U.S. workers’ paychecks are worth less than they were a year ago, the Labor Department reported Friday, as modest wage gains have failed to keep pace with inflation.
Inflation rose 2.9 percent from July 2017 to July 2018, the department reported, while average hourly pay increased 2.7 percent over the same period.
The lack of real wage gains comes despite a strong economy, with sustained growth and an unemployment rate of 3.9 percent — one of the lowest levels in decades.
The Labor Department tracks average hourly pay adjusted for inflation, which is known as the “real wage.” According to the federal government, the real average hourly wage was $10.78 in July 2017 and $10.76 in July 2018. Real wages have been on a sharp decline since the start of the year, mainly because energy prices have increased while pay has stayed flat.
“Despite the strong labor market, wage growth has lagged economists’ expectations,” wrote Pew Research in a report this week. “In fact, despite some ups and downs over the past several decades, today’s real average wage has about the same purchasing power it did 40 years ago.”
Since 2000, only the top quarter of wage earners have seen any true increase in their pay once you account for inflation, Pew reports. For the middle class, it’s been years of stagnation, and the latest trends aren’t encouraging.
Gas prices, housing and transportation costs have all jumped in the past year, taking a bigger bite out of people’s paychecks. The price of gas has risen 50 cents per gallon in the past year, according to the AAA tracker of the average national price of gas. Rent is also up substantially from a year ago, a potential hardship for working-class Americans.
When inflation rises faster than wages, workers fall behind. They have to cut costs from their budgets, use credit cards or put in more hours to try to live the same lifestyle they had enjoyed a year ago. The Labor Department reported that Americans are putting in more time on the job this summer versus last summer, which is helping to keep family earnings about the same for now.
Penny Harford, a 67-year-old in Filer, Idaho, thought she would be retired by now. Instead, she’s working two part-time jobs at retail stores. She took on the second job late last year as energy prices started to climb and she realized she needed more hours to pay bills.
“I was talking with my co-workers yesterday. We’re all desperate for more hours because we can’t make it,” said Harford, who prides herself on being “budget conscious.” She cooks all of her meals at home and refuses to use credit cards anymore, but it’s still hard to make it with hours that fluctuate and one job paying $12.65 an hour and the other paying $11.
President Trump campaigned in part on getting Americans workers jobs and raises, as he recognized the frustration many workers felt by an economic recovery whose benefits have skewed toward the wealthy. But it’s proving a challenging task for Trump, much as it was for former presidents Barack Obama and George W. Bush.
“Wages are now, for the first time in many years, rising,” Trump said earlier this year, a statement many said was false because average hourly wages aren’t showing any increase.
Trump’s economic advisers argue that other metrics are showing some signs of improvement. The Atlanta Federal Reserve’s wage tracker, which does not take inflation into account, is showing 3.2 percent wage growth over the past year.
Trump also passed a large tax cut for businesses and consumers that is giving many households more take-home pay this year. But that bump doesn’t show up in the wage data, and families are having to use a good chunk of the tax cut to cover rising energy and housing costs. The president has tweeted several times to try to get Saudi Arabia to produce more oil and lower gas prices.
“Consumers have a bit more cushion in their pockets to offset higher inflation because of the tax cuts,” said Joseph Song, senior U.S. economist at Bank of America Merrill Lynch. The average tax cut for middle-income households is about $900, according to the Tax Policy Center.
The last time wages were growing substantially above inflation was in 2016. Since then, inflation has picked up while wages have remained the same. Overall inflation hit a six-year high this summer and most economists think it will stay around where it currently is or even grow a bit faster, especially if Trump’s tariffs on Chinese products and steel and aluminum drive up costs for consumers.
Some economists think gas prices are unlikely to go much higher and that the consumer price index measure of inflation may moderate in the coming months, meaning the annual increase in gas prices won’t look as big later this year.
“I’m not happy with Trump, but the story here is we had a jump in energy prices that began last summer and that’s pushing inflation up to 2.9 percent. Going forward, inflation is more likely to be closer to 2.1 or 2.2 percent,” said Dean Baker, an economist an co-founder of the left-leaning Center for Economic and Policy Research.
Still, real wage growth would only be about half a percent if wage growth moderated, a level economists across the political spectrum view as disappointing.
Most economists have been predicting that pay will take off, with a record-high number of job openings and many business leaders saying their biggest problem is finding enough workers. But so far there’s little sign that businesses are hiking up pay in an effort to attract employees.
“Workers don’t feel like they have the power to ask for higher wages and employers still feel like they don’t have to pay more,” said Elise Gould, an economist at the left-leaning Economic Policy Institute. She argues some of this is a hangover from the Great Recession when workers were just happy to have a job and some of it is because of the decline of unions and other worker rights.
Other economists says a lack of productivity growth is to blame for low pay since employers don’t want to pay more if workers aren’t producing more. Some experts also point out that benefits like health care have been climbing in cost, meaning some employers may be paying more for benefits even though they are holding down hourly pay.
Harford, the retail worker in Idaho, thinks there are a lot of older workers like her who will work for low pay and no benefits because they need the money. Most of her co-workers are in their 60s, she says. She received a dollar increase in December at one job, but hasn’t had a pay increase in over a year at the other one. She’s not sure if the tax cut has helped her or not.
“I tried to sit down with my old pay stubs from last year and do the math to see if I got any tax but, but it’s hard because some weeks I only get 12 hours of work and other weeks I get 24 if we’re busy. I might have gotten a little bit, but I don’t really know,” Harford said.
Americans are feeling more confident about the economy, according to numerous polls and surveys, but many workers are wondering why their paychecks aren’t higher at a time when so much in the economy seems to be going well.
“I’m just a regular Joe, but I see that Fortune 500 companies are raking it in and the stock market is at an all-time high. Pay should be going up, too,” said Morris Tate, who works for a logistics company in North Carolina and says he got a dollar-an-hour raise this year. He’s said he’s grateful for the hike but keeps wondering if workers are getting their fair share of the surging profits at many companies.