A tight U.S. jobs market, inflation and fat corporate profits could spur pay raises next year.
There’s some good news on the workplace compensation front for 2023, as a competitive U.S. labor market should have companies digging deeper into the budget to pay employees.
“Salary budgets for U.S. employees are projected to increase in 2023, mainly influenced by a labor market with more open jobs than people to fill them,” said the global advisory and solutions company WTW in a new report.
U.S. firms are budgeting an overall average increase of 4.1% for 2023, compared with the average actual 4% increase in 2022, which are both the largest increases since 2008.
Here are some other takeaways from the WTW report.
· Nearly two-thirds (64%) of U.S. employers have budgeted for higher employee pay raises than they awarded last year, while 41% have increased their budgets since original projections were made earlier this year.
· 45% of U.S. companies are sticking with the pay budgets they set at the start of the year.
· Some companies are making more frequent salary-increase adjustments. “More than one-third (36%) have already increased or plan to increase how often they raise salaries,” WTW states. “Among those respondents, the vast majority (92%) have or will adjust salaries twice per year.”
Aside from a tighter U.S. employment market, about half of all companies say inflation is a big factor in boosting wages, while over a quarter of firms are looking to reward staffers after an expected robust 2022 earnings picture.
Smaller Firms, Bigger Pay?
Small businesses are especially feeling pressure from restricted labor, high inflation, and other business challenges heading into 2023. Apparently, they’ll also be paying more for workers next year.
“U.S. small businesses are adapting to overcome current economic challenges – two of which being inflation and labor shortages,” said Brett Sussman, chief marketing officer of Kabbage, an American Express division that tracks U.S. small business performance. “Increasing worker paychecks is a way that they can stay competitive in the current labor market.”
When Kabbage recently surveyed small businesses on how they’re primarily responding to the labor shortage and retaining existing employees, “40% reported they’re raising wages for current employees,” Sussman said.
Time to Pay Up
U.S. companies have apparently reached the point where adding to salaries isn’t a luxury – it’s a necessity.
“Employers don’t have a choice,” said Ira Wolfe, president of Success Performance Solutions, an employee recruitment firm based in Wind Gap, Pa. “If you want butts in seats, you’ll have to pay. If you want skilled, dependable employees, you’ll have to pay even more.”
“It’s an employee market, so this perfect labor storm was inevitable,” Wolfe added.
Are the WTW and Kabbage studies a sign the U.S. economy is on the mend for 2023? Not so fast, Wolfe said.
“For the 12 previous recessions since World War II, unemployment rose as GDP declined,” he noted. “The lowest unemployment during any of those recessions was 6.1%.”
Consequently, given the current economic slowdown, rising inflation, but low unemployment rate, U.S. gross domestic product and employment are now disconnected.
“When the economy picks up, labor markets will only tighten further as demand for skilled workers increases and more Baby Boomers exit,” Wolfe added.
“Labor markets are being disrupted. Talent management strategies need transformation. So, increased wages are just putting lipstick and Band-Aids on a fragile talent supply chain.”
