2027 Pay Increases Forecasted to Barely Match Inflation Rates

POLICY WIRE — City, Country — Employers are expected to provide their employees with only slight salary increases in 2027, according to a recent projection. The average salary increase is anticipated to be 3.5%, encompassing merit raises, cost-of-living adjustments, promotions, and other pay increments, as revealed by Marsh, a professional services firm, in a survey of 1,000 U.S. organizations.

Marsh highlighted that most employers have not yet concluded their budgeting decisions. Nevertheless, if these projections are accurate, the limited pay increases might result in many employees barely managing to stay ahead of inflation. Consumer prices increased at an annual rate of 3.4% in July, although economists generally predict that inflation will decrease this year and in 2027.

Bowling pointed out that companies are confronted with the challenge of strategically allocating their limited compensation budgets across their workforce, particularly in the face of ongoing economic uncertainty. Companies focus on increases where they can have the greatest impact on retention and their business priorities.

As a result, many employers are shifting away from evenly distributing pay hikes across their workforces, a practice known as “peanut-butter” raises, in favor of enhancing the compensation of strong individual performers, according to Payscale. Top performers in higher-paying sectors could see higher pay hikes next year, Marsh’s survey indicates. For instance, the average projected salary increase among high-tech companies is 3.8%, while banking industry workers could see average raises of 3.7%.

Conversely, workers in industries where job opportunities are diminishing, such as retail, could receive lower pay increases that fall short of inflation. Bowling stated that there will be individuals who are not keeping up with inflation.

Reporting by Policy-Wire (PW)