Due to the current and fututr job market situation, workers can expect smaller annual pay raise for 2025!
Next year, many workers can expect smaller annual pay raise as the job market continues to cool down from its rapid pace during the pandemic. According to a recent poll by consulting firm WTW, the typical worker is projected to receive a 4.1% pay raise in 2025, down from 4.5% in 2024. This estimate is based on midyear data from 1,888 U.S. organizations with fiscal year calendars. However, actual raises could vary once companies finish their salary budgets.
Lori Wisper, WTW’s global solutions leader for work and rewards, noted that the size of these raises is largely influenced by the supply and demand for labor. Other factors like affordability and industry conditions also play a role, but to a lesser extent. Companies plan to implement these raises by April 1, 2025.
Job Market in Recent Years
In 2021 and 2022, worker pay grew at the fastest rate in over a decade due to an exceptionally strong job market. As COVID-19 vaccines became widely available and the U.S. economy reopened, and demand for workers surged. This led to the “great resignation”, where over 50 million people quit their jobs in 2022 to seek better opportunities. To attract and retain talent, companies had to offer higher salaries and more incentives, such as signing bonuses. For instance, nearly 7% of job listings included a signing bonus in 2021, double the rate from before the pandemic. However, this figure has since dropped to 3.8% in 2024.
Wisper remarked that the job market conditions seen in 2021 and 2022 were extraordinary and unlikely to be repeated soon. Now, as the job market cools, companies are seeing fewer job openings, fewer applications, and a higher unemployment rate. This has reduced the need for offering higher pay.
According to the WTW survey, 47% of U.S. organizations expect to have smaller salary budgets for 2025. This trend signals a return to more typical conditions, similar to those before the pandemic in 2018 and 2019, which were still considered healthy job markets, Wisper noted.
Pay Raises Remain Relatively High
Despite the expected decrease, the anticipated 4.1% raise for 2025 is still relatively high compared to recent years. Following the 2008 financial crisis, median annual pay raises typically hovered around 3%. The shift to raises exceeding 4% during the pandemic was unusual, as salary growth usually declines during economic downturns. For comparison, raises were around 4.5% to 5% before the financial crisis, but had not fully rebounded until the pandemic period, as Wisper highlighted.