Low Income Wage Growth Hits Fastest Pace in Three Years in June

Low income wage growth just posted its best reading in nearly three years, and the numbers suggest the long running gap between top and bottom earners is closing fast. After tax pay for lower income workers rose 4.1% year over year in June, according to transaction data from Bank of America Institute, the fastest pace since July 2023.

A Wage Gap That Suddenly Narrowed

That 4.1% figure does more than mark a cyclical high. It edges past the 3.4% after tax wage growth recorded for middle income households over the same period, and it sits just a tenth of a point behind the 4.2% growth seen among higher earners. What matters most is the direction of travel: higher income wage growth actually cooled, according to the bank's report, so the cushion that top earners had built up over recent years has largely evaporated. David Tinsley, senior economist at Bank of America Institute and a co author of the report, framed it as a structural shift rather than noise, noting that spending power looks to be spreading more evenly across income groups again after a stretch where higher earners kept pulling ahead.

Job Switching and Tax Withholding Changes Are Doing the Work

Two forces show up repeatedly in the bank's analysis. The first is job switching, which picked up pace in the three months leading into June compared with the same window a year earlier. Movement between employers tends to come with a raise attached, and the premium has been notably richer for lower income workers: roughly 12% pay bumps when they change jobs, versus about 9% for higher income workers making the same move. That gap alone helps explain why the bottom of the income ladder is closing distance on the top.

The second driver is more of a paperwork effect than a labor market one. Some lower and middle income households have adjusted their tax withholdings this year to reflect changes tied to the One Big Beautiful Bill Act, the tax and spending law signed by President Donald Trump. Withholding less up front raises take home pay in each paycheck, even without any change in gross wages, and Bank of America economists point to that adjustment as a real contributor to the after tax numbers showing up in their transaction data.

Whether the Streak Holds

The bank's economists are careful not to promise durability. They estimate the OBBBA related boost to take home pay growth could persist for roughly a year, since it is essentially a one time recalibration of withholding rather than a permanent wage increase. The job switching effect is tied more directly to labor market conditions: it should keep supporting lower income pay as long as hiring demand stays firm, but the economists flagged that this source of wage growth would be exposed if labor demand slows and switching opportunities dry up.

For now, Tinsley pointed to a practical reason this matters beyond household budgets. Lower income consumers tend to spend a larger share of each incremental dollar than higher earners do, so faster after tax pay gains among this group carry outsized weight for consumer spending in the months ahead. Whether June's reading marks a durable rebalancing or a temporary convergence driven by tax timing and a still tight labor market is the question that will determine how much support this trend can keep lending to the broader economy.