (Western and Rosenfeld 2011).

For a more thorough analysis of how collective bargaining affects worker living standards see How Today’s Unions Help Working People (Bivens et al. 2017). For more policies that will raise wages, see EPI’s Policy Agenda (EPI 2018).

Sources

Bivens, Josh, Lora Engdahl, Elise Gould, Teresa Kroeger, Celine McNicholas, Lawrence Mishel, Zane Mokhiber, Heidi Shierholz, Marni von Wilpert, Valerie Wilson, and Ben Zipperer. 2017. How Today’s Unions Help Working People: Giving Workers the Power to Improve Their Jobs and Unrig the Economy. Economic Policy Institute, August 2017.

Bivens, Josh, Elise Gould, Lawrence Mishel, and Heidi Shierholz. 2014. Raising America’s Pay: Why It’s Our Central Economic Policy Challenge. Economic Policy Institute, Briefing Paper No. 378, June 2014.

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

Economic Policy Institute (EPI). 2018. Policy Agenda. December 2018.

Gould, Elise. 2019a. State of Working America Wages 2018: Wage Inequality Marches On—and Is Even Threatening Data Reliability. Economic policy Institute, February 2019.

Gould, Elise. 2019b. “Stark Black–white Divide in Wages Is Widening Further.” Working Economics (Economic Policy Institute blog), February 27, 2019.

Gould, Elise. 2019c. “Higher Returns on Education Can’t Explain Growing Wage Inequality.” Working Economics (Economic Policy Institute blog), March 15, 2019.

Mishel, Lawrence, and Julia Wolfe. 2018. “Top 1.0 Percent Reaches Highest Wages Ever—Up 157 Percent Since 1979.” Working Economics (Economic Policy Institute blog), October 18, 2018.

Rosenfeld, Jake, Patrick Denice, and Jennifer Laird. 2016. Union Decline Lowers Wages of Nonunion Workers: The Overlooked Reason Why Wages Are Stuck and Inequality Is Growing. Economic Policy Institute, August 2016.

Western, Bruce, and Jake Rosenfeld, “Unions, Norms, and the Rise in U.S. Wage Inequality,” American Sociological Review vol. 76 (2011), 513–37.

That trend was evident in EPI’s new State of Working America (SWA) Wages report, which highlights trends in wages across the wage distribution, by education, as well as by gender, race, and ethnicity.

Overall, the findings indicate wages are slowly improving with the growing economy, but wage inequality has grown and wage gaps have persisted, and in some cases, worsened. In this post, I will highlight one particular worsening wage gap and look at it from multiple dimensions. Since 2000, by any way it’s measured, the wage gap between black and white workers has grown significantly.

The findings here support the important research by Valerie Wilson and William M. Rodgers III, which shows that black–white wage gaps expanded with rising wage inequality from 1979 to 2015. Where their report is incredibly comprehensive, the trends outlined here are rudimentary, but reinforce the same basic truths.

In the figure below, I’ve collected some of the main findings on the black–white wage gap found both in the latest SWA report as well as the SWA data library. Using various measures, I compare wages for black and white workers over the last 18 years, highlighting the gaps in wages in 2000, the last time the economy was closest to full employment, 2007, the last business cycle peak before the Great Recession, and 2018, the latest data available.

Against these benchmarks, I illustrated the growth in the average gap; the gap for low-, middle-, and high-wage workers; the gap for workers with a high school diploma, a college degree, and an advanced degree; and a regression-adjusted wage gap (controlling for age, gender, education, and region).

As always, it’s important to remember the historical and social contexts for differences in black and white labor market experiences and labor market outcomes. We know from a host of economic research that a person’s wages are not a simple function of individual ability. Instead, workers’ ability to claim higher wages rests on a host of social, political, and institutional factors outside their control.

Against that backdrop, and given a long history of excluding black Americans from social and political institutions that boost wage growth, the stubbornness of racial wage gaps is less surprising. Connie Razza provides a powerful framework for examining the systematic social deprivation and economic disadvantage maintained and reinforced by those with economic and political power.

As shown in the figure above, the black–white wage gap is smallest at the bottom of the wage distribution, where a wage floor, otherwise known as the minimum wage, keeps the lowest-wage black workers from even lower wages. Raising the federal minimum wage would also disproportionately benefit black workers because they are overrepresented among low-wage workers and are less likely to live in states or localities that have passed a minimum wage that is higher than the current federal minimum.

Figure A

The largest black–white wage gaps are found at the top of the wage distribution. The 33.4 percent wage gap for the highest-wage workers is explained in part by occupational segregation, the disproportionate likelihood for white workers to occupy positions in the highest-wage professions, and the pulling away of the top more generally.

Occupational segregation is particularly devastating for black women, who face a history of deep-seated racial and gender discrimination. Any number of fields would provide examples, but in my own, Rhonda Sharpe has documented the lack of representation in economics, and the American Economic Association’s Summer Program along with the recently formed Sadie Collective are working to diversify the field.

Education is not a panacea for closing these wage gaps. Again, this should not be shocking, as increased equality of educational access—as laudable a goal as it is—has been shown to have only small effects on class-based wage inequality, and racial wealth gaps have been almost entirely unmoved by a narrowing of the black–white college attainment gap, as demonstrated by William Darity Jr. and others here.

The figure below shows that across various levels of education, a significant black–white wage gap remains. Black workers can’t simply educate their way out of the gap. Even black workers with an advanced degree experience a significant wage gap compared with their white counterparts. And after controlling for age, gender, education, and region, black workers are paid 16.2 percent less than white workers.

While the wage gaps differ depending on measure, what is obvious from the trends displayed is that the gaps widened in the full business cycle 2000–2007 and continued to grow in the Great Recession and its aftermath. Even though the black unemployment rate has fallen precipitously over the last several years, wage growth has remained particularly weak for black workers.

In a recent paper, Josh Bivens and Ben Zipperer present evidence in support of hopes that a high-pressure labor market can improve relative labor market outcomes for black workers, particularly when it comes to labor force participation and work hours. The data here suggest that wage growth continues to lag progress in employment.

While black workers continue to increase their educational attainment, occupational segregation persists, and employers continue to wield considerable leverage to dictate wage contracts, including ones that perpetuate discriminatory practices. Unfortunately, in lieu of stronger labor standards and worker bargaining power, it takes tighter and tighter labor markets for all workers to reap the rewards of a strong and growing economy.

I’m optimistic that as the economy continues to move toward genuine full employment, black workers will see their wages rise. But it will take more than a couple of years of a full-employment economy to close racial wage gaps and compensate for years of lower wages, lower incomes, and lower wealth.