WASHINGTON • 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 Labor Department said, 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.
“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. Used car prices and rent are also up substantially from a year ago, a potential hardship for working-class Americans in need of a new vehicle.
When inflation rises more quickly 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.
“We are nearly a decade into the recovery and we’re still arguing about whether or not we’re seeing meaningful gains in wages. That should be a given at this point in the cycle,” said Lindsey Piegza, chief economist at Stifel.
President Donald Trump campaigned on getting Americans back to work and getting them a raise as he recognized the frustration of many working people, but it’s proving a challenging task for Trump, much as it was for former presidents Barack Obama and George W. Bush.
Trump passed a large tax cut for businesses and consumers that is giving many families more money in their pockets this year and doesn’t show up in the wage data, but 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.
The last time wages were growing substantially above inflation was in 2016. Since then, inflation has picked up while wages have remained the same. Inflation hit a six-year high this summer, and most economists think it will stay about where it currently is or even grow a bit more quickly, especially if Trump’s tariffs on Chinese products and steel and aluminum drive up costs for consumers.
Most economists have been predicting that pay will take off, but that has not happened.