Wages Grew Faster During the Pandemic for Low-End Earners in Low-Income Cities

Wages traditionally have grown fastest among high earners in large metropolitan areas. This was not, however, the trend from 2019 to 2021.

“Focusing on salaried workers for simplicity, we found that low-end earnings increased more than others during the pandemic and, in sharp contrast to before the pandemic, they increased the most in low-income cities,” according to a new report from the ADP Research Institute. “We also found evidence suggesting that the pandemic-driven migration out of the nation’s most expensive cities contributed to hollowing the middle of their income distributions.”

Nationally, the 12-month average of median monthly earnings was 6.8% higher in 2021 than in 2019. By the same measure, high-end earnings – those paid to workers in the 95th percentile –had jumped 8%. But low-end pay – the 5th percentile – increased even more over the same period, by 10.4%.

“People tend to see the biggest pay raises when they switch jobs, and positions paying at the low end of the spectrum are generally prone to high turnover, which means more job starts,” the report says.

Researchers pointed to three key takeaways:

From 2019 to 2021, and in contrast to previous years, low-end salaries increased most rapidly in cities with the lowest pay levels. It is more viable to remain out of the workforce in such cities, requiring increased pay from employers struggling to hire. In greater New Orleans, the 5th percentile earnings ranked the lowest in the United State in 2019. Its lowest-paid salaried workers, in other words, were among the country’s lowest paid. But two years later, monthly earnings for those in the 5th percentile of New Orleans had soared 42.4%, the equivalent of a $432 per month pay increase. Across the country, low-end earners in high-cost San Jose saw their monthly incomes grow by only 7.3% over the same period, a $246 increase.

In expensive coastal cities, high-end pay registered the greatest gains. Those increases likely are, at least in part, an artifact of remote worker migration, a trend that contributed to the hollowing out of the middle of the income distribution. With high housing costs and an occupational mix relatively amenable to remote work, the nation’s most-expensive cities saw substantial out-migration during the pandemic, which could help explain the big increase in high-end salaries.

For those without a college degree, the cost of living in expensive cities has long exceeded the benefit of higher wages. For those workers, low-end earnings growth in low-income cities is tilting the balance against expensive cities even more, with implications for polarization.

Although the cost-benefit assessment of expensive city living seemingly remains favorable for the college-educated, rising home prices have made it increasingly unfavorable for people without a degree, whose earnings have failed to rise in step with housing costs. Consequently, migration flows into expensive coastal cities have slowed and skewed more educated, while outflows have done the opposite.