The bottom 25% of earners are gaining wages at the highest rate since 1998. Nominal wages have been rising dramatically for all workers in the past year, and the gains made by first quartile earners are outpacing those of higher quartiles by at least a full percent.
Highlighted in the chart below, wages were up 6.7% for first quartile earners in May 2022, the highest 12-month moving average since 1998. Overall wage growth, for all workers, was 5.0% in May, an impressive rate. These are encouraging figures for workers who have seen rather negligible wage growth in the past decade. However, with inflation at a 40-year high, real wage growth is negative for most workers.
Following the 2008 recession, wage growth stalled at a low rate, around 2%, and the lowest earners saw meager gains. Notably, earners in the third and fourth quartiles enjoyed the highest wage gains in that period. The reversal seen now can be attributed in part to a tight labor market applying pressure on employers to raise wages to remain competitive. Low earners, empowered with an abundance of choices, now command higher wages.
There has also been a shift in sentiment towards low wage jobs. Following the COVID-19 pandemic, jobs in sectors such as leisure and hospitality proved to be essential in building back the economy. Simultaneously, workers lost desire for these jobs as interacting face-to-face with consumers became more dangerous, while other professions were able to move to remote work.
First quartile earners should be encouraged by these monumental nominal wage gains. Increased bargaining power returned them to their impressive position at the turn of the century, and that is something to celebrate.
