The gap between how much lower-income and higher-income Americans are earning is closing, according to new data from the Bank of America Institute. Its August employment report, based on customer deposit accounts, shows after-tax wage growth of 4.7 percent year over year for lower-income households. Higher-income households recorded 3.5 percent. For much of the past few years, the opposite was true: high earners saw faster pay gains while lower earners fell behind, a pattern economists called the K-shaped recovery. The report is built from Bank of America customer deposit account data and is published each month alongside official government employment figures.
The K shape flips
The reversal is a break from a trend that has defined the labor market since the pandemic. Bank of America Institute economists said August was the latest month in which lower-income after-tax wage growth ran ahead of the higher-income group. The finding suggests that pay pressures at the bottom of the income scale remain stronger than at the top, a pattern consistent with a still-tight market for lower-wage workers.
A cooler but steady job market
Overall momentum cooled in August. The institute estimates payroll growth of 1.5 percent year over year, down from 1.8 percent in July. Growth in after-tax wages also softened during the month. Despite the slowdown, the report describes the labor market as broadly resilient, with no signs of the sharp deterioration that would point toward a recession. Separate institute research found small businesses gained momentum over the summer, with hiring strengthening and profitability growth reaching its strongest level of 2026. Economists will watch coming months to see whether lower-income wage gains hold up as the job market settles into a slower pace. The numbers also feed a wider debate about whether pay can keep pace with prices after several years of high inflation, a question that matters for households at every income level.