MW Pay raises keep shrinking. Here's how much smaller they'll be next year.

Andrew Keshner

One solution is getting a different job - but that's not so simple

Businesses are starting to determine pay budgets for next year. Here's what workers should expect.

Employers are starting to plan how much money they'll pay their staff next year. But employees shouldn't get too excited: Projected pay increases may seem more like a blip than a bump.

As costs continue to weigh on households and gas prices return above $4 a gallon, employers are planning pay increases for 2027 that are slightly smaller than this year.

In other words, raises are still coming for many workers - but the average size of those pay bumps is becoming more modest.

Several new forecasts this month show the trend. Employers are planning a 3.3% average increase in pay overall, according to Tom Wardrip at Gallagher $(AJG)$, a consulting firm that released its 2027 estimates on Wednesday.

That's smaller than the average 3.8% pay increase for this year, which was itself slightly lower than the previous two years, noted Wardrip, a managing director in the firm's compensation and rewards practice.

Employers are budgeting for a 3.4% increase to salary budgets next year, according to a survey from WTW $(WTW)$, another consulting firm. The projected 3.4% rise is slightly lower than this year's actual 3.5% increase, WTW's findings showed.

These are not drastic drop-offs. In fact, it's been common in recent years for employers to wind up paying more than they first projected, according to Wardrip. Yet the range between what employers say they'll pay and what they actually pay has been narrowing, he added.

The pandemic's "Great Resignation" era - when many workers quit their job and got a big raise at a new employer - and the inflation flare-up pushed companies into larger-than-usual pay increases, Wardrip said. Putting aside those years, salary-budget increases of 3% to 3.5% were "pretty typical," he noted.

Moderating pay increases are another reminder of the slow-motion cost crunch that both businesses and workers are facing at the moment.

Employers are "looking and saying these increases were so high for so many years, would they please just slow down," Wardrip said. Meanwhile, "employees are feeling more pressure because they have less wage growth."

In April and May, U.S. inflation rates outpaced wage growth as energy prices climbed as a result of the Iran war. Amid a fragile ceasefire between the U.S. and Iran, wages grew faster than inflation in June.

Last month, the inflation rate was 3.5%, year over year, according to the Bureau of Labor Statistics.

Prices face renewed pressure this month as Middle East hostilities return to the forefront. President Donald Trump said he is close to a decision on a "massive attack" against Iran, according an Axios report. On Thursday, the benchmark on global oil prices (BRN00) reached $100.

For workers, companies' moderating budgets for pay increases show the price of hunkering down at their current job.

The clear-cut way to get a raise is to land a new job. People who switched jobs saw an average 6.6% increase in their pay year over year, according to June data from payroll giant ADP $(ADP)$. By contrast, people who stayed at their job saw a 4.4% increase year over year.

However, landing a new job may not be so easy, as it's been what economists have called a "low-hire, low-fire" environment for some time. Underneath the surface of a labor market with strong numbers, people looking for jobs say it's a grueling process.

Indeed's latest look at the job market shows new job postings in June returned close to their prepandemic levels. But the pay that's been advertised on postings has been growing slower than prices since the middle of last year, Indeed analysts wrote - adding that smaller growth in pay "could squeeze households' purchasing power ahead."

-Andrew Keshner

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July 24, 2026 10:00 ET (14:00 GMT)

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