Here's how salary offers are trending for job hoppers as pay settles into 'new regime'

Workers who switch jobs are no longer seeing the same big pay bumps employers shelled out during the height of the Covid-19 pandemic.

Overall, a worker who changed jobs in January saw a 7.2% boost in median year-over-year annual pay, compared to the 5.2% growth in pay from a worker who stayed in the same job. That gap is far narrower than in June 2022, when job changers saw a median year-over-year change in annual pay of 16.4% compared to 7.7% for those who remained in their jobs.

It is a gap that has continuously narrowed since, according to data from payroll firm ADP, which used anonymized data to track actual workers who moved jobs.

“Job switchers are much more sensitive to the real-time labor-market conditions," said ADP Chief Economist Nela Richardson. "They are in the market now, and they are getting jobs now. Even though you see pretty steady job gains, the overall market is cooler. It’s not as hot of a market.”

In January, job-hopper pay gains declined 12% from the previous month, the biggest drop so far, which Richardson said amounted to a meaningful shift in the job market away from workers.

But that doesn’t mean the labor market is back to normal, Richardson said. Strong job gains and consistent labor shortages in fields such as construction, nursing and teaching will persist as baby boomers retire and fewer Gen Z workers are available to replace them . That likely means annual pay growth, which once hovered around 3% per year before the pandemic — just above inflation — will stay in the 4% to 5% range for 2024 and possibly beyond, Richardson said.

“This labor shortage issue is like a slow-moving wave and it’s kind of catching up with everything else,” Richardson said. “We are in a new regime in pay.”

Those ongoing shortages will keep putting upward pressure on worker wages, even as the Federal Reserve keeps interest rates high in an effort to cool the labor market. Richardson said that could mean a more cyclical inflation that keeps interest rates higher than they historically have been.

While Wall Street would like to keep interest rates low, Main Street businesses and workers may accept higher rates with higher average pay raises, Richardson said. That would mean interest rates that hover around 5% for a while.

“I do think that, competitively, wages are going to be set higher than before the pandemic,” Richardson said.

Higher pay not the only benefit used to recruit workers

Instead of the pandemic-era race to keep and onboard workers as fast as possible with big raises, employers are now more strategic and targeted about recruitment. And there are now bigger factors beyond pay that employers can offer to potential workers, Richardson added.

“The basket of compensation and benefits has grown. Not only can you offer a salary increase but you can offer a flexible work arrangement or remote or hybrid work to compete that compensation package than you could before the pandemic," Richardson said. "It's not about the highest salary; it's the mix of time versus salary that you could offer to a new recruit."

But workers are still pushing for higher pay. About 81% of workers from a 2024 Work Watch Report by Monster Worldwide Inc. said their current wage has not kept up with the rising cost of living. About 47% of workers said they had higher salary expectations than they did in 2023. And when employees were asked what they want, the top answer continued to be money, with 42% in the Monster survey saying a salary increase would be the most attractive benefit to them, followed by the 16% who said increased remote work flexibility. Only 8% said they wanted a promotion, and another 8% said they wanted unlimited paid time off.

Data tracked by the Federal Reserve Bank of Atlanta shows while the rate of wage growth has slowed, it remains relatively high when viewed across decades. In December, the three-month moving average of median wage growth clocked in at 5.2%, a rate that has been unchanged since September. By comparison, that's down from a peak of 6.7% seen in the summer of 2022, but it's still a higher three-month moving average than any other month dating back to August 2001, when it also came in at 5.2%.

Another recent study by services provider Paychex Inc. also found wage growth is slowing. The decline tracks with the Federal Reserve having raised interest rates in 2022 and part of 2023. Meanwhile, data from Mercer’s U.S. Compensation Planning Survey in November showed companies were forecasting total salary increase budgets of 3.8% for 2024. That's down slightly from the 3.9% those same companies forecasted three months earlier.