Covid-Era Pay Gains Are Vanishing. Low Wage Workers Will Feel It Most.

The leisure and hospitality sector, which includes restaurants, has seen real wage growth of .78% in the past year, 35% less than the real wage growth of the broader workforce. (David Paul Morris/Bloomberg)

About the author: Alí R. Bustamante, Ph.D. is professor of practice at the University of New Orleans Department of Economics and Finance.

In 2023, low-wage workers seemed to break roughly four decades of near total wage stagnation. Their pay finally outpaced inflation, briefly narrowing the wage-inflation gap with higher earners. But now, those very workers are falling back, their real wage growth slowing faster than any other group.

At the height of the Covid-19 pandemic recovery, it looked like the labor market had changed. As businesses reopened and scrambled to hire, workers at the bottom of the wage distribution —those making roughly $25-45,000 annually—saw their paychecks grow at the fastest clip in decades, peaking at 7.5% on a 12-month-moving average basis.

By mid-2023, their inflation-adjusted wage growth wasn’t just positive—it surpassed that of higher-earning workers. The promise of a more equitable economy seemed within reach.

That promise is now fading. Adjusted for inflation using the personal consumption expenditure index, overall real wage growth slowed to just 1.7% in June 2025, down more than 40% from its 2023 peak. Low-wage, low-skill, and less-educated workers are absorbing the steepest losses. Their wage growth has fallen by 66%, 61%, and 58%, respectively.

Created with Highcharts 9.0.1Real Wage Gains SlipLow wage workers especially are seeing their wage growth slow.Real wage growth by worker group, January 2023-June 2025Source: Federal Reserve Bank of Atlanta

Created with Highcharts 9.0.12023'24'250.51.01.52.02.53.03.5%High school education or​lessLowest quartile of wage​distributionLow-skill occupationsOverall

When economic booms fade, marginal workers suffer most. The employment trajectory of low-wage workers captures this rise and fall with painful clarity.

In 2021-22, employers in leisure, hospitality, retail, and other service industries were desperate for staff. Job openings soared to record highs, and quit rates hit unprecedented levels. Workers discovered a degree of bargaining power that had been absent for decades. Amid this “Great Resignation,” switching to in-demand jobs carried meaningful pay premiums. That demand pushed the real wage growth of the lowest quartile of the wage distribution to nearly 3.3% by mid-2023.

But, eventually, hiring cooled. The quit rate fell back to prepandemic levels. The pay premium vanished.

This summer, low-wage workers’ real wage growth slipped to barely 1%—the lowest of any group. Employment data echo this reversal. The leisure and hospitality sectors added an average of 112,000 jobs each month between 2021 and 2023, but just 16,000 jobs a month on average since 2024.

These reversals underscore a durable truth: the workers who gain most in good times are the first to lose when conditions tighten. Wage volatility is mirrored by employment volatility, leaving marginal workers exposed to both sides of the boom and bust cycle.

While older, higher-wage, and college-educated workers never experienced the same spectacular real wage growth during the pandemic, their nominal gains were steadier, their turnover lower, and their bargaining power greater. They didn’t soar as high—but they haven’t fallen as far either.

What makes the current moment so frustrating is that, for a short window, it seemed inequality was narrowing. The period was hailed as evidence that a tighter labor market could finally deliver fairness and prosperity. But the narrowing proved fleeting. The compression of 2023 looks less like a structural shift and more like a temporary blip—proof that without deeper reforms, the business cycle restores familiar disparities as quickly as it disrupts them.

This pattern isn’t new. Much like the post-pandemic era, in nearly every post-war recovery, less advantaged workers gain disproportionately in the years of economic expansion, only to lose disproportionately in the downturn that follows. In the late 1990s, Black workers and women without college degrees saw unemployment gaps narrow as jobless rates fell below 5%, only to lose much of that ground in the 2001 recession. In the mid-2000s, Latinos gained employment disproportionately, but the 2008-09 financial crisis erased those gains. During the recession that followed, Black unemployment topped 16%, while the national rate peaked near 10%.

That volatility has costs. When conditions turn, workers don’t just lose wage momentum—they often lose hours, jobs, and in some cases, their foothold in the labor force altogether.

Turning temporary wage surges into lasting progress requires structural supports. Higher and more consistent minimum-wage standards can help lock in gains at the bottom. Stronger collective bargaining rights or sector-wide wage agreements can ensure that wage premiums don’t evaporate the moment employers regain the upper hand. Investments in training and career mobility can help workers move out of the most volatile industries altogether.

None of these measures will end volatility. The U.S. labor market will always be cyclical. But it doesn’t have to be cruel.

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