Even as real wages rebound, low-income households are playing catch-up
Even as real wages rebound, low-income households are playing catch-up
American workers are finally starting to catch up to inflation. Throughout 2022 and early 2023, wages were rising at a faster pace than they did before the pandemic — in the range of 4% to 6% year over year. But prices rose a lot faster than that — in the 6% to 9% range.
Then, this spring, those trend lines inverted.
In May, average hourly earnings (reported in the Bureau of Labor Statistics’ monthly jobs report) rose 4.3% on an annual basis — surpassing the 4.1% increase in the consumer price index. And the improvement in real wages — wages after accounting for inflation — has continued.
That is good news, especially for low-income workers, since the lion’s share of their pay goes for necessities like rent, food and utilities that have risen sharply in price.
But despite the small gains, these households are still playing economic catch-up.
José Quiñonez is founder and CEO of the Mission Asset Fund, which organizes peer lending circles and provides financial support and education to low-income households in immigrant neighborhoods of San Francisco. In recent years, he said, he has seen two financial crises unfold for the people his organization serves.
First, there was the pandemic, which led to massive job losses in lower-paid service occupations. Many undocumented, temporary and contract workers had difficulties getting benefits like relief checks and emergency unemployment compensation, Quiñonez said.
“These were the folks who were actually excluded from any sort of help,” he added.
As the economy reopened, employment rebounded.
“They were able to recoup some of their financial lives, [but] now in the current crisis of inflation and this fear of a recession, they’re again pooling resources in families, in communities,” Quiñonez said. “And that’s how they survive from crisis to crisis to crisis.”
He has seen household finances deteriorate in the face of inflation, even as price increases have moderated.
“It’s hit them really hard,” said Quiñonez. “The people that are really dependent on driving to work, using their cars or vehicles — inflation is impacting them more.” And, he added, “even if rents do come down, they’re coming down by $50 or $100 — not something that is more affordable.”
As inflation falls, middle- and upper-income consumers are spending more, worrying less about high prices and seeking discounts less frequently, according to consumer surveys.
But this is not true of consumers at the bottom of the income distribution. “It’s really that lowest-income group that seems to be falling behind,” said Kayla Bruun, senior economist at public-opinion firm Morning Consult.
In its recent household emergency expenses survey, Morning Consult found that among households earning less than $50,000 per year, high prices — and the amount of time they’ve lasted — are still a big problem.
“Even as inflation slows, they’re still playing catch-up,” Bruun said. “They’ve worked their way through their savings to a much greater extent than those that had much larger savings buffers. Their price sensitivity has continued to trend upward. So even as inflation has slowed, they’re increasingly likely to walk away from purchases.”
And, even though recent wage gains have been relatively strong, especially in lower-paid service jobs, these folks are now less financially secure. If households in the survey were to face an unexpected emergency expense, Bruun said, “the lowest-income group was least likely to say they’d be able to cover it with cash. Forty-seven percent say they might not be able to pay off some of their other bills if they faced a $400 expense — which is pretty striking.”
Dealing with such an emergency might lead them to cut other expenses, dip into savings, borrow from friends and family or add to credit card debt, she said.
José Quiñonez is seeing all these strategies — and more — among the families the Mission Asset Fund serves.
“Selling off cars,” he said, “sometimes even equipment, just to pay the rent. Pooling risk so they can minimize expenses. But it’s difficult. How many people can you have in your one-bedroom apartment — three, four, five, 10?”
Quiñonez said there’s another way poor immigrant families try to increase their financial resilience: “Start their own businesses, have multiple side hustles. They feel more financially in control, more secure about their situation.”
The Mission Asset Fund helped Juan Carlos Pacheco, a 42-year-old immigrant from Peru, get his solo catering business in San Francisco — Ceviche Pacha — off the ground.
But he said he faces mounting costs for insurance and access to a commercial kitchen, and the business doesn’t cover his bills. “It’s not sufficient,” Pacheco said in an interview conducted in Spanish, “because I don’t get enough work. So I never stop looking for extra jobs.”
Pacheco finds temporary work as a restaurant line cook and does other service jobs. But his pay varies week to week, depending on how much work he finds.
He shares an apartment with two roommates, and the rent recently went up, he said. “Prices — that’s been hard for me because I don’t work more than 40 hours a week in a regular job. And so I need to work in my business, Ceviche Pacha, just to survive.”
Even as price inflation continues to cool, Quiñonez said low-income families can’t lower their guard. “They need to prepare themselves for the next crisis,” he said. “They’ve been to the rodeo already, so they know how to cope. Because it’s not just that once it’s over, everything is back to normal. It’s more like they just have to get ready for the next one.”
Whether that’s a recession, the loss of a job or the rent going up — yet again.
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