Have American wages kept pace with the cost of living in recent years?

This question is not as straightforward as it may seem.

For many Americans, the answer seems obvious: “no.” Across a broad spectrum of polls and interviews leading up to the presidential election, individuals from diverse backgrounds express that inflation has made it harder to manage expenses, outstripping any pay raises they might have received.

From an economic perspective, however, the data appears to suggest a tentative “yes.” Since the onset of the pandemic, wages and incomes have generally risen faster than inflation, according to a range of public and private data sources. This trend has especially benefitted lower-income earners, partially reversing the inequality that has grown in recent decades.

Yet, this isn’t merely a case of hard data versus perception. Economic statistics reflect averages, and upon closer inspection, the reality is more complex. A person’s experience over the last five years depends on numerous factors, such as whether they rent or own a home, if they needed to purchase a car, whether they had to pay for child care, or if they were able to change jobs or negotiate for a raise.

“I feel like people are sometimes too quick to dismiss others, saying, ‘People are mistaken — wages have grown in real terms,’ but that’s an oversimplified view,” says Stefanie Stantcheva, a Harvard economist who studies perceptions of inflation. “It’s actually challenging to say anyone is wrong — I wouldn’t say that.”

In short, while most American workers likely earn more today, adjusted for inflation, than in 2019, not everyone’s pay has kept up with their personal cost of living. Many — possibly the majority — may still feel behind compared to where they would be if pre-pandemic trends had continued uninterrupted. These nuances may explain why so many Americans feel they are falling short.

Different Approaches

The question of whether pay keeps up with prices is complex due to the many ways it can be measured.

Should wages be calculated hourly or weekly? Should they include overtime, tips, or other benefits like health insurance? Should gig workers and the self-employed be factored in? And should we measure income before or after taxes?

The government tracks multiple income metrics, each offering a different angle. Private firms like ADP and Indeed publish their own statistics, while there are also two primary government indexes tracking inflation.

Most data sources agree on the general pattern: Inflation outpaced wage growth for most workers in late 2021 and early 2022, but wages started catching up as inflation cooled. According to nearly all metrics, wages have grown faster than inflation for over two years.

However, these sources diverge on the specifics of where workers stand post-pandemic. Per-capita after-tax income, which accounts for all forms of income across the population, has risen over 9% since the end of 2019 when adjusted for inflation. In contrast, median weekly earnings, measuring full-time job wages, have grown just 2.5%. A Federal Reserve Bank of New York metric, which includes part-time and full-time workers using average pay, shows minimal growth.

Winners and Losers

Most sources agree that wages have risen most for lower-wage workers. Inflation-adjusted weekly earnings for the lowest 10% of earners grew by 7.3% from 2019 to this year’s third quarter, compared to 3.6% for the highest-paid workers.

This growth at the lower end largely resulted from a strong job market, especially in hospitality and leisure. Workers in these fields secured significant raises as businesses sought to meet the surging demand post-pandemic.

“Full employment disproportionately lifts the economic outlook for the most vulnerable,” says Jared Bernstein, chair of President Biden’s Council of Economic Advisers. “The data shows this clearly.”

Workers in other fields saw smaller increases, and some even lost ground. For example, real weekly pay has declined in sectors like advertising, telecommunications, and chemical manufacturing since 2019.

Even within the service industry, gains were not equal. Many workers saw raises by switching jobs or negotiating pay. Those who faced barriers, like caregiving responsibilities or transportation limits, often missed these gains.

Cost Differences

Simply adjusting pay increases for inflation may not fully reflect actual living cost changes.

That’s because inflation metrics represent averages, reflecting how much prices have risen for typical goods and services. For instance, the average family spends about 8% of their budget on groceries, so grocery prices comprise 8% of the Consumer Price Index.

Yet families with children may allocate more than 8% to groceries, just as people with long commutes spend more on gas, and residents of colder regions spend more on heating. Since prices in these categories have climbed quickly, these households may have felt a higher cost of living increase than inflation indexes suggest.

Additionally, families often face different price changes even for similar purchases. For example, Harvard economist Alberto Cavallo found that prices have risen fastest for cheaper items in a category, like generic versus branded eggs — a trend he calls “cheapflation.” Cavallo estimates this could diminish, if not entirely offset, recent wage gains for lower-income households.

The contrasts are particularly noticeable in housing, the largest expense for most households. Homeowners with low, locked-in mortgage rates have been partially shielded from inflation, and many have benefited from rising home values. Renters, however, have felt the full weight of inflation, with rents rising over 25% since the pandemic’s start. ApartmentList data also shows that lower-priced rental units have seen the fastest increases.

The combination of rapid wage and price changes has accentuated the disparities in people’s experiences.

“There’s a big gap in those lived experiences,” says University of Chicago economist Greg Kaplan. “If you didn’t get a raise and you’re renting, it’s a tough situation.”

Changing Perspectives

Many Americans may feel their pay hasn’t kept up because, depending on when you start measuring, it hasn’t.

Economists usually treat the past five years — encompassing the pandemic’s recession, recovery, and ensuing inflation — as a single period. They often benchmark against pre-pandemic levels.

However, individuals may view their progress from different points, such as the start of President Biden’s term or the beginning of inflation’s surge. When assessed from these periods, inflation-adjusted wages are down by many measures.

Another factor is people’s expectations of steady pay growth, especially for those in their prime working years. If their earnings only just kept up with inflation, they might feel like they’re behind.

Inflation-adjusted weekly wages this year are about 3% lower than they would be if wage growth had continued at the rate seen six years before the pandemic. Other analyses vary, but most show average wages haven’t greatly outpaced pre-pandemic trends.

“When I hear people say things are improving, I ask: What’s the trend?” says Erik Hurst, a University of Chicago economist. “If wage growth is flat, is that normal?”

On the other hand, some economists argue it’s unrealistic to compare current wages with pre-pandemic trends. The pandemic caused major disruptions, putting millions out of work. Even after adjusting for inflation, wage recovery has been faster than after previous recessions.

“We went through a pandemic, and the fact that we’re even talking about real earnings growth is incredible,” says Tara Sinclair, a George Washington University economist and former Treasury Department employee. “Given our past track record with recessions, this feels like progress.”