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Overall wage growth across the U.S. has been slowing down for months. One specific group just broke that pattern entirely. In July, workers who switched jobs saw a three-month moving average pay increase of 12.5%, the fastest pace in more than three years, according to the Bank of America Institute. Most of these switchers were lower-paid, hourly workers, not high-earning professionals chasing a bigger title.
That surge doesn’t mean paychecks are suddenly booming across the board. Pay bumps tied to switching jobs still remain below pandemic-era levels, according to the same report. Even so, economists say the acceleration specifically among lower-paid workers is genuinely encouraging, since this group has typically lagged behind higher earners when it comes to wage growth over the past several years of economic recovery.
Bank of America Institute economist Taylor Bowley connected the trend to a broader shift in the labor market. “We are seeing a narrowing in what used to be a strong pay differential between lower-income and higher-income workers,” she told CBS News, describing increased job mobility specifically among hourly employees as a meaningful signal that conditions are genuinely shifting in their favor right now.
The Pay Gap Between Low and High Earners Is Actually Narrowing
That narrowing gap shows up clearly in year-over-year wage data as well. In August, lower-income households saw their after-tax wages rise 4.7% compared to the previous year, while higher-income households saw a smaller 3.5% increase over the same period. That gap, roughly 1.2 percentage points in favor of lower earners, marks a real reversal from the pattern that dominated much of the post-pandemic recovery.
Lower-paid workers driving this trend are concentrated in specific industries rather than spread evenly across the economy. Leisure and hospitality, transportation and warehousing, and parts of the retail sector employ a disproportionate share of these hourly earners. Those same industries have also seen some of the highest turnover in recent years, giving workers more leverage to negotiate a raise simply by moving somewhere else.
Faster wage growth doesn’t automatically translate into financial comfort for the workers benefiting from it. Nearly 25% of U.S. workers are considered “functionally unemployed,” meaning they’re unemployed and job hunting, working part-time involuntarily, or earning less than $26,000 a year before taxes, according to the nonpartisan Ludwig Institute for Shared Economic Prosperity. A big percentage raise can still leave someone below a livable income.
A Raise That Still Sits Below a Minimum Wage Frozen Since 2009
The federal minimum wage adds another layer of context to these gains. It has remained frozen at $7.25 an hour since 2009, even as inflation since the pandemic has steadily eroded how far that money actually stretches. A 12.5% raise from switching jobs looks impressive on paper, but it’s measured against a wage floor that hasn’t budged in well over a decade of rising prices.
Not every job switcher is landing a bigger paycheck purely through good timing or market conditions. Gad Levanon, chief economist at The Burning Glass Institute, points to a selection effect shaping these numbers. “There’s a bit of a selection in that the switchers could simply be better workers than the ones who aren’t leaving,” he told CBS News, suggesting stronger performers are more likely to leave in the first place.
Some job switches also involve a genuine promotion disguised as a lateral move to a new employer entirely. Taking a higher-level position at a different company can inflate the reported pay increase attributed simply to “switching jobs,” even when the real driver was a step up in responsibility rather than pure market leverage or a tighter hiring environment for hourly workers specifically.
While Hourly Workers Job-Hop, White-Collar Workers Are “Job-Hugging”
White-collar industries are experiencing something close to the opposite trend right now. Levanon said quit rates among workers in finance, insurance, real estate, technology, and consulting tend to run lower than among hourly employees, largely because job growth in those fields has genuinely weakened. Part of that slowdown, he added, traces directly back to AI automating tasks these workers used to perform themselves.
That dynamic has produced a defensive pattern researchers call “job hugging,” where white-collar employees cling tightly to their current positions rather than risk searching for something new. With fewer outside offers circulating and heavier competition for open roles, staying put has become the safer financial choice for many professionals whose careers now feel more exposed to AI-driven disruption than ever before.
The AI boom is simultaneously creating brand-new demand in a completely different corner of the labor market. Data centers powering rising AI usage require construction workers, electricians, and HVAC specialists, roles that now command a genuine wage premium compared to traditional commercial or residential construction jobs, according to research from Revelio Labs, adding yet another driver behind the pay gains hourly workers are currently seeing.