Americans just got a brief taste of financial stability, only to watch their savings quickly disappear as we remain in an inflationary environment. Millions of Americans are continuing to feel the painful pinch of inflation as they contend with the new economic norm. This has made the issues of housing and food uniquely difficult for them. These wage gains—at least those that have gone above and beyond the broad impact of inflation—have not been evenly enjoyed, including a greater burden on lower-income families.
In June 2022, inflation hit an eye-popping 9.1%, the highest level in 40 years. At the same time, inflation adjusted wage growth lagged behind at only 4.8%, putting immense financial pressure on millions. Although recent data indicates that Americans are seeing pay increases that outstrip inflation, many continue to live paycheck to paycheck as essential costs skyrocket.
Inflation vs. Wage Growth
What is clear is that enough recent trends indicate that the gap between wage growth and inflation appears to be narrowing rapidly over just the last six months. For example, wage growth in May 2020 was up an unprecedented 7.5% over a year earlier. This growth far exceeded the rate of inflation from those years. It’s not the same world today as just a few months ago.
Americans’ wages have been skyrocketing — by 29% just this decade. We haven’t all benefited equally from this boom, and many have been left behind. Wealthier Americans are skewing the national average data on earnings increases and inflation. Relatedly, it can create an illusion that the economy is performing better than it really is for these lower-income households.
Heather Long, a noted economic journalist, commented on the situation, stating, “People across the income spectrum were spending; they were living a pretty good life.” This reflection highlights the gap between high- and low-income Americans’ experiences during the recovery from a historic economic downturn.
A Growing Burden on Lower-Income Americans
Low-income Americans are under extraordinary stress, trying to make their way in a … Continued Lower Income. Others are experiencing just-in-time budgeting—living paycheck to paycheck at dangerous levels. Not to mention that essential costs like food, housing and child care have shot up even faster than worker’s wages are increasing.
As the Bureau of Labor Statistics informs us, rent has increased by more than 30% in the last few years alone. Meanwhile, the prices homes have skyrocketed an eye-popping 55%. Grocery prices and child care costs have risen by 30%. At the same time, electricity bills have increased by an average of 38%, adding to the financial stress on families.
In fact, the growth of median working-age Americans income has come to a stand still at or around inflation-adjusted decade-long lows. This stasis happens despite the fact that in some industries, workers are experiencing huge pay raises. This disparity points to a deeply disturbing pattern. Soaring energy and housing costs are increasingly squeezing American families from all sides as they attempt to maintain their standard of living.
The Impact of Savings and Government Stimulus
Millions of Americans were able to stack up savings during the pandemic. They capitalized on cost-cutting opportunities and once-in-a-century government stimulus efforts, despite the return of negative economic headwinds. These reasons created a moderate space from inflation at first and are largely not the running fix.
Cost of living during this pandemic is rising, with housing and food costs leading the way. Even workers who just received significant wage increases are finding it difficult, if not impossible, to cover their rising costs. Inflation consistently outstripped wage increases during this time period from March 2021 to June 2023. For countless families, this meant that they were experiencing the financial squeeze like never before.