Deep Low-Wage Job Losses Create Phantom Raises

Asian young women clerks wearing face masks use a tablet to check the order for guests.
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Jobs lost during the pandemic are so skewed to lower-income Americans that the average wage didn’t suffer in this tough economy like you might think. In fact, it’s misleadingly high, now topping $30 an hour.

Key Takeaways

  • So many lower-income workers have lost jobs in the pandemic that the average hourly wage in the U.S. is misleadingly high.
  • The average wage continued to increase despite the pandemic, but most workers actually saw little change in their pay.
  • Employment among low-wage workers is still down 25% while the job market for high-wage workers has completely recovered, according to one set of estimates.

Average hourly wages in the U.S. continued to increase in 2020—even spiking in the early months of the pandemic before decelerating to a more normal trajectory later in the year, according to the ADP Research Institute, a unit of payroll company ADP.  But most workers actually saw little change in their wages, ADP said.

“It’s not that everyone got a raise,” said Adam Looney, an economist and the executive director of the Marriner S. Eccles Institute for Economics and Quantitative Analysis, an academic research arm at the University of Utah. “It’s that all the low-wage workers got fired.”

The economy experienced a sudden mass shedding of low-paying jobs last spring, as the COVID-19 pandemic nearly halted travel and forced high-contact businesses like restaurants and bars to close. The one-sided nature of the job losses—which we’ve yet to fully recover from—increased the power higher-paying jobs had on average wage data, and the result has been a phantom raise for the average American worker.

Indeed, in the months immediately following the onset of the pandemic, the bottom 25% of workers in the earnings distribution made up about half of the people who had either become unemployed or who stopped looking for work completely, according to an August analysis from the Federal Reserve Bank of San Francisco.

The bottom quintile—or 20%—of earners experienced a jobless rate three times the rate of those in the top 20%, according to researchers at the University of Chicago. 

“For high-income workers, the recession is over,” said Looney. “Low-income workers remain in a terrible recession.”

As of December, employment among low-wage workers (those making less than $27,000 annually) was estimated at 25% lower than in January 2020, while among high-wage workers (those making more than $60,000 per year) it had already totally recovered and was almost 1% higher, according to Opportunity Insights, a nonprofit based at Harvard University that analyzes data from payroll processors, financial service firms and e-commerce outlets.

The median weekly earnings showed a similar trend in 2020, accelerating earlier in the year before recovering to a more steady state, according to Bureau of Labor Statistics (BLS) data. The BLS also acknowledged the misleading nature of the data, saying it “must be interpreted with caution” because employment declines among lower-paid workers “put upward pressure” on the medians. 

The hardest hit industries were the ones most affected by government restrictions requiring social distancing and limiting capacity. 

In December, the leisure and hospitality sector—including restaurants, bars and hotels—was one of only three sectors in a BLS list with a double-digit unemployment rate: 16.7%, or more than twice the national average. This sector is also the lowest-paying, with a median hourly wage of just over $17. 

These industries are most at risk of permanent damage due to the pandemic, ADP said in its analysis, though wage growth should slow as the job market stabilizes and high-earners have less of an outsized impact.

Meanwhile, those low-wage earners waiting for work have reported difficulty getting by. Forty-six percent of lower-income adults surveyed by Pew Research Center in August reported trouble paying their bills, compared with 5% of upper-income adults and 19% of middle-income adults.