Low-wage workers made huge gains over two years — but there are fears it's coming to an end

An analysis in Politico using data from the U.S. Labor Department revealed that low-wage workers scored a huge boost between 2020 and 2022. But that could be ending.

According to the report, the pandemic dramatically changed the labor market, government aid, and policies during the crisis. Amid a worker shortage, anyone making $12.50 hourly saw a pay increase by 6 percent, even after inflation.

"At the same time, price spikes have eaten away raises for the highest-earning employees, leading their inflation-adjusted income to drop roughly 5 percent over the past couple of years," said the report. "The result, according to one new paper: One-quarter of the 40-year growth in the yawning gap between higher-income workers and lower-income workers has disappeared in just a few years."

The new debt ceiling agreement between President Joe Biden and Speaker Kevin McCarthy (R-CA) takes back about $30 billion in unspent COVID-19 funds. COVID-related government spending injected cash "into the economy, spurred consumer spending and put workers in ultra-high demand," Politico explained.

Meanwhile, the Federal Reserve has been trying to slow down the economy with consistent interest rate hikes out of fear wages for workers are increasing too fast for inflation to fall again.

But the analysis explained that such a slowdown hurts low-wage workers more than others. Job vacancies have decreased, as have those quitting their jobs.

"This presents a clear inflection point for the Biden administration and its allies in Congress," said Politico. "While the administration has been largely supportive of the Fed’s moves as households strain under the burden of inflation, progressive lawmakers and economists have questioned whether progress for low-wage workers is being sacrificed in pursuit of price stability."

Meanwhile, Democrats question the Fed's decisions to allow joblessness to increase, even though it is at its lowest in history.

"The portion of national income that goes toward paying workers has actually declined in the past two years," Politico quoted former-Fed Vice Chair Lael Brainard from a speech early this year, before joining as Biden's economic adviser. At the same time, “corporate profits as a share of GDP remain near postwar highs,” she also said.

Katrin Kark, director of workforce innovations at Local Initiatives Support Corp., argued that employers should be doing more to train workers so that there are options for advancement.

“Higher entry wages alone aren’t enough to close those opportunity gaps,” she explained.

Meanwhile, a pro-capitalism conservative economist told Fortune that corporate greed had gone too far.

"Corporations, particularly in developed economies like the U.S. and U.K., have used rising raw material costs amid the pandemic and the war in Ukraine as an 'excuse' to raise prices and expand profit margins to new heights, he said. And the French investment bank isn’t just historic: It’s one of the select banks considered to be 'systemically important' by the Financial Stability Board, the G20’s international body dedicated to safeguarding the global financial system."

Arin Dube, a University of Massachusetts Amherst professor, is optimistic that benefits for low-wage workers won't hit a wall. He has hope for a possible increase in income equality for the next few years.

“That’s a lot of change packed in just a few years,” he said. “It’s very hard to imagine something that plays that in reverse in the next three years.”

Read the full report at Politico.