US Wages May Rise at Fastest Pace in 15 years in 2023

U.S. wages may climb 4.6% in 2023, the fastest increase in 15 years, as employers catch up with accelerating inflation and fight to retain their workers amid a stubbornly tight labor market.

A study published Thursday by Willis Towers Watson Public Limited Company (WTW) that included 1,550 companies across various sectors in the United States showed many companies are willing to resort to layoffs and price increases in order to increase pay and retain top employees.

“As inflation continues to rise and the threat of an economic downturn looms, companies are using a range of measures to support their staff,” Hatti Johansson, research director of reward data intelligence at WTW, said in a news release. “Organizations should prioritize their actions based on the needs of both employers and employees and pay close attention to market data to inform any changes.”

Although the latest inflation reading was the lowest 12-month increase since January, many companies’ salaries still need to catch up to the inflation rate. Some 77% of businesses surveyed said the pay increases were due to inflation. More than two-thirds of companies also said higher wages reflect an increasingly competitive labor market as the jobless rate stays at 3.7%.

Even after hiring freezes and highly-publicized mass layoffs at technology companies, the study shows that 75% of companies are struggling to attract or retain talent, a number that has tripled since 2020.

“It’s not a bellwether of the entire labor market,” Jennifer Lee, an economist at BMO Capital Markets, told Bloomberg, describing the tech job market. “We have to remember that the US job market remains extremely tight.”

Most of the companies surveyed, 70%, said they spent more than expected in the past 12 months, as pay budgets rose by 4.2% in 2022. WTW conducted a study earlier this year that found only a 4.1% predicted increase in 2023 salaries, 0.5% less than the current estimate.

Businesses are trying to find ways to retain workers besides higher pay. Some two-thirds are providing more workplace flexibility and almost half say they are considering improving employee experiences in other ways.

“With attraction and retention issues persisting, employers should consider the overall employee experience and not just salary increases,” said Lesli Jennings, North America leader of work rewards and careers at WTW. “By focusing on health and wellness benefits, workplace flexibility, careers, and DEI, organizations can position themselves as the employer of choice for their current and prospective employees.”