US Wage Growth Slows for Low-Income Workers, Reversing Post-Pandemic Gains
At the height of the economic recovery in 2022, wages grew as businesses battled to fill openings amid labor shortages and growing consumer demand. In most cases, workers saw a pay increase; however, it was the lowest-paid employees, such as hospitality, food service, and personal care workers, who gained the most, narrowing the income gap with better-paid professionals.
However, that advantage has now evaporated, and low-income workers are once again lagging behind.
Wage growth has slowed for everyone as labor shortages ease and consumer demand stabilizes. Economists expect the January jobs report will reveal another slowdown in annual wage growth to 3.8%, a Bloomberg survey shows. But the slowdown has been particularly sharp for lower-wage workers.
In December, high-income workers realized a 4.8 percent annual increase in pay, more than the 4.7 percent gain recorded for low-paid workers, by the Federal Reserve Bank of Atlanta. It was the first time in ten years that higher-earning workers are getting more of a pay rise than lower-wage workers, creating economic stress on the latter’s side.
Still, for many of these workers, financial pressure is mounting.
Historically, higher-income workers not only earned more but also received bigger raises, widening the income gap. That trend began to shift in 2014 as labor shortages forced businesses to offer better pay to attract workers in high-turnover industries like hospitality and food service. By 2019, wage growth for lower-income workers outpaced that of higher earners.
The trend has accelerated dramatically since the pandemic because businesses have had a hard time rehiring due to health concerns and government stimulus payments. Additionally, minimum wage increases in some states and cities have further fueled pay for low-wage workers.
By August 2022, average annual wage growth for lower-earning workers stood at 7%, while it was 4.5% for higher earners. In a few sectors, the growth rate was even steeper: Restaurants and bars registered a 7.7% increase in wages, hotels by 8.3%, and barber shops and beauty salons by 9.2%. Yet, overall, the gaps in pay remained enormous, as professional service workers earned an average of $39.07 an hour, whereas food service workers earned $18.80 on average.
The wage gap is widening again. By November 2023, professional services wages were up 5.1% annually, compared to just 3.8% in restaurants and 1.7% in hotels. In some industries, wages have even declined—barber shop and salon workers saw a 2.2% drop in pay.
This wage slowdown is largely a result of the job market returning to pre-pandemic conditions, where job openings and available workers are more balanced. Lower-wage workers, who benefited most from pandemic-driven labor shortages, are now experiencing the sharpest pay slowdowns as the job market cools.
The impact is significant. Financial stress levels, which were historically low in 2021 and 2022 due to pay raises and stimulus support, are now at historic highs, says Bruce McClary of the National Foundation for Credit Counseling. Many low-wage workers are struggling with rising debt, including high-interest credit card balances, making it harder for them to stay afloat.
“They’re taking on more debt and making deep spending cuts,” McClary noted. “Many are just trying to get by.”
