Analysis: Most Americans have come out ahead economically in the pandemic, despite inflation

Different economists use different measures of economic gains. Inflation looks more threatening when considering 2021 alone, but less so when also incorporating 2020, when initial Covid-19 shutdowns pushed prices down for high-profile expenses such as gasoline.

Examining changes in wages alone, Arin Dube of the University of Massachusetts-Amherst estimates that two-thirds of American workers have seen their wages go up after accounting for inflation over the last two years. Over just the last year — when inflation accelerated substantially — roughly one-third of workers have come out ahead, Dube says.

To be sure, overall averages conceal the significant chunk of Americans, neither rich nor poor, who have lost ground to inflation in recent months. “There is a missing middle,” Dube says.

It includes small business owners squeezed by higher labor costs, if they can find workers at all. It includes workers who have not switched jobs, settling for the modest pay increases they’d long been accustomed to. It includes renters whose landlords want more when leases expire.

A recent Wells Fargo analysis showed middle-income consumers were hit the hardest by rising gas and used-car prices. It’s most painful for those, without benefit of work-from-home options, who have continued commuting to their jobs.

The middle 40% of earners, according to the Cal-Berkeley economists, have seen their disposable income erode by 1.1% after inflation over the past year. That group looms especially large in American politics.

Public unhappiness incorporates anxiety over the pandemic’s continued ability to disrupt economic activity. The fact that most Americans have gained financially doesn’t mean they will continue to.

“I’d drive a distinction between ‘have benefited’ and ‘will benefit,’ ” observes Strain. He fears that the Federal Reserve’s attempts to temper inflation through higher interest rates could trigger a recession.

“It was bigger than would’ve been ideal,” says liberal economist Dean Baker of the Center for Economic and Policy Research.

Of course, the part of Biden’s rescue plan that economists most lament for unnecessarily fueling inflation was also the most politically irresistible. That was the $1,400 Covid-relief checks for single taxpayers earning $75,000 or less and couples earning $150,000 or less.