<p>Wages in the United States have been growing below the level of inflation, leading to a decrease in purchasing power for many workers at a time when affordability concerns are significant ahead of the midterm elections.</p>
<p>Workers’ hourly earnings, as measured by the Bureau of Labor Statistics, have not kept pace with inflation over the past year, contributing to economic discontent among workers.</p>
<p>Average hourly earnings grew at a 3% year-over-year rate in September, a decline from the 3.1% growth rate in August and 3.2% in July. In contrast, inflation tracked by the consumer price index rose to 3.4% for the year ending in August, surpassing wage increases.</p>
<p>“Overall, if you look over the last year for all employees, people can buy less with a sort of average hour of work than they could a year before,” said Aaron Sojourner, a labor economist and senior researcher at the W.E. Upjohn Institute for Employment Research.</p>
<p>The shift to negative inflation-adjusted earnings occurred earlier in the year, driven in part by rising inflation due to the war with Iran and subsequent energy price increases.</p>
<p>The combination of higher inflation and weaker wage gains has resulted in significant dissatisfaction among consumers. Recent consumer sentiment has been reported to be lower than during the depths of the Great Recession, indicating that affordability is a key economic issue for consumers.</p>
<p>The latest employment report indicated a slowdown in the labor market, with the economy adding just 29,000 new payroll jobs in September, significantly below the forecast of 89,000. The employment reports for both July and August were also revised downward, totaling 60,000 fewer jobs than previously reported.</p>
<p>“I think the trend lines right now are still with inflation growing faster than wages, particularly given the fact that we don’t see employment changing that much,” said G. William Hoagland, senior vice president at the Bipartisan Policy Center. “Meaning that, from my perspective … employers are not hiring, they’re not firing, they’re holding steady.”</p>
<p>“Therefore, the individuals’ wages are remaining somewhat stagnant at this particular point — wages stagnant combined with the fact that I see no letup in inflation, then I see real wage growth continuing to decline, at least in the near term,” Hoagland added.</p>
<h2>Fall in Real Wages</h2>
<p>Sneha Puri, an economist with Indeed Hiring Lab, noted that the most recent employment cost index for the second quarter of 2026 indicated that real wages fell for the first time since 2022.</p>
<p>Puri mentioned that Indeed also analyzes posted wages, which have stagnated in recent years. “It’s been under 3% for … almost two years now, and currently it sits at 2.5%,” she said, “whereas inflation, as you know, is like 3.4%. So there is this gap, which basically suggests that the purchasing power of job seekers is on the decline.”</p>
<p>She also pointed out discrepancies in wage data for salaried workers compared to hourly wage earners, noting that posted hourly wages are growing at a slower year-over-year rate than those of salaried workers.</p>
<p>“And the type of workers who tend to be hourly workers are also the ones who might be more vulnerable in society, for example, entry-level workers,” Puri added.</p>
<p>Another factor influencing wages and the overall labor market is the rise of artificial intelligence. Hoagland stated that the impact of AI on wages, inflation, and employment remains uncertain.</p>
<p>“While there will be some segments that will benefit from AI, and demand for AI workers is clearly very high, at the same time … some people without those skills will fall behind,” he said.</p>
<p>Matthew Nestler, senior economist at KPMG, acknowledged that the recent increase in inflation is a significant factor in the wage issue, along with the continued slowdown in average hourly earnings. “So the gap is widening from both parts,” Nestler said.</p>
<p>There is no single solution to ensure wages grow faster than inflation again. A decrease in gasoline prices, which have contributed to rising inflation, could be beneficial if the war ends.</p>
<p>“What’s even a bit more concerning for us is diesel prices because of the second- and third-order effects, and how they feed into inflation, that has that larger spillover effect,” Nestler said. “And diesel prices recently hit an all-time high, and so that could take some unwinding.”</p>
<p>Inflation became a significant issue for the first time in generations following the pandemic. Sojourner noted that there was strong wage growth in the late 1990s and decent growth in the latter half of the 2010s, from about 2014 until around 2019 or 2020.</p>
<p>This situation poses challenges for President Donald Trump and Republicans aiming to maintain control of the House and Senate in November. High voter discontent with the economy and low economic approval ratings for Trump are evident.</p>
<p>Trump's campaign capitalized on economic discontent that surged during the first post-pandemic wave under then-President Joe Biden, which contributed to a successful 2024 campaign for Republicans.</p>
<p>With inflation remaining high and real wages declining, voters are increasingly attributing blame to the president.</p>
<p>Overall, consumers are frustrated with their diminished purchasing power due to higher inflation and stagnant wages. “They are able to afford fewer things because the rate at which the products that they purchase is growing is higher than their salaries,” Puri said.</p>
<p>Zach Halaschak is the economics reporter for the Washington Examiner.</p>