The Most Underrated Story About the U.S. Economy

Income growth is faster at the bottom than at the top. Thank a growing economy, falling unemployment, and minimum-wage hikes across the country.

Demonstrators at a Fight for $15 rally to raise the minimum wage
Lucy Nicholson / Reuters

For decades, the story was simple: The gap between the rich and the poor grew ever-wider as incomes increased faster at the top than the bottom. The story was true, too. Wages have been rising faster for the top 5 percent than for the bottom 20 percent almost every year this century.

But in a remarkable reversal, annual wage growth has been greater (as a percent) for the poor than for the rich in the last few years. A new report by the left-leaning Economic Policy Institute found that wages grew faster in 2016 for the poorest quintile than for the richest. The trend was particularly pronounced for white workers. The poorest 10 percent of white workers collectively saw a 5.1 percent raise in 2016, twice as faster as the 2 percent growth among the richest decile percent.

This good news isn’t just an artifact of a single think tank’s artisanal number crunching. The Atlanta Fed has also found that the three-month moving average of wage growth reached a post-recession high in November 2016. Non-white incomes have recently been growing faster than whites’, reversing yet another post-recession trend. And this might be the most surprising detail of all: Wages for high-school graduates are growing as fast as those for college grads for the first time since 1998, when the Atlanta Fed’s dataset begins.

Why is this finally happening? The answer involves a fortuitous mix of policy changes and ongoing economic growth.

“The two leading factors are the tightening labor market and the state-level minimum wage increases,” said Elise Gould, a senior economist at the left-leaning Economic Policy Institute. Labor protests like the Fight for $15 movement contributed to minimum-wage increases in several states and cities. The impact has been obvious: Wages for the poorest 10 percent grew two-times faster in states with minimum-wage increases.

Minimum-Wage Increases Spurred Wage Growth for Americans Earning in the 10th Percentile

But wage growth for the poor ticked up even in states without minimum-wage hikes. That’s because a falling unemployment rate is especially critical for pushing up wage growth for the poor. With each percentage-point fall in unemployment, it’s the bottom decile that sees the most wage growth.

There are some easy lessons here. First, low unemployment is a low-income worker’s best friend. Second, in the last two years, minimum-wage hikes raised income for the poor without, it seems, destroying jobs or raising the unemployment rate. Third, the U.S. economy seems capable of producing broadly shared income growth, at least late into a recovery cycle, despite the many well-founded fears that rich, educated workers are leaving their poorer, less-educated peers in the dust.

What nobody can say, however, is whether this happy trend is durable. Will a recession strike and wipe out these gains for the poor? Will minimum-wage increases prove to be a one-off moment of income growth for the poor? Will higher wages for low-skill workers ultimately accelerate the automation of their jobs, since employers get more labor savings from replacing an expensive job than a cheap one?

Nobody knows. But for now, wage growth for the poor is the happiest story nobody is talking about.