American workers hoping for another year of aggressive pay increases may need to temper their expectations. After several years of wage gains that outpaced historical norms, compensation planning for 2026 is returning to pre-pandemic patterns, with employers budgeting average salary increases in the mid-3% range.

According to Payscale's 10th annual Salary Budget Survey, U.S.-based employers are anticipating 3.5% average salary increase budgets for 2026, slightly less than the 3.6% average actual increases provided in 2025. Mercer's Compensation Planning Survey shows an even more conservative figure, with employers projecting merit increase budgets of 3.1%.

The Context: Why Raises Are Moderating

The salary boom of 2022-2024 was driven by an unusual combination of factors: pandemic-era labor shortages, workers quitting in record numbers during the "Great Resignation," and inflation that forced employers to raise wages just to retain staff. Those conditions have largely normalized.

Unemployment remains low by historical standards, but the labor market is no longer as tight as it was during the post-pandemic recovery. Quit rates have declined, giving employers more leverage. And while inflation remains elevated, it has retreated from the 9% peak that characterized 2022.

"We're no longer in a situation where all jobs are in high demand," Mercer noted in its analysis. "Instead, we're seeing a clear separation between sectors that are heating up and those that are cooling down."

Industry Variations: Where the Raises Are

The 3.5% average masks significant variation across industries. Some sectors are seeing continued wage pressure, while others are actually pulling back from 2025 levels:

Sectors with strongest wage growth:

  • Healthcare and social services: Wages grew 4.5% in the year ending June 2025, well above the national average. Persistent shortages of nurses, home health aides, and other healthcare workers continue to drive compensation higher.
  • Manufacturing and construction: Skilled trades remain in high demand, with employers struggling to fill positions for welders, electricians, and machine operators.
  • Telecommunications: The buildout of 5G infrastructure and fiber networks is creating demand for technical workers.

Sectors with weaker wage growth:

  • Technology: After years of aggressive hiring, tech companies are rationalizing headcount. Expected pay increases for 2026 are among the lowest across industries.
  • Arts, entertainment, and recreation: These sectors also showed declining expected pay increases, reflecting normalization after post-pandemic surges.
  • Professional services: Law firms, consulting companies, and other professional services are moderating their compensation growth after aggressive increases in prior years.

The Real Raise: Inflation Matters

A 3.5% raise sounds reasonable until you account for inflation. With consumer prices still rising at approximately 2.5-3% annually, a 3.5% nominal raise translates to roughly 0.5-1% in real purchasing power gains.

This represents a significant moderation from 2022-2023, when wages frequently outpaced inflation, and from 2024, when the gap between wage growth and inflation remained positive. Workers who received consistent raises over the past three years have seen their real wages improve. Those starting fresh in 2026 face a tougher environment for building purchasing power through salary growth alone.

Benefits Costs Are Eating Into Raises

One factor limiting salary increases is the rising cost of employee benefits. According to the Bureau of Labor Statistics, employer costs for benefits now account for nearly 30% of total compensation for private-industry workers—up from historical averages.

Healthcare costs are the primary driver. Mercer projects that total health benefit costs per employee will rise 6.5% in 2026, the highest increase since 2010. When employers face higher healthcare costs, less budget remains for salary increases.

This creates a frustrating dynamic for workers: total compensation may be rising faster than salary alone suggests, but the increase is flowing to insurance premiums rather than take-home pay.

How to Maximize Your Compensation

In an environment of moderate salary increases, workers need to be strategic about compensation:

1. Know your market value: Use salary comparison tools to understand what your role commands in the market. If you're significantly underpaid, you have leverage for a larger increase.

2. Document your contributions: Raises are often tied to demonstrated value. Keep records of accomplishments, positive feedback, and quantifiable impacts on the business.

3. Consider internal mobility: Promotions typically carry larger salary bumps than annual merit increases. If you're qualified for a higher-level role, pursuing internal advancement may be more lucrative than waiting for annual raises.

4. Negotiate at hiring: External moves often offer the biggest salary jumps. If you're exploring new opportunities, the negotiation at hiring is your best chance for a significant increase.

5. Look beyond base salary: Bonuses, equity, flexible work arrangements, and other benefits can significantly affect total compensation. A slightly lower salary with better equity upside or work-life flexibility may be more valuable overall.

The Geographic Dimension

Location continues to influence compensation, though the dynamics are shifting. Remote work has compressed some geographic wage differentials, as workers in lower-cost areas compete for roles that previously required residing in expensive metros.

However, for roles that require in-person presence, geography still matters enormously. A skilled tradesperson in a booming Sun Belt metro may command premiums well above national averages, while similar workers in regions with slower growth face tighter markets.

What This Means for Career Planning

The moderation in salary growth has implications for longer-term career planning:

  • Skill development matters more: When general raises are modest, skills that command premiums become more valuable. Investing in in-demand capabilities can differentiate you from peers.
  • Industry choice has lasting effects: Sectors with structural labor shortages will continue to offer better compensation trajectories than sectors with labor oversupply.
  • Negotiation skills pay off: The gap between what workers accept and what employers would pay continues to leave money on the table. Those who negotiate effectively will compound gains over time.

The Bottom Line

The 3.5% raise expected for 2026 is neither particularly good nor particularly bad—it's a return to something like normal. After the wage turbulence of the pandemic era, compensation growth is settling back to historical patterns. For workers, this means the easy gains of recent years are over. Building purchasing power will require strategic career management, skill development, and willingness to pursue opportunities—internal or external—that offer above-average compensation growth.