Today’s high inflation highlights longer-term trend of wages not keeping up with cost of living

Ruben Augustin and Clark Goldenrod
Oct 31, 2022
While corporations are experiencing the largest profit margins in 70 years, this isn’t being reflected in what Minnesota workers are experiencing. Into a third year of a global pandemic that has changed our communities and workplaces in unprecedented ways, many workers are struggling amidst steep inflation, and not all workers have benefitted from an improving labor market, particularly Black, Indigenous, and People of Color (BIPOC) workers.  

What’s happening with inflation and why are we talking about it?  

Inflation helps us measure how the cost of goods and services changes over time. For example, the Bureau of Labor Statistics’ Consumer Price Index (CPI), which measures the cost of a representative set of consumer goods and services, found that for the past 20 years, average annual inflation was around 2 percent. That means that buying roughly the same goods from one year to the next will cost $2 dollars more for every $100 spent.  

However, inflation has grown dramatically due to a number of factors, including effects of the Russian invasion of Ukraine and the COVID pandemic. The pandemic has exacerbated inflation by disrupting the economy in two major ways: creating a huge shift in consumer demand, and causing significant supply chain disruptions that created upward pressure on prices. As a result, annual inflation nationally as measured by the CPI reached 8.2 percent in September. 

Wages haven’t kept up. Average hourly earnings have only grown 5.0 percent over the last 12 months, contributing to a growing gap between the cost of what folks need and what they can afford. 

High inflation is creating a double whammy for many Minnesotans. When wages don’t keep up, workers struggle to afford child care, transportation, housing, and health care – the basic building blocks of the standard of living they want to provide for themselves and their families. And without these basics, people find it even harder to succeed in the workforce. 

Workers struggling to make ends meet predates inflation 

The role of inflation is important, but it’s only the latest indicator of how our economy is not working for many Minnesotans.  

The typical Minnesotan’s annual median earnings in every county are less than what it takes to make ends meet for a single working parent with one child. This standard of what it takes to make ends meet uses a “basic needs budget” that calculates how much rent, child care, and other everyday items cost in each region, and does not include things like savings, vacation, or eating out. The basic needs budget in 2021 for a family of two ranges from a low of $37,000 in Stevens County to a high of $72,000 in Dakota County.  

While there’s a gap in every county between Minnesotans’ wages and a basic needs budget, in some counties the gap is particularly pronounced. In Ramsey County, for example, annual median earnings are roughly half of what it takes to meet the basic needs for a single working parent with one child.  

Stronger labor market doesn’t reach all Minnesotans equally 

The unemployment rate in Minnesota has improved significantly. In September 2022, the unemployment rate in Minnesota was 2.7 percent, down 1.5 percentage points from a year ago, highlighting what appears to be a strong recovery.  

Broken down by race, however, the data paints a different picture. BIPOC Minnesotans are more likely to be struggling to find opportunities in the labor market as a result of continued barriers to the education, transportation, and housing that enables access to quality jobs.   

The September unemployment rate was 5.9 percent for Black Minnesotans and 3.7 percent for Latinx Minnesotans. Meanwhile the unemployment rate for white Minnesotans was 2.2 percent. (Minnesota’s Department of Employment and Economic Development does not further break down unemployment by race and ethnicity.) These figures only measure people actively looking for work; they do not include those who left the labor market during the earlier phases of the pandemic and have not yet returned.  

President Joe Biden recently signed the Inflation Reduction Act, which includes several measures intended to address inflation and support healthy communities through investments in health care and our climate. However, as policymakers seek to address the challenge of high inflation, they should prioritize those who have long encountered the biggest challenges to making ends meet because of their incomes, race and ethnicity, or where they live.