Wage growth is slowing down for all workers following the booming recovery from the COVID-19 pandemic, but it’s dropping at the fastest pace for workers at the bottom end of the income spectrum.

That’s a sharp reversal from the postpandemic recovery era, when the lowest paid workers were seeing the fastest wage growth, something economists termed “wage compression.”

It also 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. The poorest workers are now seeing the slowest levels of wage growth while the highest earners are seeing the fastest.

Median annual wages for people making $806 a week or less increased at an annual rate of 3.7 percent in July, the same rate as in June, according to recent data from the Atlanta Federal Reserve. That’s much lower than the last half of 2022, when the lowest earners were seeing 7.5 percent growth.

Wages for people making more than $1,887 a week increased a full percentage point faster in July, at 4.7 percent growth. That’s just down a tick from the last half of 2022, when they were seeing 4.8 percent growth.

While the various income categories in the Atlanta Fed data crisscrossed one another through 2023 and 2024 on a slow downward trend line, wage growth for the lowest earners really fell off a cliff in February. The lowest earners saw a 0.3 percent drop in March and another 0.2 percent drop in April.

Those are all nominal numbers, which don’t take inflation into account. Inflation tends to hit the poorest households the worst since they spend a larger percentage of their income each month, usually on necessary items like rent and groceries.

“The [Atlanta] wage growth tracker is consistent with what we’ve found so far this year — wages at the tenth percentile are growing much more slowly than for middle [and] high wage workers, and, this is a clear reversal of the pattern in the postpandemic labor market,” Josh Bivens, chief economist at the left-leaning Economic Policy Institute, told The Hill. 

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 consumer price index ticked up to a 2.7 percent annual increase in July after dropping to 2.3 percent in April. The personal consumption expenditures price index reached 2.6 percent in July after falling to 2.2 percent in April.

Showing sensitivity to low-income wage growth trends, the White House released an analysis last week touting a 1.4 percent “real blue collar wage boom.”

The numbers refer to growth in real average hourly earnings for production and nonsupervisory workers and are within recent historical ranges.

A Treasury Department official told The Hill on Friday that falling inflation in the first half of this year was a driver of this uptick.

But economists are sounding more pessimistic about recent trends.

“As softer labor markets are hurting their wage growth, faster price inflation [driven in part by tariffs] is pinching workers on the cost side,” Bivens told The Hill. “It seems like a complete lock that after very rapid real wage growth in the postpandemic recovery that low-wage workers are going to end 2025 much worse off than they have in years.”

The Treasury Department official said the real gains for blue-collar workers are going to come from the massive extension of tax cuts and spending cuts Trump signed into law earlier this summer.

The official cited the bonus depreciation — a business tax cut that allows for immediate expensing of capital investments — as an important impetus for future wage growth.

Inflation, as measured in the consumer price index, is up 25.3 percent since the end of the pandemic recession in June 2020 while wages are up 24 percent, meaning that take-home pay has not caught up to prices over that five-year period.

“Not all workers feel inflation equally,” Sarah Foster, an economic analyst for financial media company Bankrate, wrote in a Monday commentary. “Wage growth is furthest behind in education, construction, financial activities, professional and business services, and manufacturing.”

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. The purchasing power of wages has only increased by a few dollars since 1964, Pew Research found in 2018.

However, on shorter timescales, wage movements relative to prices can make a big difference for households and have political consequences.

Inflation and the economy ranked as the top issue in the 2024 election and helped to propel Trump, who was viewed by voters as stronger on the economy, 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.

Economists described the increased wages for poorer workers as a “profound shift in U.S. labor market conditions.”

“The unexpected compression was around one-third as large as the great compression of the 1940s,” University of Massachusetts economist Arin Dube wrote in 2024.

He and his coauthors noted that it “was concentrated in the bottom half of the wage distribution and was driven by particularly rapid wage growth among workers under 40 years of age and without a college degree.”

Some economists are also arguing that Trump’s tariffs could hit lower-wage workers harder.

Economists for the Institute on Taxation and Economic Policy found that for the poorest fifth of Americans the tariffs will impose a tax hike equivalent to 6.2 percent of their income that year.