As the job market cools from the rapid growth experienced during the pandemic era, many workers are now facing the prospect of receiving smaller annual raises in 2025. According to a new survey conducted by WTW, a consulting firm, the typical worker is expected to receive a pay raise of 4.1% next year, down from 4.5% in the previous year. The survey, which was conducted mid-year and involved 1,888 U.S. organizations that follow a fiscal calendar year, revealed that actual raises may still change by the end of the year as companies finalize their salary budgets. The size of workers’ salary increases is largely influenced by the supply and demand of labor, with affordability and industry dynamics playing secondary roles.
During 2021 and 2022, worker pay saw significant growth, with the pace being the fastest in over a decade. This surge was primarily driven by an extremely robust job market, fueled by the rollout of Covid-19 vaccines and the reopening of the U.S. economy. As a result, the demand for workers skyrocketed, leading to record numbers of employees quitting their jobs in pursuit of better, higher-paying opportunities. This phenomenon, commonly referred to as the great resignation, forced companies to offer more competitive salaries and adopt strategies like signing bonuses to attract and retain talent. However, with the job market now cooling, the dynamics have shifted, leading to a decrease in hiring, quits, and job openings, along with a rise in the unemployment rate.
It is projected that almost half (47%) of U.S. organizations anticipate a decrease in their salary budgets for 2025, as compared to previous years. Companies generally set a salary budget, which is then used to allocate raises to their employees. The current scenario is being likened to a return to more normalized circumstances, reminiscent of the job market in pre-pandemic years like 2018 and 2019. Despite the anticipated decrease in projected raises, the 4.1% figure is still considered relatively high compared to the average salary increases of around 3% seen in the years following the 2008 financial crisis. The pandemic era brought about a notable increase in salary growth, a trend that had not been observed before according to experts.
The sharp decline in annual raises expected in 2025 serves as a stark reminder of the ever-changing nature of the job market. With economic factors and industry dynamics playing a crucial role in determining salary increases, workers must adapt to the evolving landscape to ensure their financial well-being. As the job market continues to shift, staying informed and proactive in negotiating salaries and seeking new opportunities will be key to navigating the changing tide of the workplace.