Americans saw a moment of financial reprieve that has since evaporated as the nation continues to grapple with the crisis of inflation. The large majority of workers have experienced raises beyond inflation as a whole. The time between these big pay gains and skyrocketing costs has been greatly reduced over the last few months. With inflation climbing even higher, these increases place incredible burden on lower-income households. These families are now living paycheck to paycheck at an unprecedented rate.
In many ways, the inflation crisis was intentionally designed to disproportionately impact lower income individuals. During the pandemic, wealthier Americans have reaped high returns – evidenced by enormous pay increases. This trend paints a misleading picture and masks the painful truth lived by Americans in lower-income quintiles. This sharp divide in financial realities leaves us to wonder how long this imagined economic expansion can last.
The Impact of Inflation on Wages
June 2022 saw inflation rise to a shocking 9.1% over last year. This peak represented the highest rate of the last four decades. Compounding this issue, during this same time, wage growth completely failed to keep pace at only 4.8%, showcasing the hurt many Americans are feeling. As inflation sped up, it started to outstrip the rate of growth in paychecks, disproportionately affecting the middle and lower-income households.
While many have been fortunate enough to see substantial raises, the continuing inflationary pressures are cranking the screws for many workers just trying to maintain their standard of living. In fact, median income for working-age Americans hit a new inflation-adjusted decade-long low this year.
“People across the income spectrum were spending; they were living a pretty good life,” – Heather Long
This statement underscores the broader context in which inflation has dismantled the financial security that many Americans briefly enjoyed during earlier pandemic recovery periods.
Disparities Among Income Levels
The ground reality is one where Americans’ wages have crashed, skyrocketing by 29% this decade. Unfortunately, this growth has not been felt across all income brackets equally. The average middle-income household actually took home 2.3% less in their paychecks, with lower-income households even worse off with a 1.4% decline. This disparity is true even though inflation has been increasing at four times their rate.
The costs of basic necessities have gone up dramatically, making the crisis worse on most households already struggling to make ends meet. Bureau of Labor Statistics Rent has gone up 30% and home prices have surged 55%. Food, electricity, child care, and housing costs have all risen past wages since the beginning of 2020.
Now, as inflation continues to outpace the rising rate of paychecks, many Americans are facing hard truths like these, forced to choose between basic necessities. The implications are especially bad for low-income families who can no longer afford these costs as the burden continues to rise.
The Role of Government Stimulus
That shift came after a few pandemic years when an influx of government stimulus helped bolster Americans’ savings. As those supports have faded, many are now dealing with rising costs while not having that financial buffer. Specifically, in May 2020, mean wages jumped by 7.5% from just a year ago, well above inflation that at the time was only 0.1%. Regrettably, those astounding pay increases have now evaporated into the ether.
Though the impact of stimulus efforts provided a temporary respite, the reality is harsh. Between March 2021 and June 2023, inflation regularly exceeded growth in paychecks—with inflation trumping paycheck gains at times by historic amounts. This positive trend, however, belies the realities that millions of Americans still endure as they struggle to make their way in an increasingly volatile economy.