If you’re setting your sights on a big pay raise next year, you may want to temper your expectations.
Most employers plan to notch up salaries by an average of 3.4% in 2026 — on par with this year’s reported increases, according to a new survey from The Conference Board.
“Today’s labor market is one of reorientation, not retreat,” Mitchell Barnes, an economist at The Conference Board, told Yahoo Finance. “Employers anticipate steady compensation growth in 2026, but the underlying mix suggests some companies are scaling back, including signing and retention bonuses.”
Six in 10 companies surveyed cited economic uncertainty as a key constraint to their salary and hiring decisions.
Companies report reining in hiring and moving more slowly to fill jobs left open by employees who exited by choice in the last six months. Meanwhile, some firms report that temporary layoffs have transitioned to permanent reductions.
In a sense, it’s a reallocation of funds for cautious employers. Companies are tweaking salary budgets toward investing internally, with 16% of those surveyed planning to add skill-building initiatives for existing employees, Barnes said.
Payscale’s recent salary survey also found that US employers are planning for a similar pay increase, roughly 3.5% in 2026 on average, down from 3.6% in 2025.
Only 16% anticipate a salary-increase budget that is higher than last year. About 7 in 10 employers expect salary budgets to remain the same, while a small number expect them to dip lower.
“It’s not surprising that pay budgets are trending lower this year, based on a cooling labor market,” said Ruth Thomas, chief compensation officer at Payscale.
“What is maybe more surprising is just how much economic concerns have now overtaken labor competition as the primary driver of compensation decisions — 66% of employers cite this as the reason for pulling back, up 17 percentage points from last year,” she said.
Compare this to employers in the tight job market a few years ago who were eager to recruit and retain workers. Base pay increases in 2023 averaged 4.8%, the highest level in two decades, according to Payscale.
“What’s clear is that with global economic volatility, inflationary pressures, higher interest rates, and talk of potential recessions, organizations are prioritizing cost control,” Thomas said.
Pay varies depending on what field you work in, of course. For example, employees in science, engineering, and government will experience salary bumps over 4%, per the Payscale data.
“These dynamics highlight that the landscape is more nuanced now, and comp strategies are targeted and intentional,” she said.
The backdrop workers face is that inflation has been accelerating. The Consumer Price Index (CPI) increased 2.9% annually in August, the fastest annual pace since January.
Dig deeper: What is the CPI?
Prices are higher for food and electricity, while tariffs have been pressuring prices for clothing and household items like furniture.
Pair that with a cooling jobs market. The latest government jobs report showed the economy added 22,000 jobs in August, far below the 75,000 economists anticipated, with the unemployment rate rising to 4.3% from 4.2%.
The most recent jobless claims, a real-time indicator of the job market, jumped to 263,000 — the highest level in four years.
Workers are anxious. Findings from a newly released New York Federal Reserve survey reported that consumer expectations for higher unemployment and losing one’s job in the next 12 months have increased.
Learn more: What are jobless claims, and why do they matter?
With wages barely keeping pace with inflation, workers have been changing jobs to earn more money.
This trend, however, has done an about-face this year. Wage growth for “job stayers” is now accelerating marginally faster than it is for “job switchers,” according to the Federal Reserve Bank of Atlanta.
“Fewer job openings means slower wage growth for job switchers,” Allison Shrivastava, an economist at Indeed, said. “For the first time in years, wage growth for job stayers is higher than it is for job switchers, in part because employers don’t need to compete as hard to fill open positions.”
That said, the strategy isn’t completely kaput.
“On the whole, switching jobs remains the most effective way to increase wages,” she said. “However, with fewer job openings, many workers have limited options, and those changing jobs may be doing so out of necessity rather than for better pay.”
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That message to love the one you’re with is getting through to workers. The quits rate — which measures voluntarily leaving a job — is flat at 2%, according to the Bureau of Labor Statistics. Due to the limited number of available openings and broad consumer anxiety, workers are “hunkering down instead of looking out and ahead,” Shrivastava said.
This trend, coyly referred to as job hugging, translates to an increasing number of workers staying in their jobs even without a significant raise next year. “Right now, top performers are only leaving if they’re miserable in their roles,” Stacy DeCesaro, a managing consultant at Korn Ferry, said.
“Job seekers have definitively lost the negotiating leverage they enjoyed in the immediate post-pandemic period as the market has cooled,” Shrivastava added.
The disturbing fallout: “With inflation still looming large, many workers’ paychecks might not be able to keep pace with rising costs.”
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky.
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