America’s paycheck illusion: Why bigger salaries are leaving workers poorer

America’s Paycheck Illusion: Why Bigger Salaries Are Leaving Workers Poorer

The data shows that there is progress in America. During the period from 2020 to 2024, the average annual salary in the US rose from approximately $64,000 to $75,600, an increase of 18%, according to the US Bureau of Labor Statistics (BLS). This is one of the fastest rates of growth in history. However, as the year 2026 begins, this seemingly successful story falls apart. The rising cost of housing and living expenses negates the gains in salaries, and the harsh reality is cemented: Higher salaries do not necessarily translate to better lives.Adjusted for inflation and cost of living, the average American is actually poorer than they were before the pandemic. A fresh study by MyPerfectResume reveals that the average employee is currently making 2.6% less in actual purchasing power than in 2020.Every state recorded nominal wage growth, yet inflation quietly erased those gains, turning raises into an illusion. The result: a nation that got richer on paper and poorer in practice.

The inflation squeeze: Why higher salaries feel hollow

From 2020 to 2024, consumer prices rose by approximately 21%, based on the Consumer Price Index (CPI-U). In effect, a dollar in 2024 carried the buying power of just 82 cents from 2020. Rising wages were rapidly absorbed by escalating costs in essentials:

For millions, pay increases did not translate into improved lifestyles. Instead, they merely kept pace with swelling monthly bills. Location further intensified the strain, as regional price differences reshaped what a salary could realistically deliver.

Measuring reality: How purchasing power was calculated

To uncover where workers truly gained, or lost, ground, MyPerfectResume analysed all 50 states using a three-layer approach:

This method exposed the real change in workers’ buying power, revealing how far each paycheck actually stretched.

The national picture: A hidden pay cut

The findings are sobering. While nominal wages rose 18% nationwide, real purchasing power fell by 2.6%. However, only nine states showed actual gains after taking into account the cost of living and inflation.The top two states in the country were Idaho, with a gain of 3.1%, and Florida, with a gain of 2.6%. They were closely followed by Washington and Montana.At the opposite end, New Jersey, Rhode Island, and Maryland experienced the steepest declines, with real losses between 5% and 7%.Even high-income states such as California and Massachusetts failed to protect workers’ buying power. Higher housing costs and living expenses offset wage growth, solidifying the hard truth: Higher wages do not necessarily mean better lives.

Where paychecks stretch, and where they shrink

Top states for real purchasing power gains (2020–2024)

States losing the most buying power

In these markets, inflation and high living costs overwhelmed wage growth, often prompting workers to prioritise stability over career moves.

Beyond economics: A workforce recalibrates

The impact extends beyond household budgets. As real wages shrink, workers are quietly reshaping their behaviour. Side hustles are becoming standard. Career risks feel heavier. Relocation decisions carry sharper financial consequences. Flexibility is increasingly valued over prestige.This economic pressure helps explain parallel shifts in the labour market, from microshifting schedules to the rise of supplemental income. When traditional raises fail to restore purchasing power, employees seek control through time, autonomy, and additional revenue streams. The adjustment is not merely financial. It is psychological.