PRB

In 2019, many economic indicators seemed to be pointing in the right direction. The unemployment rate had fallen to its lowest level since 1969, the poverty rate fell to the lowest level in 60 years, and the Dow Jones Industrial Average reached an all-time high.

But these economic milestones hid the fact that income inequality was increasing, and millions of families were struggling to find work with good wages.

Rising income inequality and a shift to lower-wage service jobs placed millions of working Americans in vulnerable economic positions with limited savings or job benefits to cushion the economic toll of the coronavirus pandemic.

Income inequality has risen dramatically in the United States since the 1970s and is likely near levels last seen in the 1920s, according to a recent analysis of IRS tax data.¹

In 2017, survey data showed the richest 20% of households took home more than half (52.3%) of all income—the highest level recorded in the United States since recordkeeping began in 1967, and that figure has remained essentially unchanged through 2019, the most recent year available.² The bottom 20% of households controlled less than 5% of all U.S. household income in 2019, about the same share as 50 years ago (see figure).

FIGURE. Share of Income Controlled by Top 20% and Bottom 20% of U.S. Households, 1967-2019

^{Source: U.S. Census Bureau.}

More Than One-Fourth of Working Families Are Poor or Low-Income

Why is U.S. income inequality increasing? Stagnant wages for those at the bottom of the income distribution are a key factor. Across the United States, millions of families were barely getting by even before the coronavirus pandemic upended the job market.

In 2019, 8% of working families had incomes below the U.S. government’s poverty threshold (around $26,000 for a family of four). But the official poverty threshold underestimates the number of working families who are struggling to make ends meet. Research has shown that families need income at least twice the official poverty level—around $52,000 for a family of four—to cover basic expenses.³ In 2019 more than 9.2 million working families (28%) had incomes below that threshold. This percentage matches the share at the beginning of the Great Recession in 2007.⁴For this analysis, “working families” are defined as married-couple or single-parent families with children in which adults have a combined work effort of 39 weeks or more.

Low wages explain part of the working-but-still-struggling paradox. A person working full-time, year-round (50 weeks, 40 hours per week) at the current federal minimum wage of $7.25 per hour would earn less than $15,000 per year. At that wage, a family of four would need more than three full-time, year-round jobs to cover basic expenses.

Workers in low-wage service and support jobs are among the most vulnerable, rarely earning enough money to support a family or cover basic household expenses. For food preparers and servers (such as fast-food workers) and personal care and service workers (such as child-care workers), median pay in 2019 was $24,200 and $26,200, respectively. Food preparers and servers had the lowest median wages of any occupational group in 2019.⁵

At the current federal minimum wage of $7.25, a family of four would need more than three full-time, year-round jobs to cover basic expenses.

The median earnings for health care support workers were only slightly higher, at around $28,500 in 2019. Workers in these jobs include home health aides who provide patients with caregiving support such as bathing, dressing, toileting, and making meals.

These low-wage jobs tend to have limited opportunities for advancement and offer few benefits such as health care, retirement benefits, and paid leave. Many of these jobs require nonstandard work hours, creating issues for childcare and transportation. Working nonstandard hours has been linked to marital instability and places additional stress on families already stretched thin in terms of time and resources.⁶

Employment in Low-Wage Jobs Surged Before the Pandemic, Then Collapsed in Its Wake

Employment in many low-wage service and support jobs increased rapidly in the years leading up to the pandemic, contributing to the trend of rising income inequality. Between 2005 and 2019, the number of workers in health care support occupations increased by 32%, twice the national average for all occupations (16%) (see table). The number of food preparers and servers and personal care and service workers also increased sharply between 2005 and 2019 (by 30% and 42%, respectively).

TABLE. Employment Change and Median Annual Wages in Selected Occupations

^{Note: Median annual wages are as of May 2019.
Sources: U.S. Census Bureau American Community Survey data, accessed at IPUMS USA, University of Minnesota, www.ipums.org; and U.S. Bureau of Labor Statistics, Occupational Employment and Wages, May 2019 estimates, https://www.bls.gov/oes/.}

The employment surge in these low-wage jobs stalled during the pandemic, putting additional pressure on many people who were already struggling. Starting in March 2020, job losses among workers in many service and retail jobs were swift and steep because of both state and local government restrictions on indoor gatherings, as well as workers reducing their risk of exposure to the virus by staying home. Telework is generally not an option for people in these customer-facing jobs.⁷

By September 2020, the national unemployment rate had dropped to around 8% (down from 15% in April), but jobless rates remained stubbornly high in food preparation and serving occupations (18%) and personal care and service jobs (16%).⁸

Coronavirus infections are straining the U.S. health care system, yet many health care support workers have also lost their jobs in recent months. A decline in medical procedures like hip and knee replacement surgeries may be partly to blame; many people have postponed surgeries, which has reduced demand for home health aides. Researchers estimate that employment in home health care services fell by 7% between February and April 2020.⁹ Another study found a 29% decline in the labor demand for health care support workers between winter and spring 2020, based on job posting data. During the same period in 2019, the demand for health care support workers had increased by 21%.¹⁰

Losing a job can be difficult for anyone, but especially for those at the bottom of the income ladder who are less likely to have savings to cushion the economic blow. In 2019, the median net worth for families in the top 10% of earners was $1.6 million, compared with $9,800 for families in the bottom 20% of the income distribution.¹¹

Millions of Women Drop Out of the Workforce During the Pandemic

Most of these lost service and support jobs were likely held by women, who have been disproportionately affected by the economic downturn due to the pandemic. In 2020, women made up 47% of the total U.S. workforce but accounted for 85% of health care support workers, 54% of food preparers and servers, and 77% of personal service workers.¹²

Overall, the number of women in the workforce fell by 2.4 million between February 2020 and February 2021, compared with a decline of 1.9 million among men.¹³

Many women have dropped out of the workforce because school and childcare closures have made it too difficult for them to balance work and family responsibilities. Although women have gained more control over decisions about education, work, marriage, and childbearing in recent years, studies show that they still tend to provide the majority of childcare inside the home.¹⁴

Blacks and Latinos Doubly Disadvantaged During the Pandemic

Before the pandemic hit, working families headed by Blacks and Latinos were twice as likely to be poor or low-income (over 40% each) compared with non-Hispanic white families (19%).¹⁵ Black and Latino families were therefore less likely than whites to have a financial safety net to weather the COVID-19 recession.

In 2019, the median net worth of non-Hispanic white households was about eight times higher than that of Black (non-Hispanic) households and five times higher than that of Latino households.¹⁶ [16] Data from the Census Bureau’s Household Pulse Survey show that Black and Latino adults were more likely than white adults to report food scarcity, housing insecurity, and difficulty paying for usual household expenses during the pandemic.¹⁷ Compared with white adults, Black adults also have fewer resources across their family networks to draw from in times of economic crisis.¹⁸

Compared with non-Hispanic whites, Blacks and Latinos are more likely to experience serious health problems related to the coronavirus and are twice as likely to die from the disease.¹⁹

Black and Latino workers are also overrepresented in essential jobs (like public transit, childcare, food production and processing, and grocery stores), putting them at higher risk of contracting the coronavirus.²⁰

In 2019, three quarters of low-income families and more than half of all poor families were classified as working year-round… They simply did not earn enough money to pay for basic living expenses.

Frontline workers face a higher risk of contracting the virus and the disease it causes, COVID-19, yet they often lack employer-sponsored health insurance to facilitate testing, treatment, and vaccine administration. In 2019, 17% of Latinos lacked health insurance—more than double the national average (8%). Lack of health insurance may lead workers to delay seeking health care when sick, which may have life or death consequences during the pandemic. Financial pressures may compel others to report to work when sick. Increased on-the-job exposure to the coronavirus, coupled with limited health care options, may be contributing to higher risk of COVID-19-related morbidity and mortality in Black and Latino communities.

Making Work Pay

Why are so many families struggling to earn a decent living and what can be done about it? There is a common misconception that poor and low-income families prefer welfare over work.²¹ But in 2019, three quarters of low-income families and more than half of all poor families were classified as working year-round, based on our criteria. They simply did not earn enough money to pay for basic living expenses.

Disparities across racial/ethnic groups are especially troubling. In a little more than a generation, people of color will make up the majority of the U.S. population and labor force. People of color will play a critical role in keeping Social Security and Medicare solvent as the taxes they pay make up an increasing share of government revenues. But if current levels of inequality persist, younger workers and their families will not be able to move into the middle class and replace retiring baby boomers in the workforce.

In recent decades, the U.S. labor market has become increasingly polarized, with a rapid rise in incomes among those with college degrees relative to workers with less education.²² Long-term structural changes in the U.S. labor market are partly to blame. Higher-paying manufacturing jobs have been replaced by lower-paying service jobs, resulting in stagnant or declining wages for those without college degrees. Despite rising costs of living, the federal minimum wage has remained fixed at $7.25 per hour since 2009. According to figures from the U.S. Bureau of Labor Statistics, 1.6 million workers (about 2% of hourly paid workers) earned at or below the federal minimum wage in 2019.²³

The White House recently called on Congress to raise the federal minimum wage to $15 per hour. Recent analysis by the nonpartisan Congressional Budget Office assessed the effects of a $15 minimum wage phased in by 2025.²⁴ They project that 1.3 million workers would lose their jobs, whereas wages would increase for 17 million workers who remained employed, and 1.3 million people would be lifted out of poverty.
Policymakers and employers can also help by expanding programs and benefits that serve low-income working parents and their children—including providing access to education and skills training, affordable childcare, health insurance, and paid sick leave; enforcing discrimination laws to reduce earnings disparities; and expanding opportunities for retirement savings and providing tax incentives to support savings.

Improving economic conditions for working families will generate a more productive workforce, fuel economic growth, and put families and their children on a path to succeed.