Employers across the United States are expected to offer only modest pay hikes averaging 3.5% in 2027, a pace that could leave many workers struggling to keep up with inflation, according to recent findings from Marsh, a professional services firm.
What Happened
Marsh surveyed 1,000 U.S. organizations and estimated that salary increases—including merit raises, cost-of-living adjustments, promotions, and other pay boosts—will average 3.5% next year. Mark Bowling, a Marsh compensation expert, noted that 2023 marked the peak for annual pay hikes, with salary growth moderating since then. Companies have not yet finalized their 2027 salary budgets, but the outlook suggests that pay raises are returning to a more restrained “new normal.”
Key Facts
The forecasted average pay increase of 3.5% contrasts with a consumer price inflation rate of 3.4% as of July 2026. Although economists anticipate inflation will gradually ease throughout 2026 and 2027, the tight alignment between pay raises and inflation means many employees may see their real wages stagnate.
The survey highlights sectoral disparities: tech companies project average raises of 3.8%, banking workers 3.7%, while employees in struggling industries like retail face smaller raises unlikely to match inflation rates. According to payroll processor ADP, August wage growth across all workers stood at 3.2%, but those who changed jobs enjoyed a 4.7% base pay increase, emphasizing the wage premium for job-changers.
What This Means
The modest salary hikes expected in 2027, barely above inflation, mean many workers could effectively experience stagnant earning power after accounting for rising living costs. For middle- and lower-wage employees—especially in sectors with fewer job openings—this erosion of real wages can intensify financial pressures, potentially affecting consumer spending and broader economic activity.
Employers are increasingly moving away from across-the-board pay raises, instead targeting key talent and top performers with larger compensation increases. This strategy helps businesses focus limited budgets on retention and performance incentives but may widen wage disparities within organizations. Workers who switch jobs continue to have the best chance at meaningful pay growth, underscoring the rising importance of labor mobility in a restrained wage environment.
In an economy still navigating uncertainty, companies must carefully balance wage policies to manage expenses while supporting employee satisfaction and retention—an ongoing challenge that reflects broader shifts in labor market dynamics.
Background
In 2023, salary increases reached their highest recent levels, fueled by labor shortages and inflation pressures that boosted wage demands. Since then, economic conditions such as moderating inflation and cautious corporate spending have led to a pullback in pay hikes. Employers now face strategic decisions on allocating compensation increases to address retention, reward performance, and align with business priorities amid uncertain economic prospects.
What Comes Next
As the calendar turns toward 2027, organizations will finalize their compensation budgets, revealing clearer patterns of wage growth across industries. Upcoming employment reports and inflation data will further clarify the real purchasing power of these pay increases. Observers will watch whether wage moderation persists or if labor market conditions lead to renewed upward pressure on salaries.
Sources
This article is based on reporting and publicly available information from the following source:
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