Sakorn Sucassim Sakorn
With the US labor market still in short supply, companies are looking to implement high, albeit impressive, pay increases for the coming year in an effort to attract and retain employees.
For 2024, employee salary budgets are expected to increase on average by 4.0%, according To a recent survey by consulting, brokerage and solutions firm Willis Towers Watson (WTW). While this forecast is lower than the actual 4.4% increase in 2023, it is still stronger than the 3.1% salary increase projection included in the 2021 budget and the previous decade.
“This shows that companies are striving to stay competitive in an ever-changing business climate,” Hattie Johansson, Director of Research, Reward Data Intelligence at WTW, said in a statement. “Those companies that have a clear compensation strategy as well as a pulse on the factors that affect them will be more successful in attracting and retaining employees while keeping pace with an evolving environment in which the guarantees of yesterday no longer apply.”
To shed more light on the state of the labor supply, May’s labor force participation rate — the percentage of the population that is working or actively looking for work — of 62.6% still lags behind the pre-pandemic mark of 63.3%. measure It has risen steadily since the outbreak of Covid-19 to a four-decade low, suggesting that plentiful jobs and higher wages are luring people from the fringes into the labor market.
The survey found that more than two-thirds (70%) of employers whose budgets for wage increases will be either the same or higher in 2023 than in the previous year, while less than a quarter (14%) of companies budgeted for salary increases. to be less than last year.
This underscores how companies compete to attract and retain talent, but “it takes more than just compensation,” said Leslie Jennings, North America lead, Work, Rewards & Careers, WTW. “As the workforce becomes more diverse, demanding and dynamic, the key is to understand their specific needs and preferences while providing employees with the required experience and job opportunities within the company.”
The WTW poll was conducted in April to June 2023 and received responses from 2,090 US organizations. About 33,000 sets of responses were received from companies in 150 countries.
In addition to concerns about a tight labor market affected by worker shortages, respondents cited inflationary pressures, concerns about employee expectations, a looming recession, and cost management as factors leading to changes in salary budgets.
The surge in inflation caused by the pandemic and subsequent fiscal stimulus has been declining since the June 2022 peak, but it is still too high for the Fed. In the Federal Reserve Bank of New York’s May 2023 survey of consumer expectations, consumers lowered their expectations for inflation for the coming year, but raised their expectations of higher prices on long-term horizons. Looking at another measure of implied inflation, the University of Michigan Consumer Survey showed that inflation expectations for the coming year eased from April to the lowest reading since March 2021, although inflation expectations for the next five years remained at a high rate of 3.0%.
Both surveys reveal that consumers believe it will take longer for the central bank to hit its 2% inflation target as some inflationary forces, including a tight labor market, have proven to hold. As such, workers may become more insistent on higher salaries to keep up with inflation, and thus higher borrowing costs. Despite this, the latest non-farm payrolls report indicated that wage growth eased from a year ago, with average hourly earnings rising 4.3% versus 4.4% year-on-year in April. This is good news for the Fed and the inflation fight, as fears of a spiral of wages and consumer prices have subsided, as well as consumers whose wage growth has outpaced inflation growth.