As we delve into the economic forecast for the upcoming year, it becomes evident that many workers will face a decrease in their annual pay raise. The projected average increase for 2025 is 4.1%, down from the 4.5% seen in the previous year. This data is based on a survey conducted by WTW, a consulting firm, including responses from 1,888 U.S. organizations following a fiscal calendar.
According to Lori Wisper, the work and rewards global solutions leader at WTW, the determining factor for the size of worker salary increases is predominantly driven by the supply and demand of labor. While affordability and industry dynamics also play a role, the primary driver remains the workforce market conditions. It is anticipated that companies will implement these annual raises by April 1, 2025, however, the final figures may vary as salary budgets are finalized by the year-end.
The period of 2021 and 2022 showcased a rapid escalation in worker pay, attributed to the robust job market characterized by the unprecedented demand for labor due to the rollout of Covid-19 vaccines and the broad reopening of the U.S. economy. This resulted in a surge of resignations, coined as the “great resignation,” with over 50 million workers quitting their jobs during this period. To attract and retain talent in such a competitive landscape, companies had to offer higher salaries and incentives, such as signing bonuses, which became increasingly common.
Fast forward to 2025, the job market has undergone a cooling phase with a decline in hiring, quits, job openings, and an increase in the unemployment rate. As a consequence, companies might be inclined to scale back on salary increments, given the reduced number of applications and job openings. Nearly half, 47%, of U.S. organizations are expecting a decrease in their salary budgets for 2025. This adjustment signals a return to more normalized conditions reminiscent of the pre-pandemic years of 2018 and 2019.
Despite the projected dip in annual raises for 2025, the current economic landscape presents a silver lining for workers. After enduring two years of declining buying power amidst high inflation rates, the recent relief from pricing pressures has bolstered workers’ purchasing power. While the 4.1% estimated raise may appear lower compared to the peak during the pandemic era, it still exceeds the average raise percentage observed in the post-2008 financial crisis years, which hovered around 3%.
Lori Wisper acknowledges the exceptional nature of the salary growth patterns during the pandemic era, citing that it is unprecedented for salary increments to spike amidst economic downturns. The years leading up to the financial crisis witnessed a decline in salary growth, and the recovery post-crisis never fully restored the previous levels. Therefore, the anomaly of accelerated salary growth seen in 2021 and 2022 is indeed a unique phenomenon in the historical context of wage trends.
As the job market in 2025 adapts to the changing economic conditions, workers should anticipate a moderate decrease in their annual salary raises compared to the previous years. However, the adjustment signifies a return to more normalized market conditions, offering stability and equilibrium following the turbulent fluctuations experienced during the pandemic era.
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