In February 2020, the United States entered what was by far the largest recession since the Great Depression. Nearly 22 million people lost their jobs, and real gross domestic product (GDP) fell 9.2 percent. Learning from mistakes made in prior recessions, Congress passed recovery legislation that prevented economic scarring and instead ensured a speedy and full recovery.
Thanks to bipartisan congressional efforts during the Trump administration and the leadership of the Biden-Harris administration to continue the economic stimulus, the United States has more than fully recovered. In fact, economic growth has outpaced projections that were made before the COVID-19 pandemic. In other words, the economy in 2024 is stronger than experts had predicted it would be in 2024 before COVID-19 even happened. And it is stronger now than it was projected to be by 2024 at the beginning of the Biden-Harris administration.
Measures of employment
While there are multiple ways to measure employment, the best single measure is the percentage of the adult population with a job, known as the employment-to-population ratio (EPOP). However, with a growing portion of the adult population becoming retirees, this measure is confounded by demographic trends over longer time periods. Many economists therefore focus on “prime-age EPOP,” or the percentage of people ages 25–54 with a job, as a way to account for the aging of the population. A more sophisticated method is to adjust for both age and sex. Adjusting for age accounts not only for the increase in retirees but also the aging within the 25–54 bracket. Adjusting for sex is necessary to analyze previous decades, when a much smaller percentage of working-age women were in the workforce. After adjusting for age and sex, the percentage of the population that is working is roughly at its peak height in U.S. history. This is also true if one looks directly at prime-age EPOP.
Driving this strong economic growth is robust employment, which is hovering around its all-time high. The high employment rate in particular reflects historically elevated private sector employment. The share of people ages 25 to 54 with a private sector job in September 2024 (69.5 percent) was not only higher than in 2019 (69.0 percent) but is also essentially the highest in U.S. history. The share of people ages 25 to 54 with a public sector job in September 2024 (11.5 percent) is far below the March 1995 peak of 13.3 percent (the data go back to 1994).
This high employment has helped spur continued inflation-adjusted wage growth, boosting wages to record highs. Wages have outpaced inflation since before the COVID-19 pandemic, which means that the earning power of households and communities is ahead of where it was before the pandemic.
After adjusting for inflation, an hour of work not only earns workers a higher wage than before the recession, but it also earns a higher wage than at any point in U.S. history aside from an anomalous period that, due to compositional effects in the labor force at the onset of the pandemic in February 2020, created a phantom blip in wages.
Rapid changes in the composition of workers during the pandemic created the illusion of dramatic wage changes
This analysis uses average hourly earnings of production and nonsupervisory employees for two reasons: It is the longest-running good individual wage series that is still in use today, and it shows hourly income rather than weekly or annual. While there are pros and cons to this approach, people’s decisions to work more or fewer hours can have meaningful structural changes over time, and so hourly earnings better reflect earning power over a very long period of time.
However, one problem with this data series is that it shows the average among people employed, without any adjustments for how the composition of those employed changes over time. During both the Great Recession and the COVID-19 pandemic recession, low-wage workers were by far the most likely to lose their jobs. As low-wage workers lose their jobs, the average earnings and the median earnings increase—even if no one has received a raise. And as those low-wage workers regain their jobs, the average earnings and the median earnings decrease— even if no one has received a pay cut.
Figure 5a shows a spike in inflation-adjusted wages starting in March 2020 followed by a decline in inflation-adjusted wages over the next few months. However, this is purely a product of the compositional effect mentioned above, mixed with a small amount of deflation during the height of the recession.
In other words, the apparent blip in real wages seen around the COVID-19 pandemic recession reflects the anomalous pattern of job loss and gain following the initial pandemic shock rather than a true change in wages for people who were employed: Measures of earnings that are not affected by employment compositional changes did not show an increase in wages followed by a decrease.
The Employment Cost Index data in Figure 6 show that March 2020 did not see employed workers getting large raises, and the ensuing months did not see workers getting pay cuts. Instead, seen from the average hourly earnings series, the average went up due to low-wage people losing their jobs and went down due to low-wage people regaining their jobs. The phantom spike in March 2020 therefore does not reflect an hour of work producing additional real wages.
Most importantly, inflation-adjusted wage growth has been strongest for the lowest-income workers, whose real wages are 16 percent higher than they were before the pandemic.* Wage growth for low-income working Americans has been so much stronger than for other groups that it has led to a decline in wage inequality, undoing roughly one-third of its growth since 1980—right before Ronald Reagan became president.
Conclusion
Policymakers still must do more to address income inequality and to help struggling households: In 2023 alone, 47 million people were living in food-insecure households, and around 40 million people were living in poverty. But it is unequivocally the case that wages and employment are higher than ever before in U.S. history.
The authors would like to thank Christian Weller, Marc Jarsulic, Natalie Baker, Jessica Vela, Kyle Ross, Madeline Shepherd, and Emily Gee for their thoughtful comments.
*Author’s note: The U.S. Bureau of Labor Statistics produces income quintile-specific inflation indices. Although they show somewhat higher inflation for the bottom 20 percent of households than the top 20 percent of households in general, the difference in cumulative price growth between the fourth quarter of 2019 and the second quarter of 2024 is small: 23 percent compared with 21 percent, respectively.