In the years just before and after the pandemic, something unusual happened: pay for the lowest earners began rising faster than for the highest earners. For a while, it looked like decades of widening wage inequality were reversing.
That momentum now appears to have stalled — and possibly ended. Recent data shows wage growth for low-income workers slowing sharply, while higher earners’ pay continues to climb at a steadier pace. This shift could have big implications not just for low-wage workers, but for the economy as a whole.
From Pandemic Boost to Pay Slowdown
The latest jobs report tells the story. Average hourly earnings in leisure and hospitality — the lowest-paying major sector — rose just **3.5%** over the past year, to \$22.83. By contrast, workers in the high-paying information sector saw wages rise **5.4%**, to \$52.61.
This is a stark reversal from December 2021, when leisure and hospitality pay was surging **14%**, compared to less than **2%** for information workers.
How the Wage Gap Narrowed
From the early 1980s through much of the 2000s, pay gaps widened as high-income workers pulled further ahead. But around 2015, the pattern began to shift. A tightening labor market — with unemployment falling to **3.5%** by February 2020 — forced employers to raise wages in low-paying jobs.
The pandemic supercharged this. Businesses laid off millions, especially in retail, hotels, and restaurants. But when they reopened, they faced severe labor shortages. Low-wage workers could switch employers easily — often gaining an extra dollar an hour or more for the same work.
By late 2022, the Federal Reserve Bank of Atlanta’s wage tracker showed workers in the bottom quarter of earners enjoying **7.5%** annual wage growth, versus **4.8%** for those in the top quarter.
The Recent Reversal
Today, that advantage is gone. As of July, wage growth for the bottom quarter had dropped to **3.7%** — the lowest since 2017 — while the top quarter was at **4.7%**. Bank of America data tells a similar story: after-tax pay for households in the bottom third rose **1.6%** in June from a year earlier, compared with **2.9%** for those in the top third.
The cooling labor market is part of the reason. Unemployment has edged up from **3.4%** in April 2023 to **4.2%**. Employers aren’t laying off workers in large numbers, but they’re also hiring less — especially in high-turnover sectors like restaurants, hotels, and retail.
“The best way that workers can get wage increases is to switch jobs, and you’re not seeing that as much,” says Elise Gould, an economist at the Economic Policy Institute.
The data backs that up: in July, wage growth for job switchers and job stayers was identical at **4.3%** — the first time that’s happened since 2010.
Spending Patterns Are Shifting Too
Slower wage growth is showing up in spending. Bank of America data shows credit and debit card spending among the lowest third of earners fell **0.2%** in June compared with a year earlier. Spending among middle-income households rose **0.7%**, and among higher-income households, **1.2%**.
Because lower-income households typically spend a larger share of any extra income, this slowdown could weigh on consumer demand. And if the job market weakens further, low-wage workers — who face a higher risk of layoffs — could be hit first and hardest.
Widening wage inequality makes it harder for poorer households to climb the economic ladder. And while they spend less overall than wealthier households, their spending is more directly tied to meeting basic needs. A sustained slowdown in their wage growth could ripple through the broader economy.
The post-pandemic wage surge for low-income workers was rare. Whether it was a temporary blip or a true turning point now depends on the strength of the labor market — and whether the conditions that once drove rapid gains at the bottom can return.