Why 2026 Pay Raises Will Stay Stagnant Amid Economic Uncertainty
Explore why 2026 pay raises are projected to hover around 3.5%, reflecting cautious employer strategies amid economic uncertainty and cooling labor markets, and what this means for workers and businesses alike.
Key Takeaways
- 2026 pay raises average about 3.5%, mirroring 2025’s modest growth.
- Economic uncertainty drives cautious employer pay strategies.
- Labor market cooling reduces pressure for aggressive wage hikes.
- Targeted raises focus on critical roles over broad increases.
- Real wage growth may lag inflation, impacting employee morale.
If you’re dreaming of a big pay bump in 2026, it’s time to recalibrate expectations. Surveys from The Conference Board and Payscale reveal that most U.S. employers plan to raise salaries by roughly 3.4% to 3.5%, barely budging from 2025’s figures. This steady but subdued outlook reflects a labor market in transition — one marked by economic caution rather than retreat.
Employers are navigating a maze of inflation, global volatility, and a cooling jobs market. Hiring slows, bonuses shrink, and some temporary layoffs become permanent. Yet, amid this cautious dance, companies are investing more in upskilling current employees, signaling a strategic shift in compensation priorities.
This article unpacks the 2026 pay raise landscape, revealing why raises are stagnant, how sector differences play out, and what workers and employers should expect as they steer through uncertain economic waters.
Understanding 2026 Pay Raise Trends
Picture this: you’re eyeing a juicy pay raise next year, but the numbers tell a different story. Most U.S. companies plan to increase salaries by about 3.4% to 3.5% in 2026, barely shifting from 2025’s modest hikes. This isn’t a coincidence but a reflection of a labor market in flux.
Mitchell Barnes from The Conference Board calls today’s labor market one of "reorientation, not retreat." Employers aren’t slashing pay but are cautious, scaling back on signing and retention bonuses. The economic uncertainty—think inflation, interest rates, and recession chatter—casts a long shadow over compensation decisions.
This steady but subdued approach contrasts sharply with 2023, when pay hikes averaged 4.8%, the highest in two decades. Now, with fewer job openings and a cooling market, the urgency to outbid competitors for talent has faded. The result? Pay raises that feel more like a gentle nudge than a leap.
Navigating Economic Uncertainty
Economic uncertainty is the elephant in the room shaping 2026 pay raises. Six in 10 companies cite it as a key constraint, forcing them to tighten salary and hiring budgets. It’s like walking a tightrope—employers must balance cost control with keeping talent engaged.
Ruth Thomas of Payscale highlights a shift: economic concerns now overshadow labor competition as the main driver behind compensation decisions. This marks a 17-point jump from last year, signaling a new era where financial caution trumps aggressive wage battles.
Companies are slowing hiring, turning some temporary layoffs into permanent cuts, and reallocating funds toward internal skill-building. This strategic pivot means raises are targeted, not universal, focusing on roles critical to business survival rather than broad pay hikes.
Sector Differences in Pay Raises
Not all pay raises are created equal. Sector matters. For example, science, engineering, and government employees can expect raises over 4%, slightly above the national average. Meanwhile, sectors like healthcare, high tech, and retail hover around or below 3%.
Financial services present an interesting case: merit increases average 3.1%, but total compensation budgets reach 3.7%, thanks to incentives and variable pay. This nuance shows companies are fine-tuning pay strategies to align with business goals and market realities.
Globally, this trend isn’t unique to the U.S. Canada and the UK report similar stagnation, underscoring a widespread cautious approach to compensation amid economic volatility.
Shifting Labor Market Dynamics
The labor market’s cooling is rewriting the wage growth playbook. Job openings have shrunk, and the quits rate—measuring voluntary job exits—has flattened at 2%. Workers are "hugging" their jobs, staying put even without big raises, driven by limited options and economic anxiety.
Interestingly, wage growth for job stayers is now outpacing that of job switchers, reversing a years-long trend. Allison Shrivastava from Indeed explains this shift: fewer openings mean less competition for talent, so employers aren’t forced to offer big raises to attract new hires.
Still, switching jobs remains the most effective way to boost pay, though many are switching out of necessity rather than opportunity. This dynamic paints a complex picture of worker behavior amid economic headwinds.
Implications for Employees and Employers
What does stagnant pay growth mean for you? With raises barely outpacing inflation—2.9% CPI growth as of August—real wage gains are minimal or negative. That pinch can erode morale and make it harder to keep top talent.
Employees might need to rethink their strategies, focusing on skill-building or seeking roles with better pay potential. Employers, on the other hand, face the challenge of balancing cost control with maintaining engagement.
Transparent communication about compensation decisions becomes crucial. When workers understand the economic backdrop, trust can hold firm even if paychecks don’t swell. In this delicate dance, both sides must adapt to a landscape where pay raises are steady but subdued.
Long Story Short
The 2026 pay raise forecast paints a picture of steady but restrained growth. With average increases hovering around 3.5%, workers face the reality that their paychecks might barely keep pace with inflation’s persistent rise. This stagnation isn’t a sign of retreat but a strategic recalibration by employers wary of economic headwinds. For employees, this means adjusting expectations and considering new ways to boost earnings, whether through added responsibilities or targeted job changes. Employers, meanwhile, must communicate transparently to maintain trust and focus raises where they matter most. As the economy continues to wobble, both sides will need to embrace flexibility. The story of 2026 pay raises is less about dramatic leaps and more about steady navigation — a reminder that in uncertain times, cautious steps often lead to lasting stability.