Warning: As Mark Twain once said, persons who claim these figures are unadjusted for inflation will be prosecuted. Persons who tweet such a claim will be shot.1
Quick — without scrolling down, what stories about the American labor market would you tell from this chart of real wage growth since December 1982?2
You might first draw attention to the highest line, the 90th percentile wage, which has pulled away from all the other wages in the last 44 years, seeming to confirm narratives about rising inequality throughout this period.
Or maybe you would point out that every single wage percentile has climbed since at least the middle of the 1990s, dispelling the idea that wages have been stagnant. They are now almost as high as they have ever been.3
Those are the obvious stories and they are not wrong or insignificant. But they do leave out a lot, especially about the many evolutions of the economy during such a long and eventful period.
To really surface the lessons in the chart requires us to zoom in and out of it, breaking down this long era into a handful of mini-eras, searching for the commonalities and differences between them. It requires capturing the big turning points and remembering the unique pressures that drove each of them.4
The stories that emerge — six of them — offer a fuller portrait of an economy that has been experienced in radically different ways across generations of workers.
Story 1: Sustained tightness in the labor market really matters for widespread wage growth.
Here is another view of the same chart, but with the shaded bars in the background representing periods when the unemployment rate was at or below 5 percent.
The broad-based positive wage growth of the past three decades took place almost entirely during periods in which low unemployment was sustained for at least three years.
Unemployment of 5 percent or less is not, of course, the only available proxy for a tight labor market. Others would show slightly different dates for when the tightness started and stopped. But the same story will hold for most of them.5
Our read of the data, by the way, is that a tight labor market is massively helpful but not always sufficient for widespread wage gains. The events of the past year, with unemployment staying low but real wage growth turning negative, shows that other variables matter too. More on that later.
Story 2: For a majority of this 44-year period, labor markets have not been tight.
Of the 524 months shown in the chart, unemployment has been above 5 percent for 324 of them, or 62 percent of the time. Most of those months came during two exceptionally long stagnant periods. The first includes most of the 1980s through the first half of the 1990s, and the second begins with the early 2000s dotcom bust and ends roughly halfway through the 2010s.6
As would then be expected, the substantial growth of real wages in these decades has taken place during the other three relatively short periods: the late 1990s IT boom, the tightening labor market of the late 2010s, and the post-COVID recovery.
Figure 3 shows all five eras — the two long stagnations and the three wage booms — and the duration, annualized growth in the median wage, and average unemployment rate for each. (See Footnote 6 at the end of this post to read more about the exact dates for each era and why we chose them. We fully accept that others might choose different dates.)
Unsurprisingly, the high average unemployment during the two long stagnations coincided with abysmal median wage growth.
What effect might the sporadic, unreliable timing of positive wage growth have had on how the entire post-1970s period has been perceived by workers and their families?
We know from the work of economists such as Ulrike Malmendier and Stefanie Stantcheva that life experiences can have lasting effects on behavior and attitudes. A given worker’s understanding of how wages have changed over time is therefore likely to be influenced by the specific years in which their professional life started and stopped.
Unavoidably, as with inequalities of compensation and wealth, the luck needed for a worker to overlap time in the workforce with an era of strong wage growth is unevenly distributed.
Older workers who have been in the labor market since the early 1980s and are now entering retirement age will have lived and worked through both long stagnations, enjoying positive wage growth for barely more than a third of their working years.7 Some of these workers might come to believe that wage growth has been worse than it really was or perhaps even stagnant for the entire period because most of the time it was in fact stagnant.
This framing also helps explain the plight of Millennials, the cohort born between 1981 and 1996, during their young adulthood. Millennials first started entering the labor market in the early 2000s, just as the bursting of the dotcom bubble inaugurated a brutally long period of wage stagnation. By the end of that period in the mid-2010s, they were known for their cynical views on social trust and political institutions. Their disposition might have been caused in whole or in part by any number of things — smart phones, social media, populist politicians — but it would not be surprising if much of their distrust was the result of economic frustrations.
The objective fact that the short stints of rising wages have more than offset the long periods of stagnant or negative growth, leading to positive and significant real wage growth overall through the decades, should absolutely be celebrated. But it may not be enough to contradict the subjective feeling among some workers that wage stagnation is all they have lived through. Their impression is not accurate, but it is understandable, as the psychological impact of the inconsistency of wage growth has perhaps gone underappreciated.
Story 3: Wage inequality has climbed mainly during the two long periods of overall wage stagnation.
Of the five eras, only the two long wage stagnations have produced sharp rises in wage inequality.
Figure 4 zooms into the First Long Wage Stagnation from December 1982 to 1996:
A complete disaster — negative growth for the 10th percentile wage and hardly any growth for the three middle wage categories. Meanwhile the 90th percentile wage climbed away from all the others despite itself growing by less than 1 percent a year.
Figure 5 shows the more recent Second Long Wage Stagnation.
Again, terrible, and recent enough that a majority of today’s workforce experienced it.8
The first half of this era was dominated by the phrase “jobless recovery,” with the unemployment rate never falling back to its 2000 low before the economy slammed into the Global Financial Crisis of 2007–09. Unemployment after the crisis spiked to 10 percent, followed by a terribly slow return to health for the American labor force.
For the entire era, which lasted nearly 14 years, the median wage averaged just 0.36 percent growth per year (compared to the robust 2.6 percent annual growth during the preceding boom).
Growth in the 10th and 25th percentile wages was barely positive, and both of these wages finished the era lower than their levels from early 2003, more than a dozen years earlier.
And because the growth of the 75th and 90th percentile firmly outpaced the growth of the others, wage inequality climbed sharply.
No wonder that by the middle of the 2010s, inequality had become the dominant theme of so much research and commentary and of so many books. Capital in the 21st Century, the Thomas Piketty doorstopper that pundits everywhere pretended to have read, arrived in 2014. It was accompanied by inequality books from Joseph Stiglitz, Angus Deaton, Branko Milanovic, Anthony Atkinson, and many others.9
Academic and popular publications featured deep explorations of the relationship between inequality and populist politics, inequality and financial crises, inequality and the business cycle. Inequality was all anyone could talk about at the annual meetings of the American Economic Association, the big nerdfest gathering of economists every January.
Ambitious and seductive policies to alleviate inequality and reinvigorate the economy also became newly popular around this time. Universal Basic Income. A $15 federal minimum wage. A federally guaranteed job for everyone who needed one. The heterodox economic framework called Modern Monetary Theory gained traction with the media and public. Larry Summers reintroduced Alvin Hanson’s concept of Secular Stagnation.
The two of us have no interest in relitigating the merits of these intellectual fashions, though we admit that most of them are not our brand of bourbon. Our only point here is that they did not come from nowhere. They emerged from a severe, protracted ordeal for workers, when wages stagnated and inequality visibly climbed. Such times leave scars.
Thankfully, they also don’t last forever. Throughout history it has often been the case that the moment when intellectual currents catch up to a trend is exactly the moment when the trend changes. Something happened near the end of 2014, just as the chatter about inequality was reaching its feverish peak: Healthy wage growth returned.
Story 4: The last decade has been much better for real wage growth. (Aside from the Terrifying Global Pandemic interlude.)
From 2015 through the start of 2020, wages climbed all across the distribution, and the widening between the 90th percentile wage and the other wages slowed.
The escape from wage stagnation once again arrived as the labor market continued tightening. By 2019 unemployment had fallen to its lowest level since the 1960s. The number of job openings exceeded the number of unemployed people for the first time since the data became available in the year 2000. The prime-age employment ratio also returned to its highest level since just before the dotcom recession nearly two decades earlier.
The bottom-wage percentiles received a boost from a rising number of state and local hikes in the minimum wage.10 Leaving aside comparisons between minimum wage hikes to other wage-boosting ideas, one thing we would note is that most of them benefit from tight labor markets. Raising minimum wages is easier, for instance, when the economy is strong and overall wages are climbing, making it relatively less costly for employers to comply. A healthy macro environment can be a welcome stage for experimentation with micro ideas.
The late 2010s era of solid wage growth then crashed into COVID. The initial wage spike during the first few months of the pandemic, followed by a partial reversal in 2021, was the clear result of a recessionary composition effect. We therefore index Figure 7 to January 2022, by which point the composition effect had been mostly smoothed away:
The events of the past half-decade are easy to trace in the chart. Real wage growth was initially restrained as a result of post-pandemic inflationary pressures, which themselves were caused by some combination of lingering supply chain constraints, volatile economic shifts from services to goods consumption and back to services again, and the stimulative fiscal and monetary policies of the time.
But the labor market also re-tightened quickly, with unemployment falling to a shockingly low 3.4 percent in April 2023 before drifting back up. And as inflation gradually fell, real wage growth turned sharply positive again.
Story 5: Way too early to know, but we might have already begun a new era.
Recent indicators of labor market health have been mixed. The low-hire, low-fire dynamic of the past few years remains, and young adults in their early 20s have notably been struggling. But the unemployment rate is quite low at 4.2 percent, while the monthly pace of job creation, the prime-age employment-to-population ratio, and the prime-age labor force participation rate have all moved sideways.
Zooming in even closer to the post-COVID era, however, it is clear that real wage growth experienced a sharp stop around March 2025.
What to make of the conflicting trends? It is quite possible that the post-COVID era has already transitioned into an entirely different, murky new moment.
We noted earlier that other variables besides a tight labor market can affect real wage growth. Policies that undermine price stability and economic dynamism can counteract the positive wage effects of a relatively healthy labor market — policies such as higher tariffs, destabilizing attacks on key economic institutions, new bureaucratic impediments added to the legal immigration system, and war with Iran.
Perhaps these policies, in addition to the hazy visibility into the effects of Artificial Intelligence, are combining to signal the start of something new.
Story 6: The median wage has lagged.
Real growth of the median wage has trailed behind the growth of the other wage categories since 1982. Both the higher and lower parts of the distribution have outperformed it.
What explains the lag? We have no single confident answer.
Common explanations for the relative underperformance of middle-class wages have included technological shocks, globalization, slower productivity growth, rising monopsonistic pressures, financialization of the economy, and many others. Scholars have also done work on occupational polarization as a result of how technology has evolved.11 What most of these explanations fail to offer, however, is a reason for the stop-and-start nature of this divergence between the median and the rest of the distribution.
What we can say for sure about this 44-year period of history is that the top part of the wage distribution has outperformed both the middle and the bottom. And for roughly the last decade, the middle and the bottom have actually been converging.
Figure 10 shows the ratios between the 90th percentile wage and the median, the 90th and the 10th, and the median and the 10th.
Regardless of the mystery, a point worth emphasizing is that workers bounce in and out of the different wage categories throughout their careers. Just because median wage growth has underperformed does not mean that current middle-wage workers have themselves always lagged. Their wages climb up or fall down the distribution from switching jobs or careers, returning to school, scaling back hours to care for children or elderly parents, or shifts in luck — the unavoidable vagaries of life.
This fluidity is the reason that widespread and positive wage growth matters more than the performance of any single part of the distribution. That the real median wage has climbed 40 percent since the early 1980s despite its status as the laggard shows again that the labor market has enjoyed such growth — even if it has been far slower and at times less inclusive than anyone would like.
Now what?
How to interpret the wage trends of the last four decades is a frequent subject of debate among economists and economic commentators.
To be simplistic, one side of the debate argues that economic growth has powered American wages to nearly their highest levels ever, a clear sign that the American Dream endures. The other side responds that wage growth has been both unequal and also weaker than in the heady postwar decades, and that workers — many of them, at least — can be forgiven for not exalting the economic environments they have lived through.
We think both sides have a point.
Wages really are near their historic peaks, and it would be silly to believe that the American economy is fundamentally broken and in need of radical policies to overhaul it, which would risk undermining the strong parts of its foundations.
But it is just as clear that wage growth often disappoints for unacceptably long stretches, and that accidents of birth have often determined the prospects and prosperity enjoyed by some workers and not by others.
More generally, we believe it is perfectly compatible to recognize progress while arguing against complacency.
Another useful lesson of the past four decades is simply that fast wage growth and inclusive wage growth can clearly coexist. Indeed they hardly ever exist apart. The eras in which the median wage climbed at the steepest angle were those in which all the other wages climbed with it. And the two long stagnations, when the median wage mostly failed to grow, were those when the lowest wage percentiles suffered the most.
Even if just a coincidence, the idea of a tradeoff between growth and inclusion seems a misguided and ahistorical way to think about the labor market.
Careful readers might have noticed that the era of real wage growth we have not yet zoomed into is the single most successful one: the late 1990s boom, when the median wage climbed an annualized 2.6 percent. We do so in Figure 11.
So steep, so inclusive. Can policymakers return the economy to such a healthy place?
Other than demonstrating the clear relationship with a tight labor market, we have deliberately not said much about the causes of fast, widespread wage growth. Identifying them is not an exact science, and once again there are no easy or confident answers.12 But the late 1990s era at the very least has shown what is possible.
We also have not looked at the relationship between wages and productivity growth through the decades, or at the question of whether that relationship has disconnected. Nor have we discussed wage growth by educational attainment, gender, race and ethnicity, or geography. The details that emerge could have important consequences, if only through composition effects, for any simple narrative about wage growth over a specific period of time.
We will explore some of these dimensions in future posts, in addition to answering questions from readers. We did not intend this analysis to be the definitive statement on such a complex topic, as if such a thing were even possible. Our main goal has been to complicate and hopefully advance the conversation about American wages, not to end it.
We chose December 1982 as the starting point for two reasons: 1) December 1982 is the first full month of the long 1980s economic expansion following the two recessions of the early 1980s. 2) Our preferred measure of wage growth comes from the harmonized variables (hourly wage, weekly earnings, and hours worked) published by IPUMS from the Current Population Survey’s (CPS’s) Outgoing Rotation Group (ORG), and this measure is unavailable before 1982. The ORG is a subsample of the CPS and is a focused set of questions that include the earner study, which asks respondents detailed questions about hourly wages in addition to other variables. The way the earner study works is that households “are interviewed for four months, not interviewed for 8 months, and then interviewed again for 4 more months. Households that are interviewed for the fourth month or eighth month (that is, the households that are about to rotate out of interviews for eight months or indefinitely) are asked additional labor questions. The universe of these questions, in addition to being month-in-sample 4 or 8, includes only civilians age 15 and older who are currently employed as a wage or salaried worker (that is, not self-employed). The earner study questions concern the respondent’s periodicity of pay, hourly wage, usual weeks worked per year at that rate, usual hours worked a week, and overtime pay.” — Via IPUMS. Note that from 1982 to 1988, the ORG included civilians “14+ currently employed as wage/salary workers and in 2 (out of 8) rotation groups.”
The ORG is the standard data set used in labor economics for national estimates of median hourly wages because of its nationally representative sample of person-level respondents, which also allows for the construction of wage percentiles and demographic breakouts of wage rates and changes. It is therefore significantly more useful for this exercise than measures of average wages, for example the Average Hourly Earnings of All Employees or the Quarterly Census of Employment and Wages.
As of August 2026, the hourly wages at each percentile are:
10th percentile: $14.64
25th percentile: $18.55
50th percentile: $25.38
75th percentile: $40.03
90th percentile: $64.92
Real wage growth is one of the best instruments for monitoring the economy’s long-term evolution, which is why we chose it as the focus of this post. It captures the returns to work, inflation trends, how hard it is for workers to switch jobs or find new jobs, labor market dynamism generally, the changing skill set of the labor force, and even certain demographic trends like aging. Another way of thinking about real wage growth is that it captures succinctly what is happening on both the demand side (how much companies need and are willing to pay workers) and the supply side (the participation and productivity of workers themselves), while also including how workers are affected by broad price trends for goods and services (by adjusting for inflation).
A necessary reminder for interpreting real wage trends is that workers are not confined to whatever part of the wage distribution they find themselves in at any given moment. As we note later in the piece, the long-term performance of a wage in the distribution (like, say, the 10th percentile wage) is very different from the performance throughout the same period of an individual worker who earns that wage at any moment. Workers move up and down the wage distribution during their working lives as they age, gain new experience and receive promotions, switch jobs or careers, and so on. We do our best to avoid confusing the reader on this point.
Consider also, for example, the times when the unemployment rate was above and below the Congressional Budget Office’s estimate for full employment — one of the proxies for labor market tightness that labor economist Arin Dube looks at in his recent book on American wages. It confirms the story that for a majority of the time since 1980, labor markets have not been tight. Using a different approach than ours, Dube similarly concluded: “Running the labor market hot led to strong, broad-based real wage growth and a temporary halt to the rise in wage inequality.” (Chapter 3 of The Wage Standard: What’s Wrong in the Labor Market and How to Fix it.)
The five eras:
1) First Long Wage Stagnation (January 1982 through August 1996)
Duration: 165 months
Annual real growth of the median wage: 0.10 percent
Average unemployment rate during this period: 6.6 percent
Note: If anything, this stagnation period likely started back in the mid-1970s, as we have previously argued. Our data series for this exercise only dates back to 1982, but regardless this was a horrifically long slump for wages.
2) Late-90s IT boom (September 1996 through February 2001)
Duration: 54 months
Annual real growth of the median wage: 2.60 percent
Average unemployment rate during this period: 4.5 percent
Note: February 2001 is the last month before the start of the dotcom recession in March of that year, which is why we chose February as the cutoff.
3) Second Long Wage Stagnation (March 2001 through October 2014)
Duration: 164 months
Annual real growth of the median wage: 0.36 percent
Average unemployment rate during this period: 6.6 percent
Note: We chose October 2014 as the end of the stagnation period because it was the last month before real wages hit their nadir and started recovering in November 2014.
4) Nascent Recovery Before Slamming into COVID (November 2014 through January 2020)
Duration: 63 months
Annual real growth of the median wage: 1.81 percent
Average unemployment rate during this period: 4.4 percent
Note: January 2020 was the last month before the start of the COVID recession in February of that year, which is why we chose January as the cutoff.
5) COVID and Aftermath (February 2020 through now)
Duration: 79 months
Annual real growth of the median wage: 1.01 percent
Average unemployment rate during this period: 4.8 percent
For those curious, only a small share of the modern workforce, roughly 11 percent, was already working in 1982. Nearly two-thirds of the current workforce (63.6 percent by our estimates) joined it in 1996 or later.
ibid.
Although the federal minimum wage has been flat at a nominal $7.25 per hour since 2009, a number of state and local governments experimented with higher minimum wages within their jurisdictions. “As a result,” wrote economist Ernie Tedeschi in January 2020, “the effective U.S. minimum wage is closer to $12 an hour, most likely the highest in U.S. history even after adjusting for inflation.”
As far back as 2006, David Autor, Larry Katz, and Melissa Kearney found that “occupational employment growth shifted from monotonically increasing in wages (education) in the 1980s to a pattern of more rapid growth in jobs at the top and bottom relative to the middle of the wage (education) distribution in the 1990s.”
Our view is that policymakers should try to pursue ideas that are likely to be consistent with economic growth and inclusion — or better yet, when possible, ideas that aim to increase them both at the same time. One reason that we at EIG are so fond of high-skilled immigration, for example, is precisely that it simultaneously raises the economy’s growth potential and reduces inequality. (See Chapter 2, page 15 of Exceptional by Design: How to Fix High-Skilled Immigration to Maximize American Interests, by Adam Ozimek, Connor O’Brien, and John Lettieri.) More generally, we advocate for policies that accelerate economic dynamism, empower workers, and reinvigorate left-behind communities and labor markets. In addition to reforming and expanding high-skilled immigration, these policies include banning noncompete agreements, Opportunity Zones (to drive investment to struggling areas), expanding access to wealth accumulation through retirement accounts for low-income workers, making housing easier to build with Right to Build Zones, and elevating earnings for the lowest-wage workers through a wage subsidy.
An international comparison of overlapping time period with some potential for variation in expansion/contraction timing and duration would be a nice addition… and could possibly shed some light on policy impacts on wages and wage distributions. I personally do not get upset by wider inequality if mobility and some growth is seen across the distribution, but I do wonder if some countries with less flexible labor markets show substantially different distributional changes over time and through cycles…
That spike in 2020 is dead givaway that these are not wage indexes they are unit values. BLS OUGHT to produce wage indexes, but it does not.