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Pay raises are getting smaller. Here’s what to expect next year.
Employers are finalizing 2027 pay budgets, and the numbers point to more modest increases than recent years.
Gallagher projects an average overall pay increase of 3.3% for 2027, down from 3.8% this year. WTW’s survey shows employers budgeting for a 3.4% rise in salary budgets, slightly below this year’s actual 3.5% increase. These figures continue a gradual moderation after the larger jumps seen during the pandemic-era labor shortages and high inflation.
Historically, salary-budget increases of 3% to 3.5% were typical before the recent spike. Companies appear ready to pull back after several years of elevated raises, even as many workers still feel pressure from living costs. Inflation ran at 3.5% year-over-year last month. Energy prices have been volatile amid Middle East tensions, with oil recently reaching $100 a barrel.
Staying put usually means smaller raises. ADP data for June showed job-switchers averaging a 6.6% year-over-year pay increase, compared with 4.4% for those who remained in their roles. Switching jobs remains the most reliable path to a bigger bump, but the labor market has been characterized as “low-hire, low-fire.” New job postings have returned near pre-pandemic levels, yet advertised pay growth has lagged inflation since mid-2025, according to Indeed.
In short: raises are still expected for many workers, but the average size is shrinking, and external cost pressures are not disappearing.