The golden age of pandemic-era pay raises has come to an end. According to Payscale's 10th annual Salary Budget Survey, U.S. employers are planning average salary increases of just 3.5% for 2026—a notable step down from the 4% to 5% raises that became common during the post-pandemic hiring frenzy.

For workers who grew accustomed to robust annual raises and bidding wars for their services, the message is clear: the labor market has fundamentally shifted in favor of employers, and financial planning must adjust accordingly.

The Numbers Tell the Story

The Conference Board's survey confirms the trend, with most employers planning 3.4% salary increases—essentially flat compared to 2025's actual raises. Perhaps more telling, 84% of workers are scheduled to receive any base pay increase at all, down from 85% projected last year.

These figures represent a significant cooling from the wage surge that followed the pandemic. In 2022 and 2023, many workers saw raises of 5% or more as employers competed fiercely for talent in a historically tight labor market. Those days appear to be over.

"Pay increases have been tapering year over year as the surge in wage growth and inflation begins to level off. What's maybe more surprising is just how much economic concerns have now overtaken labor competition as the primary driver of compensation decisions."

— Ruth Thomas, Chief Economist at Payscale

Why the Shift?

The cooling in wage growth reflects several converging factors:

Economic Uncertainty Takes Center Stage

According to Payscale's survey, 66% of employers now cite economic concerns as the primary reason for restraining compensation budgets—a dramatic shift from recent years when labor competition was the dominant factor. Trade policy uncertainty, inflation concerns, and questions about Federal Reserve policy have made companies cautious.

Labor Market Rebalancing

The labor market has normalized significantly from its pandemic extremes. Job openings have declined, quit rates have fallen, and the frenetic pace of hiring that characterized 2021-2023 has given way to more measured workforce planning.

Productivity Pressures

Companies that hired aggressively during the pandemic are now focused on extracting productivity gains from existing workforces rather than adding headcount. Many are investing in automation and AI rather than raising wages.

Winners and Losers

Not all workers will experience the slowdown equally. Certain professions remain in high demand and can still command premium compensation:

  • Financial Managers: Companies continue to pay up for strong financial leadership amid economic uncertainty.
  • Information Security Analysts: With cyber threats escalating, defenders of digital infrastructure remain scarce and valuable.
  • Healthcare Workers: Nursing and allied health professions continue to see above-average wage growth as staffing challenges persist.
  • AI and Machine Learning Specialists: The AI boom continues to create bidding wars for specialized technical talent.

Conversely, workers in sectors facing headwinds—retail, traditional media, certain manufacturing roles—may see raises below the average or face layoff risk.

The Job-Switcher Penalty

One of the most significant changes in the current environment is the evaporation of the "job-switcher premium." For most of the post-pandemic period, workers who changed employers saw substantially larger wage gains than those who stayed put—often 10% to 20% more.

That dynamic has reversed. According to Indeed economist Allison Shrivastava, "For the first time in years, wage growth for job stayers is higher than it is for job switchers." The implication: loyalty may now pay better than mobility, at least for the time being.

Implications for Your Financial Plan

With smaller raises on the horizon, workers should recalibrate their financial expectations:

Budget for Modest Increases

A 3.5% raise barely keeps pace with current inflation levels. Build your 2026 budget assuming your purchasing power will remain roughly flat rather than growing substantially.

Focus on Benefits and Total Compensation

When base salary growth is constrained, other elements of compensation become more important. Negotiate for better healthcare coverage, retirement matching, flexible work arrangements, or professional development opportunities.

Invest in Portable Skills

While job-switching may not pay as well as it used to, the workers who can command premium compensation are those with skills in high demand. Consider investing in certifications or training that enhance your market value.

Build Your Emergency Fund

In an uncertain environment where employers are cautious, having six months of expenses in reserve provides crucial security. The workers who thrive in this economy are those who can negotiate from a position of financial strength.

The era of easy raises may be over, but workers who adapt their strategies can still build wealth. The key is recognizing that the labor market has changed—and planning accordingly.