Next year, you may receive a smaller pay raise due to these reasons.

• According to a WTW survey, the typical worker will receive a 4.1% annual raise in 2025, which is lower than the 4.5% raise in previous years.
• That growth is still high relative to the recent past.
• Company pay increases are largely dictated by supply-and-demand dynamics in the labor market.
• The job market has cooled from a scorching level in 2021 and 2022.

The job market's cooling pace in the pandemic era may result in many workers receiving smaller annual raises next year.

A new poll by WTW reveals that the typical worker will receive a 4.1% pay raise in 2025, a decrease from the 4.5% increase seen this year.

According to a midyear estimate from 1,888 U.S. organizations that follow a fiscal calendar year, actual raises may vary by year-end when companies finalize their salary budgets.

Lori Wisper, WTW's work and rewards global solutions leader, stated that the size of workers' salary increases is mainly determined by the supply and demand of labor, with affordability and industry dynamics playing lesser roles.

She stated that companies in the survey were likely to pay their annual raises by April 1, 2025.

Job market was 'unbelievably robust'

In 2021 and 2022, worker pay experienced its fastest growth in over a decade due to the "unbelievably robust" job market, according to Wisper.

The great resignation trend continued in 2022 as more than 50 million people quit their jobs, breaking the record.

To attract and retain top talent, companies were forced to increase salaries above average.

ZipRecruiter's chief economist, Julia Pollak, stated that the use of incentives like signing bonuses saw a significant increase.

In 2021, approximately 6.9% of online job postings included a signing bonus, which is more than double the percentage before the pandemic, according to ZipRecruiter data. However, this percentage has decreased to 3.8% in 2024.

Wisper expressed uncertainty about ever encountering a job market like the one in 2021 and 2022 again.

Paycheck advance programs are facing increased scrutiny from the Consumer Financial Protection Bureau.

The job market has become less favorable, with a decrease in hiring, quits, and job openings, resulting in an increase in the unemployment rate.

Pollak stated that companies might not feel the need to provide as much money if they receive fewer job applications and have fewer job openings.

According to WTW, nearly half of U.S. organizations anticipate their salary budgets will decrease by 47% for 2025. (Organizations establish a salary budget and allocate funds from it to give raises to employees.)

According to Wisper, the current environment "seems to be returning to normalcy, with demand levels similar to those seen in 2018 and 2019, indicating a robust job market."

In recent months, the lessening of pricing pressures has improved workers' buying power after two years of decline due to high inflation.

Still high relative to recent past

Although the projected 4.1% raise is lower than the previous pay cycle, it is still considered "not bad" compared to recent years, according to Wisper.

The median annual pay raise had remained relatively stable at around 3% in the years following the 2008 financial crisis, according to her.

During the pandemic era, there was a significant increase in salary growth, but it tends to fall instead of rise, Wisper stated. For instance, it was approximately 4.5% to 5% in the years leading up to the financial crisis, and it never fully recovered, she added.

Wisper stated, "something that's never happened before," and added, "the raises have stuck, to a degree."