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What’s behind the 2023 salary increase in low-wage jobs in the US? Will wages of America’s lowest-paid workers continue to rise?
For four decades, the gap between America’s lowest- and highest-paid workers grew. Then came the Covid-19 pandemic, which hit the “reset” button for low-wage workers and reversed one-quarter of that gap.
Let’s take a look at what caused the 2023 wage increase and if it’s expected to continue.
A Boost for America’s Lowest-Wage Earners
Although the pandemic brutalized the US economy and businesses, it came with one surprising upside: A 2019-2023 wage increase for America’s lowest-paid workers.
- Real income for the country’s lowest-paid workers grew by 9%—10% faster than in any recovery since 1979 and faster than any other group except the country’s highest-paid workers.
- Wages of the lowest-paid workers rose as those of the highest-paid fell; wages of the least educated grew more than those of the most educated; and wages of Black and Hispanic workers increased as those of non-Hispanic whites decreased.
Why the Gains?
Experts attribute the pay surge to three interrelated factors stemming from the pandemic:
- Layoffs. When the pandemic hit, many companies employing large numbers of low-wage workers (restaurants, hotels, child care centers) closed, leaving large numbers of workers looking for work. Workers typically command better salaries when they leave jobs than if they stay put—and many workers who lost jobs at the start of the pandemic ended up finding better paying ones.
- Government support. The federal government created a financial safety net to protect the country’s most financially vulnerable that included unemployment benefits, enhanced tax credits, and rental assistance. The financial cushion gave America’s lowest-wage workers more flexibility to be selective while hunting for work and hold out for better-paying jobs.
- Industry resurgence. As the pandemic waned, industries that typically hire low-wage workers (restaurants, tourism), roared back to life, creating a new demand for labor. Suddenly, low-wage earners had more work opportunities and an unprecedented ability to jump between jobs—forcing employers to raise wages to attract workers and compete with rivals.
Low-Wage Workers’ Future: Okay, But Not Great
Experts say that America’s lowest-wage earners are in a more powerful position today than in pre-pandemic years, but that their baseline wages were so low to start with (just $26,100 annually for the lowest-paid 10% of workers) that many had difficulty making ends meet. So, even with recent gains, the working poor could be in for a rougher road ahead, particularly given the precarious financial forecast.
- The pay surge appears to be slowing. Fewer low-wage workers are seeking out new jobs than during the pandemic, interest rates are climbing, and a potential recession looms—which could hurt the lowest-paid workers the most.
- Programs that allowed workers to accrue savings over the pandemic are at their end (unemployment insurance, the child tax credit, and stimulus checks).
- Not all lowest-income workers have fared equally well. Of those with a high-school diploma or less, workers under 40 have seen the greatest wage gains, likely because younger workers change jobs more frequently than older workers. As a result, older, less educated workers are more likely to be left behind—stuck with lower salaries so long as they stay put.
What’s Next
Experts say that US leaders should do more to bolster recent gains of America’s lowest-paid workers, as the White House did when it called for a ban of non-compete agreements and pushed to increase unionization rates. Additional steps they recommend the Biden administration take to support these workers include:
- Increase housing stock so people can move to get better paying jobs.
- Decrease corporate concentration so workers have greater choice between employers, which could help raise wages.
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