Wage growth for lower-income households may be turning a corner, according to Bank of America.
Lower-income households saw 4.7% annual growth in wages last month, compared with 3.5% for higher-income households, based on the bank's consumer deposit account data. The gains come even as the labor market cooled slightly, with annual overall payroll growth around 1.5%, down from 1.8% in July, it said.
Whether the reversal will last is uncertain, but after years of lagging wages and falling further behind, it seems lower-earning workers are gaining some ground, the bank said.
"The long-standing 'K' shape between higher- and lower-income households' after-tax wage growth has reversed," wrote David Michael Tinsley, senior economist at Bank of American
Institute, in a report.
A K-shaped economy represents a persistent economic divide in which higher-income Americans pull further ahead of many lower-income households that struggle to keep up due to slow wage growth and inflation.
Why are wage workers gaining ground?
Lower tax withholding following the One Big Beautiful Bill Act (OBBBA) may explain part of the shift, but a strongerlabor market for lower-paid workers also could play an important role, Tinsley said.
Bank of America's deposit account data shows the rate of job switching in July was significantly higher than in 2025, though falling a little short of the Great Resignation of 2022.
"And when we look across customers with different pay frequencies, we find the largest year-over-year increases in the job change rate have come from those who are paid weekly" and often hourly workers, Tinsley said.
Since job switches usually come with a pay raise, that's "likely contributing to the recent narrowing of wage growth differences across income groups," he said.
If it's not K, then what is it?
Some, like Treasury Secretary Scott Bessent, have declared the end of the K-shaped economy.
“I got sick of hearing about this K-shaped economy,” Treasury Secretary Scott Bessent told CNBC’s “Squawk Box” last month. “I can say here definitively, the K-shaped economy is over.”
Instead, "we’re seeing more of a ‘C’ economy where the lower end of wage earners are finally clawing it back,” he said.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Lower-income wages are rising faster than the 'K' economy
