Pay raises and new hire salaries are starting to shrink

Pay raises must have gotten themselves on an Ozempic diet – because they’re getting slimmer.

Among 1,900 US companies polled in Q2, nearly half said they had downsized their budgets for salary increases in 2024, according to data newly reported in the Wall Street Journal. This has lowered the median raise to 4.1% this year, from 4.5% in 2023.

Many job-hoppers chasing pay raises will also be disappointed. Pay for new hires across industries is 7% lower than for new recruits for the same roles in 2022, according to data from payroll provider Gusto. Some of the biggest drops have been in white-collar roles, including in finance, where new-hire pay rates have fallen 9.2% since last year, per the Journal.

• This trend also means it’s harder for workers to “trade up.” In Q2, 58% of people hired to jobs got more pay with the switch than they were earning previously, down from 70% in Q4 of last year. Signing bonuses are also less frequent; about one in seven new hires received a signing bonus in Q2, compared with nearly one in three in Q4 2023.

What’s driving the trend? Two main factors, according to experts.

• A cooling job market. This results in managers having their pick of new hires, leaving potential employees with less negotiating power.
• A renewed focus by companies to cut costs. Labor costs, often the single-biggest expense for a company (sometimes comprising 70% of total business costs), are one of the first places executives focus when looking to cut costs or increase efficiency.

Big picture: On average, wages have risen faster than prices since the onset of the pandemic, with lower-paid workers seeing the steepest gains. Average hourly earnings have increased 22.3% since February 2020, compared to 20.8% inflation over the same period.

👀 Looking ahead… Raises are expected to keep getting smaller – like Matt Damon and Kristen Wiig after the downsizing procedure. Workers are projected to receive a median raise of 3.9% in 2025, compared with 4.1% so far this year.