As the job market continues to cool from its torrid pace during the pandemic, many workers will see their annual raises shrink next year. According to a recent CNBC article, the typical worker is expected to receive a 4.1% pay raise for 2025, down from 4.5% this year.

This estimate gathered midyear from 1,888 U.S. organizations operating on a fiscal calendar year may change by year-end as companies finalize their salary budgets. The supply and demand of labor primarily drive the increase in the size of workers’ salaries, explained Lori Wisper, WTW’s work and rewards global solutions leader, with affordability and industry dynamics playing lesser roles.

The Job Market Was Incredibly Strong

In 2021 and 2022, worker pay grew faster over a decade due to an “unbelievably robust” job market. Demand for workers hit record highs as COVID-19 vaccines rolled out and the U.S. economy broadly reopened. This period saw workers quitting their jobs for better, higher-paying opportunities in what became known as the Great Resignation, with over 50 million people quitting in 2022—a record number.

Companies raised salaries more than usual to compete for scarce talent and retain employees. The prevalence of incentives like signing bonuses also “grew dramatically,” noted Julia Pollak, chief economist at ZipRecruiter. Almost 7% of online job listings offered a signing bonus in 2021, roughly double the pre-pandemic share, though this percentage has dropped to 3.8% in 2024.

“I’m not sure I’ll ever see that kind of job market in my lifetime again,” Wisper said of 2021 and 2022.

A Cooling Job Market

Now, the job market has cooled. Hiring, quits, and job openings have declined, and the unemployment rate has increased. Pollak suggested that companies may feel less need to offer substantial raises if they’re receiving fewer applications and have fewer job openings.

Almost half (47%) of U.S. organizations expect their salary budgets to be lower for 2025, according to WTW. Companies typically set a salary budget and use that pool of money to pay raises to workers.

The current environment “feels like we’re seeing more normal circumstances, where demand is back to where it was pre-pandemic in 2018 and 2019, which was still a very healthy job market,” Wisper said. Additionally, after two years of declining buying power amid high inflation, the recent lessening of pricing pressures has boosted workers’ buying power.

Still High Relative to Recent Past

While the typical 4.1% projected raise is more minor than during the last pay cycle, it’s still high relative to recent years, according to Whisper. For example, the median annual pay raise broadly hovered around 3% in the years following the 2008 financial crisis.

The increase to more than 4% during the pandemic was notable, as salary growth tends to fall instead of rising. For instance, it was around 4.5% to 5% in the years leading up to the financial crisis and had just recently recovered.

“It’s something that’s never happened before,” Wisper said. “And [the raises] have stuck, to a degree.”

Job Switchers Still Seeing Robust Raises

While overall raises are shrinking, job switchers continue to see robust pay increases. Moving to a new job often brings the opportunity for significant salary bumps, as companies are willing to pay more to attract new talent. According to Pollak, workers who switch jobs can negotiate higher starting salaries and better benefits than those who stay with their current employer.

How a Recruiter Can Help

Navigating the job market can be challenging, but a recruiter can help you find a company that pays more and aligns with your values and ambitions. Recruiters deeply understand industry trends, salary benchmarks, and company cultures. They can match you with opportunities that fit your career goals and negotiate on your behalf to secure the best possible compensation package.

In summary, while raises may be getting smaller, they remain relatively high compared to the recent past. Workers looking for significant pay increases may need to consider changing jobs as the job market stabilizes and companies adjust their salary budgets accordingly. Partnering with a recruiter can enhance your job search, ensuring you find a role that meets your financial needs and personal aspirations.

Hiring great people remains essential. Tamarack Recruiting can help you find the talent that will drive your business forward, ensuring you have the right team to navigate the complexities of 2024 and beyond.