What if the economy, which I sometimes call “The Great American Bread Machine,” could give some much-needed Christmas presents? What if this wonderful organic process that expands, adjusts, contracts, and somehow renews itself, could pick out those most in need and send them a better payday, or a bonus? And what if this happened well before Christmas day so that those receiving the gift could make the most of it?
Well, it so happens that the economy has, in a sense, done just that.
According to data produced by the Atlanta Fed and reported in a speech by Federal Reserve Chairman Jerome Powell, people with wages in the lowest 25% of workers have been enjoying larger growth in pay than all workers taken together. Indeed, this ongoing spurt of “catching up and getting ahead” has been going on since about 2015 and has been getting even more pronounced in the most recent years. The nearby Fed chart tells the story.
Notice how wage growth of the lowest-earning quartile (the blue line) fell below the all-wage line during the aftermath of the Great Recession, and note that wage growth for the lowest quartile in 2019 is approaching 5%. This is happening at a time when consumer prices are increasing at an annual rate of 2%. That’s called getting ahead!
Probing deeper, the Atlanta Fed produced a different chart showing the ratio of the median wage in the lowest quartile — think of it as a stand-in for a typical low-wage worker — to the median for all wage earners. As seen nearby, the poorer worker is gaining, and all things considered, the difference since 2015 is truly impressive. Today, it stands higher than at any point in the last several decades.
That doesn’t change the fact that it can be very difficult to live on a low wage, and let’s hope the line keeps moving in an upward direction. But in a time where many people worry about income inequality, let’s recognize and celebrate what we see here.
Another part of the Fed’s analysis spoke to an interesting question: Did this gift from the economy come about because a large number of states raised their minimum-wage laws? Is what we are seeing the result of command-and-control or free market forces?
To address that question, Fed analysts produced a chart that compares low-income wages in the 28 states that raised their minimum wage between 2014 and 2019 and in those states that did not. (I note that for each group, we are seeing the same type of ratio as in the last chart — how much the median wage earner among the lowest 25% makes compared to the overall median wage earner.) The picture compels us to assume that the dramatic gain for lower-wage earners is not driven by legislation; it is driven by markets.
Encouragingly, both lines are on the upswing since 2015. Low-income workers in states that held the minimum wage steady are still better off by this measure.
From all this, it looks as though the Great Recession Grinch tried to steal Christmas, but the Great American Bread Machine paid off and then some.
Merry Christmas!
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
