The U.S. Bureau of Labor Statistics recently reported that the average worker in the private sector saw their real hourly earnings increase by 0.8% from May 2023 to May 2024. This growth in “real” earnings takes into account the impact of inflation on workers’ wages, meaning that Americans are able to purchase more with their paychecks compared to a year ago. This trend of rising real earnings has been consistent since May 2023, with a particular boost for non-managerial workers. This positive development marks a notable shift from the previous period of inflation spikes that outpaced wage growth, indicating a significant step forward for working families.
Maximiliano Dvorkin, an economic policy advisor at the Federal Reserve Bank of St. Louis, explained that real earnings typically increase during “normal” economic conditions. However, the pandemic-induced disruptions in the U.S. economy led to an imbalance in this equilibrium. In mid-2022, inflation reached a four-decade high while the labor market experienced unprecedented dynamics. Job openings surged to record levels, unemployment plummeted, and workers left their jobs in search of higher-paying opportunities. Although the average worker received a substantial pay increase, inflation remained high, resulting in a period of declining real wages for two years.
As the impact of the pandemic subsided, inflation moderated, and the labor market stabilized. Despite the cooling of economic conditions compared to the peak of the pandemic, consumer well-being has seen an improvement. Average nominal pay for all workers has risen by nearly 23% since January 2020, with even higher growth rates for rank-and-file employees. In contrast, the consumer price index, a key measure of inflation, has increased by a smaller 21% during the same period. While these developments are positive for American workers, concerns about the overall state of the U.S. economy persist.
The recent uptick in real earnings for American workers reflects a significant milestone in economic recovery and stability. The ability of workers to purchase more with their wages signals an improvement in overall well-being and financial security for households. While challenges remain, such as ongoing economic uncertainties and lingering concerns among workers, the positive trend in real earnings is a promising sign for the future. By staying attuned to economic fluctuations and policy changes, workers can continue to navigate the evolving landscape of work and finance in the United States.