The strong demand for labor means that low-income workers can demand wage increases that exceed the price increase. The same is true for middle-income workers who change jobs.
“For most people,” concludes Michael Strain, who directs economic policy studies at the right-wing American Enterprise Institute, “the current economic situation is good.”
Different economists use different measures of economic gains. Inflation looks more threatening when looking at 2021 alone, but less so when also factoring in 2020, when the initial Covid-19 shutdowns drove down the prices of major expenses such as gasoline.
Looking only at wage developments, Arin Dube of the University of Massachusetts-Amherst estimates that two-thirds of American workers have seen their wages rise after adjusting for inflation over the past two years. In the last year alone — when inflation picked up dramatically — about a third of workers came out on top, Dube says.
Admittedly, the overall averages mask the large share of Americans, neither rich nor poor, who have lost ground to inflation in recent months. “There is a missing middle,” Dube says.
This includes small business owners squeezed by higher labor costs, if they can find workers. This includes workers who have not changed jobs, settling for the modest wage increases to which they have long been accustomed. It includes tenants whose landlords want more when leases expire.
A recent Wells Fargo analysis showed that middle-income consumers were the hardest hit by rising gas and used-car prices. This is most painful for those who, without the benefit of work-from-home options, have continued to commute to work.
According to economists at Cal-Berkeley, the middle 40% of earners have seen their disposable income erode by 1.1% after inflation over the past year. This group occupies a particularly important place in American politics.
Public discontent incorporates anxiety over the pandemic’s continued ability to disrupt economic activity. The fact that most Americans have won financially does not mean that they will continue to do so.
“I would make a distinction between ‘benefited’ and ‘will benefit’,” observes Strain. He worries that attempts by the Federal Reserve to temper inflation with higher interest rates could trigger a recession.
“It was bigger than what would have been ideal,” says liberal economist Dean Baker of the Center for Economic and Policy Research.
Of course, the part of Biden’s bailout that economists lament most for needlessly fueling inflation was also the most politically irresistible. These were the $1,400 Covid relief checks for single taxpayers earning $75,000 or less and couples earning $150,000 or less.