With prices still running hot around the U.S., millions of workers are counting on a large enough annual pay bump to keep them a step ahead of inflation next year.
Employers plan to offer an average salary increase of 4% for 2024, according to a new survey from WTW, which advises companies on compensation issues. That figure is slightly lower than in 2023, when raises averaged 4.4%, but still tops the roughly 3% increase companies were offering in previous years, the consulting firm found.
Another consulting firm, Korn Ferry, also expects a median salary hike of 4%, although other forecasts predict more modest increases.
Not surprisingly, annual pay increases also can vary significantly by industry. In 2023, for example, the total salary hike for engineers approached 5%, while people in retail and education received far smaller increases, data from PayScale shows. Federal workers, who tend to earn less than their private-sector peers, are slated to get a 5.2% bump next year.
What’s driving pay raises
Two main factors continue to drive employers’ thinking on pay, according to WTW.
First, although inflation is no longer through the roof, Americans continue to grapple with higher costs for groceries, rent, health care and other staples. The typical American household must spend an additional $11,434 annually just to maintain their standard of living compared with three years ago, just before inflation soared to 40-year highs, according to a recent analysis of government data from Republican members of the U.S. Senate Joint Economic Committee.
Second, the labor market remains tight after millions of people exited the workforce during the pandemic. The battle for talent among employers remains fierce, requiring competitive merit increases to retain good workers.
Beyond a decent pay raise, organizations are looking to keep staffers happy by offering greater job flexibility, with 55% of employers surveyed by WTW offering employees a choice of remote, in-office or hybrid work.
WTW, which also looked at compensation forecasts around the world, included responses from more than 1,800 U.S. companies as part its findings.
Of course, a year or two of above-average pay hikes won’t make up for decades of stagnant wage growth in the U.S. According to recent Census data, 4 in 10 Americans said they were struggling to pay the bills. And while prices have cooled, a survey from Bankrate this fall found that 60% of working Americans report that their income has lagged inflation over the past 12 months.
