American workers are being warned to expect smaller paychecks as salary growth continues its steady retreat from pandemic-era highs.
The typical worker will receive a 4.1% pay raise in 2025, a notable drop from the 4.5% increase most employees saw the prior year.
Those figures come from a poll conducted by WTW, a consulting firm, which surveyed 1,888 U.S. organizations operating on a fiscal calendar year.
The survey represents a midyear estimate, meaning actual raises could shift slightly once companies finalize their salary budgets before year-end.
The size of workers’ salary increases is “driven primarily” by the supply and demand of labor, said Lori Wisper, WTW’s work and rewards global solutions leader.
Wisper noted that affordability and industry dynamics also factor into salary decisions, though they play a lesser role than broader labor market conditions.
During 2021 and 2022, a hiring frenzy drove wages sharply higher as employers competed aggressively for a scarce pool of available workers across nearly every sector.
That dynamic has since reversed, with hiring slowing, turnover declining, and job openings falling to their lowest level in more than three years as of April 2024, according to the U.S. Bureau of Labor Statistics.
The ratio of job openings to unemployed workers dropped to approximately 1.2 to 1, a steep decline from the roughly 2 to 1 ratio recorded just two years earlier.
Almost half of U.S. organizations, roughly 47%, now expect their salary budgets to be lower in the coming year compared to what they allocated in prior cycles.
The downward trend is also visible in how many companies are handing out larger raises, with only 14% giving increases between 5% and 6.9%, compared to 25% in the previous survey period.
At the same time, the share of companies returning to more modest raises in the 3% to 3.9% range climbed to 38% in 2024, up from just 25% the year before.
While the current trajectory points firmly downward, workers are still faring better than they did in the years following the 2008 financial crisis, when the median raise hovered around 3%.
The cooling job market reflects a broader economic recalibration that is gradually shifting bargaining power away from employees and back toward employers across most industries.
Workers hoping to secure above-average raises in this environment may increasingly need to rely on individual performance records or specialized skills to stand out during salary negotiations.
