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Many workers will receive smaller annual raises next year as the job market continues to cool from its rapid pandemic-era growth.
According to new data, the average worker’s salary will rise 4.1% by 2025, up from 4.5% this year. polling Provided by consulting firm WTW.
This is a mid-year estimate for 1,888 US organizations using a fiscal calendar year. Actual raises may change by the end of the year when the company finalizes its salary budget.
Lori Wisper, WTW’s global head of work and rewards solutions, said the size of worker pay increases is “largely determined” by the supply and demand of labor. Affordability and industry dynamics play a smaller role, she added.
Companies participating in the survey may pay annual raises until April 1, 2025, she said.
Job market ‘incredibly strong’
Wisper said worker compensation grew at the fastest pace in more than a decade in 2021 and 2022, against the backdrop of an “incredibly strong” job market.
As Covid-19 vaccines roll out and the U.S. economy fully reopens, demand for workers is at an all-time high. Workers easily quit their jobs and look for better, higher-paying jobs, a trend known as ” Great resignation. In 2022, more than 50 million people will quit smoking, reaching a record high.
Companies are having to raise wages higher than usual to compete for scarce talent and retain employees.
The prevalence of incentives such as signing bonuses has also “increased dramatically,” said Julia Pollak, chief economist at ZipRecruiter.
According to ZipRecruiter, nearly 7% of online job postings in 2021 offered a signing bonus, roughly double the pre-pandemic rate. By 2024, this proportion will drop to 3.8%.
“I’m not sure I’m going to see a job market like this again in my lifetime,” Wisper said of 2021 and 2022.
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Now, the job market has cooled. Hiring, resignations, and job vacancies decreased, and unemployment increased.
If companies don’t receive as many applications and have fewer openings, they may not feel the need to offer as much money, Pollack said.
According to WTW, nearly half (47%) of U.S. organizations expect salary budgets to decrease in 2025. (The company develops a salary budget and uses the money to give employees raises.)
The current environment “feels like we’re seeing more normal conditions, demand is back to pre-pandemic levels in 2018 and 2019, and it’s still a very healthy job market,” Wisper said.
Additionally, easing price pressures in recent months have boosted workers’ purchasing power after two years of high inflation that reduced purchasing power.
Still at a relatively high level relative to recent times
Wisper said that while the typical projected pay increase of 4.1% is lower than last pay cycle, it is “still a bit high” compared with recent years.
For example, in the years following the 2008 financial crisis, median annual raises essentially hovered around 3 percent, she said.
Wisper said growth of more than 4% during the pandemic is noteworthy: wage growth tends to fall rather than rise. For example, in the years before the financial crisis it was about 4.5% to 5% and it never fully recovered, she said.
This is “something that has never happened before,” Vesper said. “And (the raises) have been sustained to some extent.”
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