Pay Raises Shrink As the Labor Market Turns

Turning Tables

The U.S. job market is going through some changes. In the past few months, fewer jobs were added to the economy and the unemployment rate ticked up. But those aren’t the only changes.

Pay raises are shrinking for both new and existing employees, according to a report from consulting firm WTW (WTW). While over the past years, companies were competing for talent, giving workers more bargaining power to negotiate for pay and benefits, the tables seem to be turning.

Shrinking Raises

There are many reasons pay raises may be slimmer going forward. High inflation of the past years has weighed on many businesses, pressuring budgets. But employers may also anticipate the changing job market dynamics, with workers less keen to jump from job to job, and more likely to contend with smaller pay bumps.

Per the WTW survey with data collected from 1,888 companies, the median raise had shrunk to 4.1% this year, compared with 4.5% in 2023. Of the companies surveyed, 47% had smaller salary budgets this year when compared to last year.

In this environment, job hopping in hopes of landing a higher salary may be less effective too. ZipRecruiter (ZIP) data cited by WSJ showed that only 58% of new hires got a pay bump when switching jobs, down from 70% last quarter.

Why Things Are Changing

The U.S. labor market is still historically strong. Even though the unemployment rate has inched up to 4.3% in July, that’s still relatively low, looking at the long term.

While it may not be as easy to secure a big pay pump as it was during the peak of the worker shortage that ensued during the pandemic, job openings remain higher than they were before the pandemic. In June, America had more than 8 million jobs waiting to be filled, compared to levels around the 7 million mark that were common before 2020.

Even so, companies and people are trying to rein in expenses. If you’re negotiating for a raise, be sure to check out our tips for a successful conversation.

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