As we move further into the year 2025, many workers are facing the reality that their annual raise will be smaller than in previous years. According to a survey conducted by WTW, a consulting firm, the typical worker is expected to receive a 4.1% pay raise for 2025, down from 4.5% in the previous year. This decrease in annual raises is indicative of a cooling job market following the unprecedented pace it had during the pandemic era.
Factors Driving Salary Increases
The size of workers’ salary increases is primarily influenced by the supply and demand of labor, as noted by Lori Wisper, WTW’s work and rewards global solutions leader. Affordability and industry dynamics also play a role, although to a lesser extent. Companies participating in the survey are likely to implement these annual raises by April 1, 2025, with the actual percentages subject to change as salary budgets are finalized by year-end.
The job market in 2021 and 2022 experienced rapid growth, with worker pay seeing its fastest pace in well over a decade. The demand for labor surged as Covid-19 vaccines became widely available and the economy reopened, leading to a phenomenon known as the great resignation. Workers were leaving their jobs in search of better opportunities and higher pay, prompting companies to offer competitive salaries and incentives like signing bonuses to attract and retain talent.
However, the job market has now cooled in 2025, with hiring, quits, and job openings on the decline, and the unemployment rate rising. This shift has led companies to reevaluate their salary budgets, with close to half of U.S. organizations expecting to allocate less money for raises in 2025. The decrease in demand for labor has prompted companies to adjust their compensation strategies accordingly.
Despite the projected decrease in annual raises for 2025, the 4.1% raise is still considered relatively high compared to pre-pandemic years. Following the financial crisis in 2008, median annual pay raises hovered around 3%, making the increase to over 4% during the pandemic era noteworthy. This trend of rising salary growth is unprecedented, as salary increases typically tend to fall rather than rise over time.
As we navigate the changing landscape of annual raises in 2025, it is evident that the job market is undergoing a transition from the heightened demand seen in the previous years. While workers may see a reduction in their pay raises, the overall outlook remains positive compared to historical trends. Companies are adapting to the new normal and adjusting their compensation strategies to align with the current supply and demand dynamics of the labor market.