Americans saw ‘most severe’ pay cut in 25 years under Biden

Americans, battered by rising inflation since President Biden took office, have effectively suffered the steepest pay cut in a quarter century, according to data released by the Federal Reserve.

Researchers at the Federal Reserve Bank of Dallas released new results that calculated “real wages” – workers’ real earnings when adjusted for inflation.

“We find that the real (inflation-adjusted) wages of the majority of employed workers have not kept pace with inflation over the past year,” the researchers said. “For these workers, the average drop in real wages is just over 8.5%.”

“Taken together, these findings appear to be the most severe faced by employed workers in the past 25 years,” the researchers added.

Higher inflation can quickly erode Americans’ purchasing power if wage growth doesn’t match increases. That means households face a difficult financial crisis as they try to pay for everyday necessities like groceries, rent and gas.

Also Read :  Kwasi Kwarteng promises tax plans will grow economy 'very quickly' as questions swirl on debt strategy

In just a decade, 3% inflation would reduce the purchasing power of $100 by 25%, according to calculations by investment management firm PIMCO.

According to federal data, inflation has risen to record levels not seen in four decades.
According to federal data, inflation has risen to record levels not seen in four decades.
Getty Images

The effects are most devastating for low-income earners.

“A dollar loss in real wages for someone making $10 an hour is more than $25,” Joseph Tracy, one of the study’s authors and former executive vice president of the Dallas Fed, told The Post

In the nearly two years since Biden took office, inflation has risen by more than 13%, according to economist Peter C. Earle of the American Institute for Economic Research.

The Dallas Fed study shows there are “no free lunches” after federal politicians took a lax stance on fiscal policy during the COVID-19 pandemic, Earle told The Post.

“The bill is due for Covid mitigation action,” Earle said. “Record levels of fiscal and monetary expansion in the first half of 2020 are destroying the dollar’s purchasing power. So wage earners effectively earn less over time, even without wage cuts.”

Also Read :  U.S. budget deficit cut in half for biggest decrease ever amid Covid spending declines

According to a survey conducted by LendingClub Corporation, about three in five Americans were living paycheck to paycheck in August while struggling with decades of inflation.

A whopping 62% of consumers who make between $50,000 and $100,000 live paycheck to paycheck, compared to 45% who make more than $100,000.

The consumer price index – a measure of the average price of consumer goods and services – rose 8.6% from the second quarter of last year to the same period this year.

More than half of American workers — 53.4% ​​– saw actual wages fall over the past year, according to the Dallas Fed.

“For the 53.4% ​​of those workers in the second quarter of 2022, the median decline (i.e. half of the declines were larger and half were smaller) in real wage growth was 8.6%,” the study said.

Also Read :  Global economy is in trouble; RBI  optimistic
Americans have been plagued by rising inflation since Biden took office.
Americans have been plagued by rising inflation since Biden took office.
Federal Reserve Bank of Dallas

Over the past 25 years, the average median decline has been 6.5%, while real wage declines have typically declined between 5.7% and 6.8%, according to the Dallas Fed.

Core inflation, which excludes volatile food and energy prices, rose about 10% over the same period.

Last week, the Department of Commerce released data showing that core consumer prices rose 6.2% in August compared to the same month a year ago.

More than half of American workers -- 53.4% ​​-- saw wages fall over the past year, according to the Dallas Fed.
More than half of American workers — 53.4% ​​– saw wages fall over the past year, according to the Dallas Fed.
Getty Images

Core PCE, which excludes volatile food and energy prices, rose hotter-than-expected by 4.9% yoy in August, or 0.6% compared to July.

The Bureau of Labor Statistics released data last month that indicated inflation rose 8.3% in August compared to the same period last year.

Leave a Reply

Your email address will not be published.