Dive Brief:

• Companies expect to raise pay 4.5% this year, less than the 4.8% boost in 2023 but ahead of inflation, Payscale found in a survey.
• At the same time, the share of organizations planning to increase pay this year fell to 79% from 86% in 2023, Payscale said, describing its survey of 5,735 human resources executives. Also, the voluntary turnover rate declined to 21% last year from 36% during the so-called Great Resignation of 2021, Payscale said.
• “These numbers corroborate the perception that the job market has cooled and that employers now have more control than job seekers, especially for salaried positions,” Payscale said.

Dive Insight:

Employers last month added 275,000 jobs, a higher-than-expected increase that veiled a cooling in wage gains and the overall labor market. Average hourly earnings last month increased only 0.1% compared with a 0.5% monthly gain in January.

Also, the unemployment rate rose to 3.9% and the Labor Department revised down the number of payroll gains in January to 229,000 from the earlier reported figure of 353,000.

“The extreme imbalances that we saw in the early parts of the pandemic recovery have mostly been resolved,” Federal Reserve Chair Jerome Powell said Wednesday, referring to the labor market.

“You're seeing strong wage growth, but wage growth is gradually moderating down to more sustainable levels,” he said during a press conference after central bank policymakers decided to hold the federal funds rate steady for the fifth consecutive meeting.

Cooling in the labor market has far to go, according to Michael Gapen, U.S. economist at Bank of America.

“Although labor market conditions are softening, the labor market remains tight overall with current readings in line with prior cycle highs,” Gapen said in a report. “At current levels, it would take another two years to bring labor market conditions back to their average level since 1994.”

The job market began to loosen beginning in late 2022, Payscale said. “Interest rates increased, growth forecasts faltered, the hiring frenzy subsided and organizations have spent the last year rightsizing the workforce in anticipation of a recession.

“While a recession did not arrive and may be avoided in 2024, compensation continues to be a challenge due to expanding pay transparency laws and the changed expectations of employees and job candidates when it comes to transparency and fairness,” Payscale said.

Although inflation has slowed since mid-2023, CFOs and their C-suite colleagues need to keep price pressures in mind as they set compensation levels, according to Payscale, which conducted its survey in November and December.

Inflation exceeds the Fed’s 2% target, edging up during January and February after falling steadily for much of last year.

The core consumer price index, which excludes volatile food and energy prices, increased 0.4% last month from January and 3.2% on an annual basis.

“Organizations need to continue giving higher pay increases to catch employee pay up to the market,” Payscale said.

“This means that this year pay increases are predicted to be higher than inflation for the first time in a long time, while still likely being lower than they were in 2023,” Payscale said. “This will come as a relief to employees who have been suffering under higher prices even as inflation decelerates.”