2024 Salary Projections Remain High

The labor market changed significantly at the end of 2023.

Nineteen out of 20 key industries in the U.S. experienced hiring declines. Hiring overall dropped 23.8% from its 2022 levels. Job growth slowed in October to about half the level of every other month in 2023.

As companies are trimming staff or leaving positions open, fewer employees are searching for new jobs. While workers still expect significant increases in compensation, the marketplace may no longer demand big bumps to retain workers.

Average hourly earnings rose 4.1% in 2023, but wage growth also slowed dramatically as the year wrapped up. Wage increases as a whole dropped every month since April. Clearly, the labor market is cooling. Still, salaries will likely remain higher than historical averages due to continued labor competition and inflation. Several key surveys of industry execs indicate what they are planning to do with wages:

  • The Conference Board forecasts a 4.1% increase in wages. This is lower than 2023 but well above 3% pre-pandemic increases.
  • Mercer projects a 3.5% merit increase and a 3.9% total salary increase for nonunion workers.
  • Payscale’s annual salary budget survey forecasts a 3.8% wage increase in 2024.
  • WTW forecasts a 4% wage hike.

As you design your 2024 compensation strategy, keep the following trends top of mind.

Finding top talent is still a challenge

Wages have always been a blend of historical pay rates, competitive market conditions and the available talent pool. Despite layoffs and downsizing in the fourth quarter of 2023, more employers say they expect increased hiring activity in early 2024, according to a ManpowerGroup survey. Three-quarters of employers still report having difficulty finding qualified skilled talent, although that has slightly lessened from 2023’s number.

The compensation data company Payscale asked employers why 2024 budgets include higher pay increases than previous years. Most employers cited the continued labor shortage.

  • 65% cited increased competition for labor.
  • 34% said it reflected a change in compensation philosophy or competitive positioning.
  • 27% pointed to improved economic conditions or performance.
  • 17% reported the previous year’s increases were lower than normal.

While wages are trending higher, they are not the only area being impacted in this labor market. Most employers said they are offering various strategies to find, attract and recruit talent. Many are putting work flexibility above wage increases. According to ManpowerGroup, 65% of executives said they are offering greater flexibility in work schedules, while 30% said they are increasing wages.

The workforce is experiencing major generational shifts

In 2024, nearly a quarter of the entire workforce in the U.S. will be 55 or older. At the same time, Generation Z is entering the workforce at a rapid clip. Different generations have different ideas of what’s important.

In a multigenerational workforce, you can’t assume everyone wants or is motivated by the same things, notes the management services company ADP. It’s essential to meet the unique needs of your employees as they reach different phases of their professional and personal lives.

This creates challenges for companies that have traditionally had one set of rules for everyone. A Baby Boomer planning for retirement has drastically different needs than someone just entering their working years. While policies must treat everyone fairly and equitably, offering different benefits that appeal to different generations can help offset concerns about wage increases. It can also provide incentives to attract and retain workers.

This doesn’t mean tiering wages or offering different benefits based on age. Instead, it means providing a range of options to accommodate multiple generations and evolving your approach. For example, pay transparency and equity have become significant issues.

Pay transparency and pay equity are paramount

For older workers, talking about pay in the workplace was a taboo subject. That’s changing. It’s more common to see pay ranges in job ads. In fact, it’s mandated in several states, and many job seekers expect this information upfront.

Disclosure can help attract more candidates and weed out those who would not accept such wages. At the same time, pay transparency can create significant issues if salaries aren’t equitable within an organization. In 2024, pay equity is essential.

2024 is a time for recalibration

Salary increases may be slowing, but you can expect wages to continue to rise in 2024. Even if there is an economic downturn, continuing inflationary pressures and labor competition will push salaries upward.

As you navigate this landscape, the key will be to balance competitive compensation with benefits that cater to the diverse needs of today’s multigenerational workforce.

For more information

To learn more, reach out to our Human Resources Consulting team.

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