Lower-paid workers in the U.S. are seeing their fastest wage growth in more than three years, according to the Bank of America Institute. In July, workers who changed jobs saw a three-month moving average wage increase of 12.5%, the highest rate since 2020. However, this growth is still below the wage levels seen during the early stages of the pandemic. Economists note that the rise in wages among lower-paid workers may be helping to narrow the pay gap between lower- and higher-income workers. In August, after-tax wages for lower-income households rose 4.7% compared to the previous year, while higher-income households saw a smaller increase of 3.5%. Most of the workers benefiting from these pay raises are lower-paid, hourly workers. These individuals are often found in sectors like leisure and hospitality, transportation and warehousing, and parts of the retail industry. According to the nonpartisan Ludwig Institute for Shared Economic Prosperity, nearly 25% of U.S. workers are "functionally unemployed," meaning they are either unemployed and looking for work, working part-time involuntarily, or earning wages below the poverty level—defined as less than $26,000 annually before taxes. The federal minimum wage has remained unchanged at $7.25 an hour since 2009, and high inflation since the pandemic has reduced the purchasing power of consumers. Research from the Bank of America Institute found that higher-income workers tend to see greater wage increases when they stay with their current employer, while younger or lower-paid workers often benefit more from switching jobs. This trend reflects the growing influence of job-switching in the labor market, as workers seek better opportunities. Gad Levanon, chief economist at The Burning Glass Institute, explained that workers who switch jobs often do so to find better or higher-paying positions, which can lead to larger pay increases compared to those who stay in their current roles. He noted that job switchers may also be more skilled or motivated, which could explain why they receive higher raises when they move. Switching jobs can also involve taking on more responsibility or a higher-level position at a different company. Levanon also pointed out that white-collar workers in industries like finance, insurance, real estate, technology, and consulting tend to have lower quit rates compared to hourly workers. This is partly due to weaker job growth in these sectors, as well as the impact of automation through artificial intelligence, which has led to a trend known as "job-hugging." Many of these workers are staying in their current roles because of limited opportunities and competition in the job market. Meanwhile, Bank of America Institute economist Taylor Bowley noted that employers are struggling to find workers with the exact skills and qualifications they need, giving job seekers more leverage in negotiations. Bowley also suggested that the expansion of AI data centers may be contributing to higher pay for some job switchers, as these projects require specialized workers like construction workers, electricians, and HVAC specialists, who often earn higher wages than those in traditional construction fields.