According to a survey conducted by Willis Towers Watson, U.S. companies are expecting to pay an average 3.4% raise to workers in 2022. This pay rise supersedes the increases seen in 2020 and 2021.

The 3.4% average increase is expected to take place across all professional positions, regardless of seniority.

Key Statistics

  • The projected raises in pay for 2022 were in the 3.2% to 3.4% range across the employment spectrum.
  • This number exceeds the previous records, whereby respondents paid a 2.8% raise to employees in 2021, on average.
  • Inflation is seen as one factor, but the main factor attributed to this rise in wages is the labour shortage, and the need to attract skilled workers to the workplace.

 

Why is this Pay Rise happening?

 

Heightened inflation rates

One of the reasons cited for the average 3.4% rise in pay is heightened inflation.

The rate of inflation was announced to be at a new high of 7.5% as of the beginning of 2022, which was reported as being the fastest annual rise for 40 years, since 1982.

High inflation has challenged the Fed and also proved politically problematic for US president Joe Biden and members of the Democratic party heading into the midterm elections.

According to the Willis Towers Watson report, 31% of companies cited inflation as a factor in higher estimated pay. The increased cost of living has been attributed to the after-effects of the pandemic, as the pandemic has threatened supply lines and led consumers to shift consumption toward more physical goods. Employers may feel the need to increase pay to help employees keep up with rising costs.

 

The ‘race for talent’

Although inflation is seen as a significant factor contributing to this rise in wages, the overarching factor is currently perceived to be the ‘race for talent’.

Job openings in the U.S. are near an all-time high as a record 4.5 million workers quit their jobs in November, a phenomenon that was labelled, the “Great Resignation.”

Public health fears surrounding Covid-19 are thought to be a big contributing factor, as well as other elements such as burnout, child care duties and higher relative levels of savings amassed during the pandemic. The ‘Great Resignation’ has thus reduced the number of workers in the labour force, according to economists.

Labour shortages have been most evident when talking about lower-paying, in-person jobs — such as bar, restaurant and hotel positions in the leisure and hospitality sector.

Therefore, employers have increased wages to attract and retain employees amid the demand for labour.

Whilst 31% of companies cited inflation as a factor for raising their average wage rate, around 74% of companies cited the tight labour market as a reason to increase their budgeting for raises, according to the Willis Towers Watson survey.

Higher pay isn’t the only way companies are competing for workers; some are also focusing on career advancement, mental well-being programs and other workplace elements to keep employees happy and engaged.

 

Increased profits in the corporate sector

Corporate profits also jumped significantly in 2021, giving companies more bandwidth to expand pay for their employees. Just over a third of companies cited stronger anticipated financial results as a reason to boost pay.