The year 2025 is expected to bring a decrease in the typical worker’s annual raise, as reported by a new poll conducted by WTW, a consulting firm. The average pay raise for workers in 2025 is projected to be 4.1%, which is down from 4.5% in the previous year. This decline in annual raises reflects the cooling trend in the job market following the robust growth experienced during the pandemic era.
Factors Driving Salary Increases
The size of workers’ salary increases is predominantly influenced by the supply and demand dynamics of the labor market, according to Lori Wisper, WTW’s work and rewards global solutions leader. While affordability and industry-specific factors also play a role, the primary driver of salary adjustments is the availability of talent in the market. Companies participating in the survey are expected to implement these annual raises by April 1, 2025.
The years 2021 and 2022 witnessed unprecedented growth in worker pay, with salaries increasing at the fastest pace in over a decade. The job market was characterized by high demand for labor, fueled by the rollout of Covid-19 vaccines and the broader reopening of the U.S. economy. This surge in demand led to a record number of workers quitting their jobs in search of better opportunities, a phenomenon known as the great resignation.
In contrast, the current job market has started to cool, with a decrease in hiring, quits, and job openings, alongside an increase in the unemployment rate. Companies may now find themselves in a position where they are receiving fewer applications and have fewer job openings, leading to a reduction in the need to offer higher salaries. Almost half of U.S. organizations surveyed anticipate lower salary budgets for 2025 compared to previous years.
The current economic environment has transitioned to more typical circumstances, resembling the pre-pandemic job market conditions of 2018 and 2019. Despite the projected decrease in annual raises for 2025, the lessening of pricing pressures in recent months has had a positive impact on workers’ buying power. While the 4.1% projected raise is lower than in previous years, it still remains relatively high compared to the post-2008 financial crisis period when median annual raises hovered around 3%.
Unprecedented Salary Growth
The significant increase in annual salary raises during the pandemic era stands out as a unique phenomenon. Historically, salary growth tended to decline rather than increase over time. The spike in annual raises to more than 4% in recent years has defied conventional trends in salary adjustments. This deviation from the norm reflects the exceptional circumstances of the pandemic era and the subsequent cooling of the job market in 2025.
The projected decrease in annual raises for 2025 marks a shift from the high growth rates experienced in the immediate post-pandemic period. The job market is rapidly evolving, with companies adjusting their salary budgets in response to changing dynamics. As the labor market continues to cool, workers may need to adapt to a more competitive environment with fewer opportunities for significant pay increases.
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