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Workers suffer biggest pay cut in 25 years

"Despite higher wage growth, most workers are seeing their wages fall even further behind inflation."

Dólares, pérdida salarial

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Published by
Verónica Silveri Pazos

Due to inflation, U.S. workers are experiencing the largest cut in real wages in decades, this is according to new data released from the Federal Reserve Bank of Dallas.

We find that the real (inflation-adjusted) wages of most salaried workers have failed to keep pace with inflation over the past year. For these workers, the average decline in real wages is just over 8.5%. Taken together, these results appear to be the most serious that employees have faced in the last 25 years.

The Dallas Fed reported that more than half of citizens - counting those who experienced a wage increase - saw a decline in earnings over the past 12 months:

Despite higher wage growth due to labor market tightness, most workers are seeing their wages lag even further behind inflation. For the 53.4% of workers experiencing real wage growth in the second quarter of 2022, the median decline in real wage growth was 8.6%.... The average decline over the past 25 years is 6.5%, and real wage declines are typically between 5.7 and 6.8%....

Wage increases are not enough

Since President Joe Biden took office, the consumer price index rate has risen to its highest level in 4 decades. According to the latest Bureau of Labor Statistics (BLS) report, the CPI has exceeded 8% in the previous 12 months. Other expenses, such as food, have experienced even greater increases:

The household food index increased 13.5% over the past 12 months, the largest 12-month increase since the period ending March 1979. The index for other food at home increased 16.7% and the index for cereals and bakery products increased 16.4% during the year. The rest of the major food groups in grocery stores recorded increases ranging from 9.4 percent (fruits and vegetables) to 16.2 percent (dairy and related products).

Price increases are outpacing wage increases, i.e., even if workers experienced a wage increase this year, it is not enough to offset inflationary price growth.

"While there have been episodes over the past 25 years that show a higher incidence or greater magnitude of real wage declines, the current period is unprecedented in terms of the challenge faced by employed workers," the Federal Reserve Bank of Dallas noted.

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