Workers’ Paychecks Are Growing More Quickly Than Prices

The United States has experienced a historically strong economic recovery from the COVID-19 recession, with more jobs and a larger inflation-adjusted gross domestic product (GDP) in 2023 than expected before the pandemic.¹ GDP growth has been stronger in the United States than in other advanced economies, and the latest data show that U.S. inflation is among the lowest in the Group of Seven (G7) economies.²

For many families, however, these statistics only matter if they are reflected in higher real wages—that is, wages adjusted for cost of living—since that means purchasing power also rises. And the news on that front is also good: Many economists have pointed out that real wages for a typical worker today are higher than they were before the pandemic and are growing at about the pre-pandemic rate.³ A new Center for American Progress analysis of wages and inflation finds:

• In November 2023, nearly 6 in 10 workers (57 percent) earned higher annual inflation-adjusted wages than the year before, a share higher than its 2017–2019 pre-pandemic average. The median inflation-adjusted change in workers’ hourly earnings was about 45 cents, which translates to a more than $900 annual increase for a worker who works full time, year-round.
• Young adult workers who were between ages 25 and 34 in 2019—and are now between ages 29 and 38—have seen their real median wage rise 12 percent since the onset of the pandemic. The real median wage also grew among cohorts of workers who were ages 35 to 44 and 45 to 54 in 2019.
• Real average wage growth for a typical worker has seen the second-fastest recovery during this recession recovery of all five recession recoveries since 1980. Notably, the current economic recovery is the only one in which robust real wage growth has occurred in tandem with a rapid recovery of the unemployment rate.

These results indicate an economy that is delivering historic, broad-based real wage gains for workers while emerging from one of the deepest recessions on record. Policymakers should look to build on this momentum through policies that raise wages and cut costs of living, such as increasing the federal minimum wage, making more workers eligible for overtime pay, and improving the affordability of child care and health care.

If wages rise more quickly than prices, workers can maintain or improve their standard of living—and since the start of the pandemic, wage growth for a typical worker has been higher than inflation.⁴ Prices have increased 20 percent since the fourth quarter of 2019, while wages for a typical worker have grown 23 percent.⁵ (see Figure 1) In fact, real wages for a typical worker stand at about the level expected if there had been no pandemic or recession in early 2020 and if they had kept growing at the same rate as in years prior. ⁶

The analysis above, similar to the overall discussion about wages and inflation, focuses on the average wage among a group of workers. This only indirectly relates to workers’ actual experience, as no single worker represents the average or median worker, especially when analyzing their experience over time.⁷ That the inflation-adjusted wage for a typical worker has grown 1 percent over the past year does not necessarily mean that most workers received a 1 percent wage increase after adjusting for inflation.

CAP analysis of data from the U.S. Census Bureau’s Current Population Survey provides a new measure of worker well-being: the share of individual workers whose inflation-adjusted wages were higher in a given month than that same month one year ago.

Data from November 2023 show that 57 percent of workers’ wages grew, on an annual basis, more quickly than inflation since November 2022. (see Figure 2) Three and a half years after the onset of the COVID-19 pandemic, then, this share stands above its pre-pandemic (2017–2019) average. After the onset of the Great Recession, it took essentially six years—until the end of 2013—for a similar share of workers to begin seeing real annual wage raises. The share of workers of color who received an inflation-adjusted raise in November 2023 is identical to the share of workers overall.⁸

The median inflation-adjusted change in hourly wages is about a 45-cent-per-hour increase,⁹ which translates to a median raise of more than $900 per year for a worker who works full time, year-round.

The share of workers receiving an inflation-adjusted raise hit 50 percent in February 2023 and has hovered around its pre-pandemic level of 55 percent since May 2023. These widespread raises follow a period from April 2021 to October 2022 in which the share of workers receiving raises fell from about 55 percent to 45 percent. This decrease resulted from a surge in inflation mostly due to pandemic-driven supply chain disruptions and the war in Ukraine.¹⁰ As these disruptions and their effect on prices have eased in 2023, the share of workers experiencing raises higher than inflation has improved. This was also a period of rapid employment growth, so measuring the share of workers who received a raise does not fully capture the state of the labor market during this time because it excludes newly employed workers who do not have an initial wage to calculate the wage growth from.

The only periods since 2003 when a larger share of workers consistently experienced real annual wage growth was during the middle of the Great Recession, throughout 2015, and during the beginning of the COVID-19 pandemic. (see Figure 3) In each of these instances, the growth mostly came from extremely low inflation: Inflation hit lows of -2 percent in 2009, -0.2 percent in 2015, and 0.2 percent in 2020.¹¹ Following these periods of unusually low inflation, fewer workers saw real wage growth.

One shortcoming of focusing on the share of workers who receive a raise is that it treats a large, inflation-adjusted increase or decrease in wages the same as a small one—masking some of the variation in wage increases. Therefore, it makes sense to consider the share of workers whose real wages increase or decrease by a much larger percentage, such as 5 percent.

In November, for example, 41 percent of workers saw an annual real wage increase above 5 percent (see Figure 4), which is the same as the 2017–2019 average. The 24 percent of workers whose real wages fell 5 percent or more in November 2023 was also essentially the same as in 2017 and 2019. What this shows is that even in an economy where real wage growth is strong—as it was immediately before the COVID-19 pandemic and is now—about one-quarter of workers’ wages are growing much more slowly than inflation.

Purchasing power of wages relative to last year may be of less interest to workers than the purchasing power of wages relative to before the pandemic, given the drastic changes in both prices and wages since 2020. Unfortunately, data tracking individual workers’ wages from the start of the pandemic through 2023 do not yet exist.¹²

However, there are data available to approximate whether groups of workers are earning more. For example, one can track the median wages of age cohorts over time, as the 25- to 34-year-olds in 2019 census wage data are the 29- to 38-year-olds in 2023 census wage data. These data show that cohorts of prime-age workers—those ages 25 to 54 years old—in each 10-year age group (25 to 34, 35 to 44, and 45 to 54) in 2019 have higher inflation-adjusted median wages in 2023 (see Figure 5); this suggests that a majority of individual workers’ wages have grown faster than inflation over this four-year period.

Despite the drawbacks of analyzing overall real wages to understand the experiences of workers, comparing such wages in the context of economic recoveries can be useful because they are a consistent measure. For a typical worker, overall real wages can grow quickly when the economy is at a peak—as it was in the months before the COVID-19 pandemic—but they do not always grow quickly in the aftermath of a recession.

An important yardstick for measuring recent real wage growth, therefore, is how it compares to growth during other recession recoveries over the same length of time.¹³ (see Table 1) November 2023, the most recent month for which wage and inflation data were available, marks 45 months after February 2020, the month preceding the start of the United States’ COVID-19 recession and the peak of the business cycle. During the recovery from the recession, real wage growth for a typical worker has been the second highest of any post-1980 recovery over the same 45-month period following the business cycle peak. In contrast, the recoveries from the 1980 and 1990 recessions featured negative real wage growth over the same length of time.

The only recovery that featured stronger real wage growth was the recovery from the Great Recession. However, the wage figures over that period may be misleading: The employment rate for workers with education levels less than an associate degree fell about 5 percentage points during a period of the Great Recession recovery that was similar to where the economy is currently in the COVID-19 recovery, ¹⁴ and the employment rate decline for workers with a bachelor’s degree was less than half as large. This drop in employment among workers with less education relative to higher-educated workers artificially boosted statistics that measure average wages.¹⁵ In the current recovery, on the other hand, both the unemployment rate and the prime-age employment rate have recovered to pre-pandemic levels.

Assessing economic recoveries requires measuring real wage growth and unemployment—not only because both outcomes matter but also because an incomplete labor market recovery can distort real wage growth statistics. The unemployment rate following the COVID-19 recession recovery is essentially back to its pre-recession level, something that no other post-1980 recovery achieved after 45 months. Indeed, the unemployment rate during the Great Recession recovery was still 4 percentage points above its pre-recession level at the same point. (see Table 2)

What makes the recovery from the COVID-19 recession truly unique, however, is that it has included this rapid reduction in the unemployment rate along with relatively strong real wage growth.

This new CAP analysis shows that real wage growth has been a point of strength in the recovery from the COVID-19 recession: Real average wage growth for a typical worker during this recovery has been the second highest of all recoveries from post-1980 recessions, and only the COVID-19 recovery has combined robust wage growth with a near-complete recovery of the unemployment rate.

The data reveal that as of late 2023, most workers are earning more, in inflation-adjusted terms, than they were one year prior, and the fraction of workers receiving real wage increases is about the same as it was in the years before the pandemic. The data also suggest that most individual workers are earning more today than they were before the pandemic; every prime-age worker cohort has higher inflation-adjusted median wages than before the pandemic. Nevertheless, policymakers should continue to focus on ways to drive up real wage growth—including by raising wages and reducing the cost of living.

This analysis calculates the share of workers who have received an inflation-adjusted raise by linking individual workers’ wage records from two consecutive years of the U.S. Census Bureau’s Current Population Survey.¹⁶ It then calculates the share of workers whose inflation-adjusted wages grew (using the Consumer Price Index for All Urban Consumers¹⁷), reported as a three-month average.

This new measure is closely related to the Federal Reserve Bank of Atlanta’s Wage Growth Tracker, which calculates nominal percentage wage growth for all continually employed workers and then provides the median nominal percentage wage growth.¹⁸ CAP’s analysis uses essentially the same U.S. Current Population Survey data as the Federal Reserve Bank of Atlanta to determine how widespread inflation-adjusted wage growth has been.

Some drawbacks of this measure are that it excludes newly employed workers, since they do not have a wage from the previous year, and that it uses overall inflation instead of individual workers to calculate inflation, as the data to measure individual workers’ inflation do not exist.