Did the COVID-19 pandemic affect real earnings? Analyzing average hourly earnings and inflation before and after the onset of the pandemic

The economic impacts from the COVID-19 pandemic included large labor market fluctuations and rising inflation, though both the labor market and growth in prices in the U.S. have calmed considerably in recent months, returning to prepandemic trends. BLS data can provide a framework for analyzing the pandemic-induced recession and the recovery. In this article, we will assess the U.S. economy and the economic recovery along one key characteristic: real earnings.

Real earnings are workers’ earnings adjusted for inflation, or earnings in terms of the amount of goods and services that can be bought.¹ When earnings increase faster than prices, workers can afford more because they have more purchasing power. Conversely, when prices outpace earnings, workers can afford less and have less purchasing power.

Each month, the Current Employment Statistics (CES) program of the U.S. Bureau of Labor Statistics produces detailed estimates of industry employment, hours, and earnings of workers on nonfarm payrolls. CES earnings data are available for the private sector on both an hourly and weekly basis. With each monthly release of data from the Consumer Price Index (CPI) program, CES concurrently publishes real average hourly and weekly earnings adjusted for inflation. Real earnings series use CPI data (which measures monthly price changes for the consumer) to deflate nominal hourly and weekly earnings of workers.

In this Beyond the Numbers article, we will examine historical trends in real average hourly earnings and inflation before (March 2006–February 2020) and after (February 2020–February 2024) the onset of the COVID-19 pandemic. We will analyze real earnings at the total private and major industry levels, with additional detailed analysis for selected industries. The article also looks at the impact average weekly hours had on changes in real average weekly earnings at the total private and major industry levels. This can help inform whether the average private-sector worker’s earnings have maintained their purchasing power following the onset of the pandemic.

Average hourly earnings and consumer prices, before and after February 2020

From March 2006 to February 2020, average hourly earnings rose from $20.05 to $28.55, a gain of 42.4 percent over the nearly 14-year period.² This represents an annualized gain of 2.6 percent. (See chart 1.) Consumer prices grew 29.8 percent over the same period, an annualized gain of 1.9 percent. Because consumer prices grew at a slower rate than hourly earnings, real hourly earnings increased over this period.³ Real hourly earnings increased from $10.04 in March 2006 to $11.01 in February 2020 (9.7 percent). This 0.7-percent annualized gain translates to an increase in the purchasing power of the average private-sector worker’s hourly pay over the period.  

With the onset of the COVID-19 pandemic and efforts to contain it, such as government restrictions on business activities and social gatherings, economic activity declined sharply in March and April 2020.⁴ Job losses in the private sector totaled 20.9 million (-16.2 percent) and were concentrated in relatively low-paying service-providing industries, such as leisure and hospitality (-8.2 million jobs, or -48.4 percent) and retail trade (-2.3 million jobs, or -14.6 percent). These job losses boosted the average hourly earnings of workers remaining on private sector payrolls by $1.46, or 5.1 percent, in those 2 months. In addition, the Consumer Price Index for all Urban Consumers (CPI-U) indicated monthly declines totaling 1.2 percent in March and April 2020 before trending up again. The combination of the surge in hourly earnings and the drop in the CPI-U resulted in an unprecedented and short-lived gain in real hourly earnings of $0.71, or 6.4 percent, over March and April 2020.  

In May and June 2020, the opposite phenomenon in hourly earnings occurred when many individuals began returning to work as pandemic-related restrictions began to be lifted. This caused hourly earnings for the private sector to decline by $0.63, or 2.1 percent, over those 2 months. Since average hourly earnings vary widely across industries, the large employment fluctuations in 2020 complicated the analysis of trends in average hourly earnings for several months. However, since June 2020, hourly earnings have clearly trended up. 

Compared with prepandemic history, real hourly earnings have shown weaker growth since February 2020 overall.⁵ Gains in total private hourly earnings from February 2020 to February 2024 outpaced growth prior to the pandemic, as have gains in the CPI-U. Over the 4-year period, hourly earnings rose from $28.55 to $34.56, a gain of 21.1 percent. This represents an annualized gain of 4.9 percent in hourly earnings, nearly double the annualized gain of 2.6 percent in the prepandemic period. Over the same 4 years, the CPI-U grew 20.0 percent for an annualized gain of 4.7 percent, nearly 2.5 times its 1.9-percent annualized gain in the prepandemic period. Thus, real hourly earnings increased 0.9 percent from February 2020 to February 2024, or an annualized gain of 0.2 percent. On average, the purchasing power of a private-sector worker’s hourly pay grew at roughly one-third of the 0.7-percent rate it had experienced in the prepandemic period.  

Over-the-year percentage changes in total private earnings and consumer prices, February 2020–February 2024

Trends in both hourly earnings and inflation are most often cited and can become more clearly analyzed in over-the-year percentage terms. Over the 4-year span ending in February 2024, the over-the-year percentage changes in hourly earnings and consumer prices showed drastic fluctuations. (See chart 2.) 

Hourly earnings for all private-sector workers increased by 8.0 percent over the year ending in April 2020, the largest gain in the history of the series. The CPI-U increased by 0.3 percent over the year ending in April 2020. As a result, real hourly earnings grew 7.7 percent over the same period, the largest over-the-year gain in the history of this series. Over-the-year gains in hourly earnings began a gradual decline over the following year, reaching a low of 0.7 percent in April 2021; this low figure was due to the large hourly earnings achieved in April 2020 as relatively low-paid workers temporarily left payrolls. Over the same year, the CPI-U trended up, reaching an over-the-year gain of 4.1 percent in April 2021. The combined impact of decelerating hourly earnings and accelerating consumer prices resulted in an over-the-year decline of 3.3 percent in real hourly earnings in April 2021, the largest in series history.   

From April 2021 to April 2023, gains in consumer prices outpaced those in hourly earnings and caused real hourly earnings to show negative over-the-year percentage changes each month. This was the longest stretch of declines in series history; the second longest stretch occurred from February 2011 to April 2012. The over-the-year gain in the CPI-U peaked at 9.0 percent in June 2022 while hourly earnings grew 5.4 percent, yielding a 3.2-percent decline in real hourly earnings and marking the second largest over-the-year decline in series history.   

Since May 2023, gains in hourly earnings have again outpaced those in the CPI-U. Thus, over-the-year percentage changes in real hourly earnings have become positive again, ranging from 0.5 to 1.6 percent.   

Over-the-year percentage changes in real hourly earnings by major industry sector, March 2007–February 2024

Trends in real hourly earnings across the major industry sectors can vary widely for many reasons, such as skills and educational requirements of some sectors; compositional changes in the workforce, whether delivered gradually or as an economic shock like the pandemic; labor surpluses and shortages; and changes to minimum wage mandates. From March 2007 to February 2024, this variability is observable in the over-the-year percentage changes of real hourly earnings by major industry sector.⁶ (See chart 3.)

As mentioned previously, the largest historical gain and largest historical decline in over-the-year real hourly earnings for the private sector occurred in April 2020 (+7.7 percent) and in April 2021 (-3.3 percent), respectively, yielding a range of 11.0 percentage points. At the major industry sector level, however, the spread between the largest historical gains and declines ranges from 7.6 to 16.6 percentage points. The timing of historical gains and declines also varied by major industry sector—most sectors experienced their largest historical decline in the period after February 2020, while only five sectors saw their largest historical gains in that period. (See table 1.)  

In the mining and logging sector, over-the-year changes in real hourly earnings varied from an increase of 10.2 percent in May 2009 to a decline of 6.4 percent in April 2022. This difference of 16.6 percentage points between historical changes was the largest range of any major industry sector. The over-the-year changes in the total private sector were much more muted than the changes for mining and logging in these months, increasing 4.0 percent in May 2009 and declining 2.4 percent in April 2022.  

Among the components of mining and logging, over-the-year percentage changes in real hourly earnings were even more pronounced. Oil and gas extraction, which constituted 18.6 percent of the sector’s employment in February 2024, saw a historical range of 32.9 percentage points. Support activities for mining, which constituted 45.4 percent of the sector’s employment in February 2024, saw a historical range of 22.1 percentage points. Data in these component industries exhibit unique trends and inherent volatility usually related to the demand for—and price of—the relevant commodities rather than overall business cycle trends. In oil and gas extraction, the demand for and price of oil and gas tend to be the primary drivers; in support activities for mining, the drivers are generally the demand for and price of oil, gas, and other minerals being mined.  

In the other services sector—which includes automotive repair and maintenance, personal and laundry services, and civic and social organizations—the over-the-year changes in real hourly earnings varied from an increase of 10.4 percent in April 2020 to a decline of 5.3 percent in April 2021, a difference of 15.7 percentage points. This is the second largest historical range of any major industry sector. The leisure and hospitality sector showed the third largest range of 13.9 percentage points, with an over-the-year gain of 9.1 percent in April 2020 and a decline of 4.8 percent in April 2021. Finally, the retail trade sector showed the fourth largest range of 12.3 percentage points, with an over-the-year gain of 7.9 percent in April 2020 and a decline of 4.4 percent in June 2008. The combined loss of 11.9 million jobs from February 2020 to April 2020 in these three sectors represented 57 percent of all private-sector job losses over those 2 months, leading to the large over-the-year percentage gains observed in their real hourly earnings in April 2020.   

Several major industry sectors showed smaller variations in real hourly earnings than the total private sector. Transportation and warehousing had a historical range of 7.6 percentage points, the lowest of any major industry sector. This was followed by private education and health services with a range of 8.0 percentage points and construction with a range of 8.6 percentage points. 

Percentage changes in real hourly earnings by major industry sector and selected detailed industry, February 2020–February 2024

As noted previously, real hourly earnings for the private sector rose 0.9 percent between February 2020 and February 2024. This was due to a 21.1-percent gain in nominal hourly earnings being offset by a 20.0-percent gain in the CPI-U. (See table 2.) At the major industry sector level, the largest increase in real hourly earnings came in leisure and hospitality (+7.4 percent) and the largest decline came in mining and logging (-5.0 percent). Because the same 20.0-percent change in inflation is used to deflate all hourly earnings series, the range of changes in real hourly earnings across industries is due entirely to changes in hourly earnings. 

For leisure and hospitality, hourly earnings grew 28.8 percent from February 2020 to February 2024, outpacing the inflation increase. In mining and logging, hourly earnings grew 14.1 percent, less than the gain in inflation. The information sector saw the only other large change in real hourly earnings during this period with a decline of 4.7 percent. The remaining major industry sectors experienced little movement. 

Among selected detailed industries, changes were far more pronounced. The largest gain in real hourly earnings among the selected detailed industries occurred in transit and ground passenger transportation, which saw a 15.0-percent increase due to a net gain of 38.0 percent in hourly earnings, far outpacing the increase in inflation. Shortages of school bus drivers in many communities may have contributed to this industry’s gain in hourly earnings during the period as bus operators competed for workers. Other large gains occurred in food and beverage retailers (+10.9 percent), food services and drinking places (+8.5 percent), electrical equipment, appliance, and component manufacturing (+8.5 percent), nursing and residential care facilities (+7.4 percent), and legal services (+7.3 percent).

Within the information sector, three industries showed large declines in real hourly earnings over the 4-year period: Web search portals, libraries, archives, and other information services (-18.7 percent), motion picture and sound recording industries (-18.5 percent), and telecommunications (-12.5 percent).⁷ Other large declines in real hourly earnings occurred in oil and gas extraction (-17.0 percent), apparel manufacturing (-10.8 percent), and specialized design services (-10.0 percent).

Changes in real hourly earnings in other high-profile industries worth noting include temporary help services (+3.7 percent), motor vehicles and parts manufacturing (-0.1 percent), and general merchandise retailers (-7.0 percent). 

Over-the-year percentage changes in private-sector average weekly hours, real hourly earnings, and real weekly earnings, March 2007–February 2024

Tracking real hourly earnings allows us to examine changes in the purchasing power of the hourly pay of workers over time. However, this yields an incomplete picture of trends in the overall purchasing power of those workers as it ignores fluctuations in the average workweek. The average workweek is the number of hours per week for which a worker receives pay. Multiplying real hourly earnings by average weekly hours produces real weekly earnings, a more comprehensive measure of an average worker’s purchasing power.⁸

At the total private sector level, despite clear fluctuations from March 2007 to February 2024, average weekly hours showed annualized rates of change of 0.0 percent in both the prepandemic period and from February 2020 to February 2024. Since there was no net change in average weekly hours, the annualized growth rate for real weekly earnings was identical to the annualized growth rate for real hourly earnings over both periods. Thus, both the real hourly and weekly earnings measures grew at an annualized rate of 0.7 percent in the prepandemic period and an annualized rate of 0.2 percent from February 2020 to February 2024. However, there were months when the change in average weekly hours clearly helped boost or reduce real weekly earnings, depending on the direction of change in the average workweek. (See chart 4.)  

For instance, in January 2021, the over-the-year change in real hourly earnings was 3.8 percent; in the same month, the over-the-year change in average weekly hours was 1.7 percent, boosting real weekly earnings to an over-the-year increase of 5.6 percent. On the other hand, in July 2009, real hourly earnings grew 4.8 percent while the average workweek declined 1.5 percent over the year, yielding a lower gain in real weekly earnings of only 3.2 percent.   

Percentage changes in average weekly hours, real hourly earnings, and real weekly earnings, February 2020–February 2024

Real weekly earnings provide a clear picture of the inflation-adjusted purchasing power of the average worker’s pay at any given time by combining real hourly earnings and the average workweek. For example, real weekly earnings for the private sector rose from $377.74 in February 2020 to $381.09 in February 2024, an increase of 0.9 percent. This means the purchasing power of the average worker’s weekly pay rose 0.9 percent over the 4-year period, after adjusting for inflation. Since average weekly hours were unchanged at the total private sector level over this period, the increase in real weekly earnings was due entirely to the gain in real hourly earnings. 

Real weekly earnings can vary substantially by major industry sector, ranging in February 2024 from $179.17 in leisure and hospitality to $687.29 in utilities. (See table 3.) Although the average workweek at the total private sector level was little changed from February 2020 to February 2024, average weekly hours did show changes at the major industry sector level and impact those sectors’ real weekly earnings.  

Retail trade was the industry with the largest impact of hours on its real weekly earnings, where the average workweek declined 2.6 percent from February 2020 to February 2024. Combined with a gain of 0.3 percent in real hourly earnings, the sector experienced a decline of 2.3 percent in real weekly earnings to $232.99 in February 2024.  

The other services sector experienced the second largest impact of hours during the 4-year period, with a gain of 1.3 percent in the average workweek. Combined with the 1.2-percent increase in real hourly earnings, this sector experienced a gain in real weekly earnings of 2.5 percent, reaching $323.77 in February 2024.  

Manufacturing, wholesale trade, and professional and business services also saw absolute changes of more than 1.0 percent in the average workweek from February 2020 to February 2024, which in turn impacted real weekly earnings. In manufacturing, the workweek declined 1.2 percent and real weekly earnings declined 2.7 percent to $430.02. In wholesale trade, average weekly hours grew 1.0 percent and somewhat offset the decline in real hourly earnings, as real weekly earnings fell 1.4 percent to $469.75. In professional and business services, the workweek advanced 1.1 percent and real weekly earnings grew 1.6 percent to $485.64. Other notable major industry sector changes in real weekly earnings over the 4-year period occurred in leisure and hospitality (+6.5 percent), mining and logging (-5.8 percent), and information (-4.2 percent). 

Because every major industry sector experienced a change in the average workweek over this period, each demonstrated a change in real weekly earnings that differed from its change in real hourly earnings, in contrast to the results for the total private sector overall. 

Conclusion

Despite historic fluctuations in average hourly earnings and the CPI-U with the onset and aftermath of the COVID-19 pandemic, real average hourly earnings of all employees in the private sector showed little net change from February 2020 to February 2024. However, some major industry sectors and industries at more detailed levels did show substantial movements in real hourly earnings over this period, both positive and negative. That is, the data clearly show a divergence in how the purchasing power of an hour’s pay has changed over this period based on the industry in which workers are employed. Finally, because each industry showed different changes in the average workweek over this period, each industry also showed different changes in the real average weekly earnings of those workers.