Americans Headed for Disappointing Pay Increases

American employers plan to give their workers close to 4 percent in salary increases in 2024, according to Payscale's Salary Budget Survey for the year.

The planned paycheck bumps of 3.8 percent are slightly lower than last year's when they hit 4 percent, Payscale said in a report.

"This could repeat this coming year," Payscale, the compensation software and data company, said.

Wage growth has been decelerating in the U.S. after soaring following the post-pandemic economic reopenings when employers were forced to compete for workers to meet growing consumer demand for goods and services.

But recent data has shown that the labor market is cooling with companies slowing down hiring partly due to elevated interest rates instituted by the Federal Reserve to combat high inflation.

Higher borrowing costs have made business investment more expensive, which could explain why employers are choosing to pause on hiring even as they keep their current workers on payroll, data from the U.S. Bureau of Labor Statistics showed on Wednesday.

Yet, in a sign of a resilient labor market, private sector employers added 164,000 jobs in December and annual pay grew by 5.4 percent for the year, according to the ADP National Employment Report released on Thursday. This was the fourth month in a row that the report registered job gains.

ADP revealed that the 5.4 percent jump in pay was for those who stayed in their jobs and earned a median annual pay of close to $59,000, a slight decline from the previous month's increase of 5.6 percent.

"Pay gains for job-stayers have slowed every month since September 2022," ADP said.

Job changers saw their pay rising by 8 percent for the year, which was also a slight decline from November when those workers secured an 8.2 percent pay bump.

The wage increases are slower than they were a year ago when in November 2022, job stayers saw their pay go up by 7.6 percent while job changers earned nearly 16 percent of salary jumps.

"We are seeing wage growth move down at this very steady clip. In our view there's very little risk of a wage-price spiral that will push up inflation in 2024, so that's good news," Nela Richardson, the chief economist at ADP, told a press conference attended by Newsweek on Thursday. "It's good news for workers because the growth that we're seeing is more and more going to be real growth, not inflation boosted growth."

If inflation maintains its downward trend—which in November came at 3.1 percent, much lower than the 9 percent it hit in June 2022—this will benefit companies as well, Richardson said.

"It's good for consumers if inflation continues to come down and it's good for companies who don't have to fight both wage inflation and low supply on the labor side," she said. "They can actually grow their firms in 2024."

Payscale said in its report that some sectors had seen slowing wage growth.

"Wage growth has come down, especially in professional sectors like Technology, Finance & Insurance, and Agencies & Consultancies, which overpaid for new hires to meet demand during the Great Resignation," it said.

But the expectation is workers will still see salary increases.

"Pay increases look to remain strong in 2024," Payscale said in its report. "Should these predictions hold true, it would be the first time wage growth has surpassed inflation since 2020. However, pay increases will vary by industry and business performance."