Americans have experienced a boost in their buying power over the past year as inflation has decreased and the job market has strengthened. According to the U.S. Bureau of Labor Statistics, the average worker in the private sector has seen their real hourly earnings increase by 0.8% from May 2023 to May 2024. This means that after accounting for inflation, the average worker’s paycheck today can buy more than it could a year ago. This positive trend in real earnings growth has been ongoing since May 2023, particularly benefiting rank-and-file workers in non-managerial roles.
Chris Tilly, a labor economist at the University of California, Los Angeles, views the increase in real wages over the past year as a significant advancement for working families. He notes that this growth allows workers to purchase more goods and services while maintaining the same number of work hours. Maximiliano Dvorkin, an economic policy advisor at the Federal Reserve Bank of St. Louis, points out that during “normal” times, real earnings tend to grow at a positive rate. However, the COVID-19 pandemic disrupted this equilibrium, leading to unusual economic dynamics in the U.S.
While real earnings have been on the rise, the American economy faced challenges during the pandemic, with inflation reaching a four-decade high in mid-2022. Despite job openings hitting record levels and unemployment dropping significantly, inflation outpaced wage growth for a period of time. Average raises peaked at 6% annually in March 2022, exceeding pre-pandemic levels, but inflation remained high, resulting in declining real wages for two consecutive years.
Fortunately, as inflation has moderated and the labor market has stabilized, real earnings have started to recover. Maximiliano Dvorkin notes that the U.S. economy is moving towards more normal conditions after the disruptive impact of the pandemic. This bodes well for consumers, as it generally leads to an improvement in their overall well-being over time. Although average nominal pay has increased significantly since January 2020, workers still express concerns about the state of the economy, indicating that there may be lingering uncertainties despite the positive trends in real earnings.
The recent uptick in real earnings for American workers represents a step in the right direction towards economic recovery and stability. While challenges persist, the overall outlook appears promising as the economy continues to recover from the impacts of the pandemic.