Wages, Productivity, and the People Behind the Average

A stable U.S. labor market can look very different depending on who is included in the average. This chapter tests the aggregate picture against age, sex, race, ethnicity, education, and wage-position evidence, then connects pay to inflation and productivity. The aim is to distinguish three judgments that are often blurred together: whether conditions are improving, whether gaps are narrowing, and whether workers’ purchasing power is rising.

Averages can improve while gaps remain

The Federal Reserve’s July 2026 report makes two statements that belong together. Employment disparities across sex, race, ethnicity, and education were relatively narrow compared with historical levels, but substantial differences in absolute employment levels remained. “Relatively narrow” describes the size of a gap compared with its own past. It does not mean that the groups are employed at the same rate, or that the remaining difference is trivial.

The report gives concrete examples for prime-age workers. Prime-age women were employed at a rate 11 percentage points below prime-age men. Prime-age Black workers were employed at a rate 6 percentage points below white workers, and prime-age Hispanic workers at a rate 3 percentage points below white workers. These are level differences. They answer how far apart the groups were at the time, not whether the gap was widening or shrinking in the latest month.

A reader needs a second question: how did the gap change? A gap can narrow because the group with the lower level improves faster. It can also narrow because the group with the higher level declines faster. The words “narrower” and “better” are therefore not synonyms. Conversely, a gap can widen while both groups improve if one improves more quickly. Comparing the direction of each group’s outcome is essential before assigning meaning to the gap itself.

Age adds another dimension. The report says prime-age EPOP remained roughly stable over the past year, while the EPOP ratio for people aged 55 and older was approximately 3.5 percentage points below its 2019 average. Much of the older group’s shortfall reflects retirements as the baby-boom generation ages, with some additional pressure from earlier pandemic-era retirement. A lower older-worker EPOP is therefore not automatically evidence of a sudden collapse in employer demand. It can reflect the composition and life stage of the population.

At the same time, calling the age pattern demographic does not make it irrelevant to the labor market. Retirements reduce the supply of available workers, alter the composition of employment, and can affect the meaning of a national participation rate. The same aggregate unemployment rate can coexist with a high employment rate among prime-age workers and a lower connection to work among older people. The group lens shows which population is carrying the aggregate result.

Levels, gaps, and changes must stay separate

The easiest way to misread demographic data is to let one comparison stand in for all three. A level asks, “Where is this group now?” A gap asks, “How far is it from another group or benchmark?” A change asks, “How did its own outcome move over time?” A report can answer all three, but the answers need not agree.

The Federal Reserve report notes that the prime-age EPOP ratio for Black workers softened considerably in the first half of 2025 and then partially recovered.