Biggest Wage Hikes in 16 Years Expected Next Year Amid Inflation

A man walks past a "We're Hiring" sign posted outside of a restaurant in Arlington, Va., on June 3, 2022. Olivier Douliery/AFP via Getty Images

Employees in the United States are expected to see a 16-year high salary hike next year as companies react to a tight labor market and inflation, according to a recent report by workplace consultant Willis Towers Watson (WTW).

Pay budgets at companies have risen by 4.2 percent in 2022, stated a WTW press release on Nov. 17. In 2023, companies are forecast to raise prices by 4.6 percent, it predicted. The overall 2023 salary increase will be the highest since 2007. The survey saw the participation of 1,550 organizations in the United States. A similar survey conducted earlier this year only predicted a 4.1 percent salary boost next year.

One in seven companies were found to have spent more than originally planned on pay adjustments in the previous 12 months. While 77 percent of firms are concerned about inflationary pressures, 68 percent are worried about tight labor markets.

Among firms looking to change their salary increase budgets, around 17 percent plan to fund the increased budget by raising prices, while 12 percent will reduce staff numbers and resort to company restructures.

Three in four respondents admitted to facing problems in hiring and retaining talent, which is triple that of 2020. Seven in 10 firms took the decision to raise salary budgets after taking into account the tight labor market.

“As inflation continues to rise and the threat of an economic downturn looms, companies are using a range of measures to support their staff during this time,” said Hatti Johansson, research director, Reward Data Intelligence, WTW.

“Organizations should prioritize their actions based on the needs of both employers and employees and pay close attention to market data to inform any changes.”

Tightening Labor Conditions, Inflation Wage Erosion

Labor markets are expected to remain tight in the near future even in case of a recession, according to a report by Glassdoor and Indeed.

As the supply of workers is expected to remain restricted in the long run, not only will hiring become more difficult but also employees will have more power to make demands, it said.

“The principal reason for this can be summed up in one word: demographics. Over the next decade, the number of people of working age (between 15 and 65) will decline in a variety of countries, according to World Bank projections,” the report stated.

In the United States, the population of this demographic is projected to decline by 3.2 percent between 2026 and 2036.

Meanwhile, inflation is eroding the value of wages, thus creating a situation where employees are looking for more pay.

A report published by the Federal Reserve Bank of Dallas this month reveals that the median decline in real wages (inflation-adjusted wages) was over 8.5 percent for most of the American workforce in the past 12 months. The erosion in wages was the “most severe” faced by employees in the past 25 years, it said.