Worse Off Now? Real Wages Have Declined Since Nov. 2020

"Are you better off than you were four years ago?" Any incumbent president seeking re-election is faced with this political litmus test. A test that Kamala Harris, as the de-facto incumbent, apparently failed to pass. According to exit polls, 46 percent of voters in key states said that their family was worse off now than it was four years ago, the highest ever in presidential exit polls. But is that really true or are we seeing what some economists described as a "vibecession", i.e. an overly negative perception of an economy that is doing alright?

While the U.S. economy has come through the inflation crisis relatively unscathed, with robust growth, low unemployment and high stock prices, many American families have not. Or at least it hasn't felt that way. The main problem with inflation is the fact that it hits consumers right where it hurts: the wallet. In times of high inflation, when prices increase faster than nominal wages, real wages go down, meaning that workers see (and feel) the purchasing power of their income decline.

During the current inflation crisis, this has been the case from April 2021 to April 2023, when average real hourly earnings declined for 25 consecutive months on a year-over-year basis. In May 2023, real wages began to rise again as nominal wage growth outpaced inflation once again as it normally should.

By looking at cumulative wage growth and price increases since November 2020, we can at least try to answer the question of whether or not Americans are better off than they were four years ago and the answer is: not really. Between November 2020 and September 2024, nominal wages increased 19.2 percent on aggregate. During the same time, consumer prices have surged by 20.6 percent, though, meaning that prices hikes have erased any wage growth and left real wages 1.1 percent short off where they were four years ago.