Prices are rising so much that minimum wage workers are poorer than they’ve been in decades

McDonald's fight for $15 wage
An employee of McDonald’s protests outside a branch restaurant for a raise in their minimum wage to $15 an hour, in Fort Lauderdale on May 19, 2021. Chandan Khanna/AFP/Getty Images
  • Wages are rising at their fastest rate since the 1980s, but it’s not enough to keep up with inflation.
  • The real federal minimum wage sits at the lowest since 2008 and is nearing multi-decade lows.
  • While Americans are earning more as businesses lift pay, soaring prices are leaving their dollars weaker.
  • See more stories on Insider’s business page.

For Americans earning the minimum wage, surging inflation is making their dollar the weakest it’s been in more than a decade.

On the surface, the labor market seems to finally be benefitting low-income workers. Wage growth surged to the fastest pace since the 1980s through April and May. Businesses are increasingly using signing bonuses and other incentives to attract workers. And quits soared to a record high in April, suggesting Americans are confident in their chances at finding a better job.

But that encouraging trend is reversed – and then some – by booming inflation seen through reopening. Price growth has accelerated to its fastest one-year pace since 2008 as a wave of pent-up demand runs up against widespread shortages and production bottlenecks. After accounting for the broad upswing in consumer prices, the minimum wage is the weakest it’s been since 2008.

The rate of decline has also accelerated through spring, suggesting the real minimum wage could soon breach multi-decade lows.

To be sure, economists largely expect inflation to cool as the country settles into a new normal and bottlenecks are resolved. President Joe Biden backed the outlook again on Thursday, saying he expects price growth to “pop up a little bit and then come back down.”

The size of that pop remains up for debate, and Federal Reserve officials are bracing for a larger upswing than previously expected. Members of the Federal Open Market Committee expect inflation to average 3.4% this year before falling to 2.1% in 2022, according to median projections published June 16. That compares to the March forecast of 2.4% inflation in 2021.

The faster rate of inflation and tumbling real wage could put new pressure on lawmakers and businesses to raise wages, Morgan Stanley economists said Monday. Despite average earnings soaring in recent months, 79% of industries are still seeing inflation outpace wage growth. And those who are benefitting most are middle- and high-income Americans, according to the bank.

The trend could intensify the push for higher wages, particularly for those at the bottom of the pay scale, the team led by Ellen Zentner said.

“While hard to know exactly how these political forces impact wage growth in the short term, we suspect this is a longer-term tailwind toward rising and broadening wage growth,” they added.