By Nathalie Voit
Although pandemic-induced staff shortages have translated to wage raises for many low-income households, the prices of essential commodities like food and electricity have also gone up over the past year. As inflation soars to its highest levels in over a decade, many workers are noticing their wallets aren’t carrying them as far.
The effects of inflation are especially pronounced for low-wage workers, who proportionally spend more of their income on basic needs (where prices have escalated the most) compared to higher-earning households. According to The Wall Street Journal, adjusted for inflation, workers’ “real” wages fell 0.5% in August compared to last year. The 0.5% wage decrease stands in sharp contrast to the pre-pandemic economy’s 2.1% annual growth numbers.
The mixture of pay increases and high inflation rate makes for an unusual economic recovery. An aggressive fiscal stimulus bill, coupled with state reopenings and a surge in vaccination rates, has increased demand for many in-person services that were unavailable throughout the pandemic, like dining and travel, industries that skew toward low-end jobs.
Those upward pressures coincided with a wage increase for some employees in those sectors. Many companies faced staff shortages and were forced to increase pay to attract and retain workers. Laborers in typically low-paying occupations like restaurants, retail, and hotels saw the largest gains. Annual wage growth for Americans in the bottom quartile peaked at 4.8% in August, compared with just 2.8% for the highest-earning workers, the WSJ reported.
Simultaneously, high demand conflicted with a slew of pandemic-related supply chain disruptions and shortages. The automotive industry, for example, is currently reeling from a global computer chip shortage needed to manufacture new cars, leaving many dealers shorthanded and out of supply. The issue has sent prices for new and used vehicles soaring.
Energy prices are also costlier today than one year ago and are eating up consumers’ paychecks. Despite plummeting at the start of the pandemic, gasoline prices are now 11.1% higher than in 2020, data from the Labor Department reveals. Because many low-income workers typically do not have the option to work from home, many have to spend disproportionate amounts of their income on transportation when gasoline and car prices have skyrocketed.
Similarly, rent prices have suffered significantly from inflation. According to the latest Labor Department data, rent rose at an annual rate of 2.8% from June through August. Adjusted for real-time market shifts, the numbers may be even higher. Rent trends captured by Zillow, an online real estate marketplace, reveal a 9.2% jump in July from one year ago. The company estimates the median U.S. rent in July was 2.9% higher than if trends had followed their pre-pandemic course.
According to the company, housing inflation may leave as many as 268,000 Americans at risk of eviction. In its latest survey, Zillow predicted 0.6% of the country’s renter pool to be evicted by the end of the year. Those figures are 50% higher than trends captured before the pandemic.
“Lower-income households are being hit hard by higher food prices, higher energy prices, higher shelter costs,” said Richard F. Moody, chief economist at Regions Financial Corp. “It’s taking bigger proportions of their budget, so it’s leaving them with much less discretionary income as opposed to higher-income households.”