Despite misperceptions that the United States is limping through late-stage capitalism, American workers are more highly compensated than ever before—even the lowest earners.
The 20th percentile earner—worse-off than 80 percent of workers—had annual earnings 19 percent higher in 2022 than in 1979, after accounting for inflation and a decline in women choosing to work only part of the year or part of the workweek. That made for an extra $5,100 for the typical low-earning worker, in today’s dollars.
These estimates, however, may poorly reflect the evolution of workers’ purchasing power for three reasons. For one, they involve pre-tax earnings. Workers have less to spend after taxes are deducted from their paychecks. Second, lower-earning workers qualify for government transfers to supplement their pay. Finally, the figures above ignore any nonwage compensation that employees receive, such as health care or retirement benefits. Taking into consideration how these changed, low-earners’ disposable income actually rose by 36 percent, or $8,800.
This report explores how lower-earning workers have fared over the past 45 years. It considers men and women separately, focusing on the impact of tax and transfer policy on their disposable incomes. Compared with 1979, men are doing modestly better, with post-tax and -transfer compensation 17 percent higher in 2022. Average tax rates have fallen over time, while transfer rates have fluctuated with the business cycle. Men’s earnings after taxes and transfers rose a bit more than their pre-tax and -transfer earnings.
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