The Era of Big Raises for Low-Paid Workers Is Over
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Showing 127 database articles primarily about Wages/Income
How Many Big Macs Does Your Salary Buy?
AI Summary. U.S. workers earn the most Big Macs annually (10,215), but Swiss workers lead on an hourly basis at 7 Big Macs per hour versus the U.S. at 6, reflecting longer American working hours rather than higher hourly wages.
Economist Staff The Economist- Date Posted:
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The Economist’s venerable Big Mac Index is indicative of significantly higher after-tax, PPP-adjusted wages for American workers than for their French and German counterparts.
Does working longer hours mask stagnant American wage growth?
Core argument: American workers earn the equivalent of 10,215 Big Macs annually, topping global McWage rankings, but longer working hours reduce U.S. hourly purchasing power to six Big Macs per hour, behind Switzerland’s seven.
On an annual basis, America continues to top our McWages rankings. The average American worker earns enough to buy 10,215 Big Macs a year; Switzerland and Australia are in second and third place, respectively. But American working hours are supersized, too. On an hourly basis, Switzerland comes out on top: the average worker there earns the equivalent of seven Big Macs an hour, compared with America’s six. Australia ranks third, at five burgers for every hour worked.Takeaways by Macro Roundup® AI
- American workers earn the equivalent of 10,215 Big Macs annually, topping global McWage rankings, but longer working hours reduce U.S. hourly purchasing power to six Big Macs per hour, behind Switzerland’s seven.
- Switzerland leads all nations in hourly McWage purchasing power at seven Big Macs per hour, with Australia third at five, demonstrating that top annual earnings and top hourly compensation do not always coincide.
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- Why Do Americans No Longer Work So Much More Than Non-Americans? — The gap in hours worked between Americans and non-Americans has narrowed by half since the 1990s, driven by declining U.S. work hours as expanded government health benefits reduced the need to work, while rising wages and lower barriers to employment increased hours worked in other advanced economies.
- Ed Conard Debates Furman On “The Expected Value of Risk Taking” — I debate @JasonFurman—Pres. Obama’s Chair of the Council of Economic Advisors—at Harvard over the effect of tax increases on the expected value of innovative…
US Focus: The Effect Of Soaring Profits
AI Summary. Corporate profit margins have expanded ~250 basis points over the past year, approaching all-time highs, as 23% profit growth far outpaced 8% growth in corporate value added. Labor's share of income is hitting new lows, confirming that margin expansion—not faster economic growth—is the primary driver of record profit levels.
Abiel Reinhart J.P. Morgan- Date Posted:
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US corporate profit margins rose ~250bp y/y in Q2 and are approaching an all-time high. Reinhart notes that tech and communications services drove ~58% of recent S&P 500 profit growth, even as the sectors have been “steadily losing employment since late 2022.”
Are record corporate profits driven by growth or margin expansion?
Core argument: Corporate profit margins expanded nearly 250 bps over the past year and are approaching all-time highs, as domestic profit growth of 23% dwarfed the 8% rise in corporate value added, compressing labor’s share of income to record lows.
Nominal pre-tax corporate profits in the national income and product accounts (NIPA) were very robust in both 2Q (41% [annual rate]) and over the last year (23%). Excluding post-recession spikes, we haven’t seen a year this strong since the mid-2000s. Higher margins [were] the key driver [of profit growth], as 23% y/y domestic profit growth was far in excess of the 8% increase in corporate value added. Profit margins (pre-tax profits divided by value added) increased close to 250bp over the last year, and are approaching all-time highs, whereas the labor share is hitting new lows.Takeaways by Macro Roundup® AI
- Corporate profit margins expanded nearly 250 bps over the past year and are approaching all-time highs, as domestic profit growth of 23% dwarfed the 8% rise in corporate value added, compressing labor’s share of income to record lows.
Related Articles:
- US Corporate Profits Surge To Record As Worker Payouts Wilt — U.S. corporate pre-tax profits reached an annualized $4.8tn, or 18% of national income—the highest share since the post-WWII era—while workers' wages and benefits fell to 60% of national income, the lowest since the 1950s.
- Are US Corporate Profit Margins Too High? — In Q1 2026, US after-tax non-financial margins were estimated at 7.6%, just short of the post-1949 high of 8.2% in Q2 of 2021. Tan Kai Xian argues US corporate…
- The Record Divide Between Corporate Profits and Worker Pay — Labor's share of national income has fallen to 51%—its lowest recorded level—while corporate profits have reached 12.1% of national income, their highest share since 1950. Inflation-adjusted hourly wages have risen 3% since 2019, while inflation-adjusted corporate profits have risen 50% over the same period.
Consumer Checkpoint: The Great Convergence
AI Summary. Spending and wage growth have largely converged across income groups, with lower- and middle-income households posting after-tax wage growth of 5.2% and 4.2% year-over-year, narrowing a previously wide gap — though the top 5% of earners continue to outpace all others.
David Michael Tinsley, Joe Wadford, Liz Everett Krisberg, Vanessa Cook, et al. Bank of America- Date Posted:
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Over the last two years, after-tax wage growth for the top 5% has outpaced the rest of the distribution. BofA internal data show after-tax wage growth for the lowest income tercile has surpassed that of the top 5% for the first time since December 2024.
Are lower-income households finally catching up in wage growth?
Core argument: The K-shaped spending and wage growth divide has largely closed since May, with income cohorts converging by July—except the top 5% of earners, who continue to outpace all other groups.
We have discussed the “K-shaped” divide between higher- and lower-income households’ spending and wage growth. But since May, our data has shown a significant narrowing in this gap. As of July, spending and wage growth have largely converged across income cohorts, with the exception of the top 5% of earners, who continue to outpace the rest. A similar dynamic was evident in discretionary spending. In our view, one factor behind the narrowing spending growth gap is stronger after-tax wage growth. For lower- and middle-income households, after-tax wage growth rose to 5.2% YoY and 4.2% YoY, respectively, in July.Takeaways by Macro Roundup® AI
- The K-shaped spending and wage growth divide has largely closed since May, with income cohorts converging by July—except the top 5% of earners, who continue to outpace all other groups.
- After-tax wage growth for lower-income households reached 5.2% YoY in July versus 4.2% for middle-income households, with stronger after-tax gains identified as a primary driver of narrowing discretionary spending gaps across cohorts.
Related Articles:
- What the World Cup Revealed About America — U.S. households with retirement savings and home equity have been insulated from inflation, as $15tn in annual spending by 45 million such households—driven by wealth gains rather than income—has sustained GDP growth well above rates seen in comparable economies.
- K-Shaped Economy? — Using internal Stripe payment data, Tedeschi finds that spending growth of households in low-income zip codes has outpaced that of households in high-income…
- The Record Divide Between Corporate Profits and Worker Pay — Labor's share of national income has fallen to 51%—its lowest recorded level—while corporate profits have reached 12.1% of national income, their highest share since 1950. Inflation-adjusted hourly wages have risen 3% since 2019, while inflation-adjusted corporate profits have risen 50% over the same period.
Income Shocks and Intrahousehold Dynamics: Evidence from a Guaranteed Income Experiment
AI Summary. Guaranteed income transfers reduce total household earnings by more than the transfer amount, as other household members—particularly partners—work fewer hours and are less likely to advance in their jobs.
Elizabeth Rhodes, David Broockman, Eva Vivalt, Patrick Krause, et al. National Bureau of Economic Research- Date Posted:
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In a randomized guaranteed-income experiment, giving one adult a transfer of $1,000/month for two years cut the other household members’ income by ~$1,700/year. Partners worked less and advanced less at work, while schooling and training among others rose.
Does guaranteed income reduce household work effort beyond the transfer amount?
Core argument: Guaranteed income transfers narrowed the gap between participant income and total household income by approximately $1,700 per year, a reduction driven by lower earnings among other household members rather than collective income gains.
Figure 4 summarizes treatment effects on the standardized family-level indices. The transfers’ effects reshaped the income and employment of other household members. The gap between participant income and total household income fell by about $1,700 per year (s.e. $800). The decline appears to reflect lower earnings among other household members. Effects on employment outcomes are consistent with this interpretation. Partner promotions and transitions to better jobs decrease significantly, but these effects are very small in magnitude. Partner hours and employment show more meaningful declines but are not significant in the unconditional analysis. Several other measures provide supporting evidence of negative effects on labor supply. Net transfers—the value given [to extended family] minus the value received—increased by roughly $135 per year. Estimates for household stability, decision-making, and the division of labor cluster near zero.Takeaways by Macro Roundup® AI
- Guaranteed income transfers narrowed the gap between participant income and total household income by approximately $1,700 per year, a reduction driven by lower earnings among other household members rather than collective income gains.
- Guaranteed income transfers reduced partner labor supply, with statistically significant declines in promotions and job transitions, though effect sizes were small.
- partner hours and employment showed larger but statistically insignificant declines.
Related Articles:
- The Impact of Unconditional Cash Transfers on Parenting and Children — A randomized experiment giving 1,000 parents an unconditional $1K/month over 3 years found essentially no differences in family outcomes; treated children…
- The Impact of Unconditional Cash Transfers on Consumption and Household Balance Sheets: Experimental Evidence from Two US States — An experiment giving 1,000 individuals $1k per month for 3 years raised spending on housing as well as consumption, but also increased indebtedness, suggesting…
- The Employment Effects of a Guaranteed Income: Experimental Evidence from Two U.S. States — Giving low income individuals $12,000/year for 3 years resulted in reduced market income of $1,500/year, due to a 2ppt reduction in labor force participation…
The Impact of AI on the U.S. Labor Market
Sania Edlich and Torsten Sløk Apollo- Date Posted:
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A difference-in-differences design finds 6.7% slower real-wage growth in AI-exposed occupations since 2023 than in low-exposure ones, with no detectable job loss. The largest effects were for the lowest quartile (-10.7%) and service occupations (-24.3%).
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Cognitive Ability in Labor and Capital Markets
AI Summary. Higher cognitive ability predicts both higher capital income and higher investment returns, with the return advantage reflecting skill rather than risk-taking, as high-ability individuals earn better risk-adjusted returns while holding lower-risk portfolios.
Spencer Bastani, Kristina Karlsson, Jonas Kolsrud and Daniel Waldenström Uppsala University- Date Posted:
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Cognitive ability positively predicts capital as well as labor income, with the capital-income gradient ~3x as large in % terms. This reflects both higher saving rates and higher risk-adjusted returns, neither fully explicable by earnings.
Does cognitive ability generate superior investment returns independent of risk?
Core argument: Cognitive ability’s capital income gradient is 3x steeper than labor income gradient in log specifications, driven by higher saving rates.
We document three results. First, cognitive ability predicts capital income. Figure 2 plots mean log income and mean income rank against the nine cognitive ability scores reporting test performance on a 1–9 scale, with both series normalized to zero at the lowest score. In the log specification (Panel a), the capital income gradient is roughly three times steeper than the labor income gradient. In the rank specification (Panel b), the ordering reverses: the labor income gradient is steeper, because the heavy right tail of capital income compresses rank differences. Figure 3 provides a complementary perspective, plotting average cognitive ability across percentiles of the labor and capital income distributions. [The relationship between ability and rank flattens at the top of the labor distribution but strengthens at the top of the capital distribution.] Second, the capital-income gradient is only partially explained by labor income: a decomposition shows that ability is associated with higher saving rates and investment returns through channels beyond labor income. Third, the investment return channel is consistent with skill rather than risk compensation, as high-ability individuals earn higher risk-adjusted excess returns while holding portfolios with lower systematic risk.Takeaways by Macro Roundup® AI
- Cognitive ability’s capital income gradient is 3x steeper than labor income gradient in log specifications, driven by higher saving rates.
- High-ability individuals earn higher risk-adjusted excess returns while holding lower-risk portfolios, indicating skill-based rather than risk-based compensation in capital markets.
- Ability-income associations persist across genders and remain largely unexplained by education, occupation, or family background, suggesting intrinsic cognitive factors drive.
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- Toward An Understanding Of The Returns To Cognitive Skills Across Cohorts — Wage returns to cognitive skill have declined for white men who took the Armed Forces Qualifying Test (AFQT) in 1997 relative to 1979, driven primarily by a…