In the tug-of-war between paychecks and prices, the typical American worker has come out on top.
While higher costs for everything from milk to medicines have preoccupied U.S. consumers in the pandemic era, earnings have also risen enough, on average, to push up households’ purchasing power a bit. And blue-collar workers have been the biggest beneficiaries.
An analysis published in July by economists at the Treasury Department found that the median worker can afford the same representative basket of goods and services as they did in 2019 — plus have an additional $1,400 a year.
Of course, not all workers fall into the median, and consumers — including those who don’t work — have shouldered sharply higher prices (some of which are now falling). Steep interest rates, astronomical housing costs and a softening job market may better capture many Americans’ current financial realities than any single statistic.
“People might have been attached to prices of things where they were before,” said Elise Gould, senior economist at the left-leaning Economic Policy Institute think tank. “They have a meaning even if those goods are still affordable. There may be expectations about how much things are supposed to cost that haven’t caught up to reality, even if incomes have gone up.”
The data shows that is the case. The Consumer Price Index climbed about 21.7% between the four quarters of 2019 and the four quarters ending in the second quarter of 2024.
But over that same period, median weekly earnings, which include before-tax wages plus any commissions or tips, climbed 24%, for a gain of 2.3% beyond the inflation rate, the Treasury analysis found.
The last few years’ wage gains haven’t been equally distributed. But it is white-collar professionals who’ve seen a relative slowdown in their fortunes: Blue-collar workers — who continue to be in demand in many sectors — saw earnings climb 3.8% over the period, compared with 1.6% for the median worker in the 75th percentile.
“This solid increase continues to reflect an improvement in the purchasing power for the median worker since before the pandemic and is good news for American households,” the Treasury researchers wrote in an update to findings released in December that first highlighted the trend.
That doesn’t mean everyone has been feeling the benefits. While consumer confidence rose to a six-month high in August, according to data the Conference Board released Tuesday, it remains below pre-pandemic levels, with about equal shares of respondents now calling their family’s current financial situation “good” versus “bad.” It’s the latest sign that what some have called a “vibecession,” referring to the mismatch between a relatively solid economy and downbeat impressions of it, hasn’t fully abated.
With the rate of inflation slowing just as the 2024 presidential election heads into the home stretch, there’s no shortage of debate about what caused the run-up in prices in the early part of the pandemic. Conservatives have blamed government spending, while progressives are increasingly casting corporate profits as a culprit. Vice President Kamala Harris, the Democratic presidential nominee, has proposed a ban on “price gouging” of groceries, arguing that “excessive” price hikes have unduly squeezed household budgets.
Many economists generally put more blame for inflation on Covid-era supply-chain shocks that caused shortages of countless goods and services just as the health crisis scrambled ordinary demand patterns.
At any rate, even as prices have climbed, the typical American household has weathered the storm: Foreclosures and bankruptcies, though they’ve begun creeping upward, are beneath pre-pandemic levels. Unemployment, too, has increased recently but remains at a historically low 4.3%.
And while some recession fears continue to simmer, it’s precisely because inflation has cooled without yet triggering mass layoffs — a scenario known as a “soft landing,” which many thought nearly impossible a year or two ago — that the Federal Reserve is set to begin lowering interest rates as soon as next month.
“Price stability has returned,” RSM Chief Economist Joe Brusuelas posted on X last week, adding, “the economy has an interesting way of trumping ideology and politics.”
Gould, of the EPI, said that a combination of factors — including states increasing their minimum wages and government policies keeping the economy near full employment, including federal spending — have allowed Americans’ purchasing power to come out ahead.
“Over the past four years, middle-wage workers have been beating inflation,” she said.
What’s more, rising pay has not necessarily hurt companies’ bottom lines. Corporate profits and stock market indexes are both at record highs. In fact, the EPI’s analysis of federal data shows labor’s share of business income is hovering at record lows.
That means many companies could afford to pay their workers even better, Gould said.
“There’s plenty of room for wages to rise even more and for workers to claw back some labor share that has gone to profit,” she said.
