About ten years ago, low-income workers were experiencing the fastest wage growth in the country. Today, the situation has flipped: wage gains are now stronger for higher-income Americans, while lower-wage workers fall behind. The gap between the rich and the poor is widening.
In a blog post titled “K-shaped economy,” Apollo chief economist Torsten Slok pointed to this growing divide as evidence that the current economic environment continues to benefit wealthier households disproportionately.
“Before and during the pandemic, lower-income households saw the fastest wage growth,” Slok wrote. “But that has changed. Over the past year, wage growth for low-income workers has dropped significantly and now trails both middle- and high-income groups.”
Data from the Federal Reserve Bank of Atlanta shows that wage growth for the lowest-paid workers has fallen from a peak of 7.5% in 2022 to around 3.5% today—the weakest level in roughly a decade. Meanwhile, wage growth for the highest earners has eased only slightly, from 5.5% in 2023 to just above 4.5% now—leaving a noticeable gap between the top and bottom of the wage scale.
A recent report from the JPMorganChase Institute echoes this trend, highlighting slowing wage gains across all age groups—but especially for younger workers, who generally hold less wealth and depend more on early career wage growth. Wage increases for millennials and Gen Z have fallen to 5.2%, one of the lowest readings since the institute began tracking the data in 2011. For comparison, wage growth for these groups briefly hit 14% in 2022 and nearly 10% before the pandemic.
These trends reflect what economists call a K-shaped recovery—an economy in which financial wellbeing moves upward for some and downward for others. While this pattern has existed for decades, the current divide is more sharply felt because many middle-income households are now experiencing economic stagnation similar to lower-wage workers.
Why is wage growth diverging?
According to George Eckerd, director of wealth and markets research at JPMorganChase Institute, the key factor is a slowdown in labor market turnover. During the pandemic, employers struggled to fill roles and held onto workers tightly. Since then, companies have been slow to hire or fire, creating what Eckerd calls a “low-hire, low-fire” environment.
This is particularly challenging for younger workers, who tend to rely on job switching to secure promotions and higher pay. With fewer opportunities to change jobs, many early-career employees are stuck in place.
Even those who do switch jobs aren’t necessarily earning much more. A Bank of America Institute report found that wage increases for job switchers have dropped sharply—from about 20% in 2022 to around 7% this year. In recent months, job-hoppers have received wage gains similar to workers who stayed put.
Economists at Pantheon Macroeconomics add another factor: tariffs. They argue that companies burdened with higher import costs are cutting back in other areas—including wages—to maintain profits. Wage growth in trade and transportation has slowed more than in any other major sector since late last year, they noted.