As the pandemic era transitions into a new phase, many workers are bracing themselves for a decrease in their annual pay raise. The job market, once characterized by high demand and soaring salaries, has started to cool off. According to a survey conducted by WTW, a consulting firm, the projected pay raise for the typical worker in 2025 is expected to be 4.1%, down from 4.5% in the previous year.
The size of annual raises is largely determined by the supply and demand of labor in the market. Lori Wisper, WTW’s work and rewards global solutions leader, pointed out that affordability and industry dynamics also play a role in shaping the salary landscape. Companies participating in the survey are likely to finalize their salary budgets by April 1, 2025, reflecting the current changes in the job market.
The unprecedented phenomenon known as the “great resignation” has significantly impacted the job market in recent years. More than 50 million workers quit their jobs in 2022, setting a record high. To retain employees and attract new talent, companies had to offer higher salaries and incentives like signing bonuses. However, as the job market stabilizes, the prevalence of signing bonuses has decreased in recent years.
With hiring, quits, and job openings on the decline, the job market is undergoing a period of correction and normalization. Companies may feel less pressure to offer higher salaries when faced with fewer job applications and openings. Nearly half of U.S. organizations anticipate that their salary budgets for 2025 will be lower than before, signaling a return to more balanced market conditions.
After experiencing two years of declining buying power due to high inflation rates, workers are starting to see some relief. The recent decrease in pricing pressures has slightly boosted workers’ purchasing power. While the projected 4.1% raise for 2025 is lower than in previous years, it still represents a relatively high increase compared to the post-2008 financial crisis period.
The pandemic era brought about significant changes in the salary landscape, with annual raises reaching levels not seen in previous years. While salary growth tends to be more conservative, the past few years have seen a notable increase in pay raises. This shift in trends reflects the evolving dynamics of the job market and the changing priorities of employers and employees alike.
The expected decrease in annual raises for 2025 signals a shift towards more normalized market conditions. As the job market stabilizes and inflation rates adjust, workers can expect a more steady growth in their salaries. While the era of astronomical pay raises may be over, the current projections still indicate a positive trend in annual salary increases. It is essential for workers to adapt to these changing dynamics and make informed decisions about their careers in the evolving job market landscape.