What's Happening?
A recent survey by Mercer indicates that U.S. employers are planning modest wage increases for 2026, with base salary increases for merit expected to average 3.2% and total increases at 3.5%. This is consistent
with the increases reported in 2025 and falls short of the post-pandemic years when increases reached up to 3.8%. The survey, which included responses from over 1,000 firms, highlights that inflation remains around 3%, surpassing the Federal Reserve's target of 2%. This economic environment is contributing to stagnant real hourly wage growth, particularly in production and non-supervisory occupations, as noted by RSM Chief Economist Joe Brusuelas. The survey also reveals that 83% of employers plan to distribute salary increase budgets equally across their organizations, rather than focusing on high-demand skills or critical market gaps.
Why It's Important?
The planned modest wage increases are significant as they reflect ongoing economic challenges, including inflation that continues to erode purchasing power. This situation is particularly concerning for lower-income households, which may face increased financial strain. The affordability crisis, as described by economists, is a primary factor in historically weak consumer confidence. The survey's findings suggest that even highly skilled workers may not see significant pay increases, which could impact workforce motivation and retention. Additionally, the lack of substantial wage growth could lead to reduced consumer spending, further affecting economic growth. The survey also notes that industries such as high tech, insurance, and energy are planning slightly higher merit increases, while sectors like healthcare and retail are projecting lower increases.
What's Next?
As employers navigate the economic landscape, the focus may shift towards balancing wage growth with inflationary pressures. Companies might need to reassess their compensation strategies to attract and retain talent, especially in high-demand sectors. The role of artificial intelligence in hiring and compensation decisions remains limited, with only a small percentage of organizations citing AI as a factor in reduced hiring. However, as AI adoption increases, it could potentially influence future compensation practices. Policymakers and economic stakeholders will likely continue to monitor inflation trends and wage growth to address the affordability crisis and support economic stability.
