Wage growth has slowed down for all workers following the COVID-19 pandemic, with the lowest-paid workers experiencing the fastest wage growth. This sharp reversal from the postpandemic recovery era, known as “wage compression,” comes as these workers could face more pressure from tariffs, which are expected to raise costs on a number of goods. The trend of wage compression has inverted almost entirely, with the poorest workers seeing the slowest levels of wage growth while the highest earners are seeing the fastest.
Republicans are nervous about the reversal of this trend, especially since inflation has started to tick back up recently — due in part to President Trump’s tariff regime. Inflation played a big role in the economic unease of voters who backed Republicans in last year’s elections. The worry is that those tides could reverse if voters are still feeling the pain in next year’s midterms.
The Treasury Department official told The Hill that falling inflation in the first half of this year was a driver of this uptick. However, economists are sounding more pessimistic about recent trends, as faster price inflation driven in part by tariffs is pinching workers on the cost side. Over the long term, wages pretty much just keep pace with inflation since labor costs are determinant of production costs and market prices by extension.
Inflation and the economy ranked as the top issue in the 2024 election and helped propel Trump back into the White House for a second term. Increased wages for lower income workers likely also played a significant role in the 2022 midterm elections, which saw Democrats hold off an expected red wave of Republican wins in swing states.
