In the past year, American workers have experienced a significant increase in their buying power due to falling inflation rates and a robust job market. Real hourly earnings in the private sector rose by 0.8% from May 2023 to May 2024, according to the U.S. Bureau of Labor Statistics. This growth in real earnings indicates that the average worker’s wages have outpaced inflation, resulting in a net increase in purchasing power for households.
Impact on Working Families
The rise in real wages over the past year has been particularly beneficial for rank-and-file workers in non-managerial roles. This positive trend represents a significant improvement from the previous two years, during which inflation rates surged and exceeded wage growth for the average worker. According to Chris Tilly, a labor economist at the University of California, Los Angeles, the increase in real wages is a positive development for working families as it allows them to afford more goods and services without increasing their work hours.
While real earnings typically grow during “normal” economic conditions, the dynamics of the pandemic-era U.S. economy disrupted this equilibrium. The combination of high inflation and a strong labor market created challenges for wage growth. Inflation spiked in mid-2022, reaching a four-decade high, while job openings surged as the economy reopened post-pandemic. However, despite the record-high job openings and low unemployment rates, wage growth was not sufficient to outpace inflation, resulting in falling real wages for two consecutive years.
Fortunately, recent trends indicate a return to more stable economic conditions following the disruptions caused by the pandemic. Inflation has eased, and the labor market, while still strong, has normalized since 2022. This shift back to pre-pandemic levels is seen as a positive development for consumers, as it leads to an increase in their overall well-being. Although nominal pay has increased significantly for all workers since January 2020, the slower growth of the consumer price index suggests a more favorable economic outlook for consumers.
Consumer Sentiment
Despite the improvements in real earnings and inflation rates, workers in the U.S. remain cautious about the state of the economy. While there has been a positive trend in real wages and purchasing power, the lingering concerns about economic stability reflect ongoing uncertainties in the labor market and broader economy. It remains crucial for policymakers and businesses to address these concerns and create sustainable growth opportunities for all workers.
Overall, the recent growth in real earnings in the U.S. economy is a promising sign of recovery and stability following the disruptions of the pandemic. By addressing the challenges of inflation and wage growth, policymakers can ensure continued economic progress for working families and consumers across the country.