Pay has skyrocketed for a lot of workers through the pandemic, but with rising costs taking a bite out of those paychecks and the Federal Reserve trying to tamp down on wage inflation, how long will salaries continue to swell?
Economists say hiring is still competitive but that economic pressures are leading the labor market to cool down. For workers, that means wage growth will remain strong in the first half of the year but could slow by the middle of 2023.
Here's a look at where wages grew throughout the year and where they could be headed in 2023.
Currently, pay is up 6.4% compared to a year ago, as of November data from the Atlanta Fed wage growth tracker, which looks at the median growth in hourly wages over a 12-month period.
Here's who saw the biggest pay bumps broken down by type of worker, age, gender and education levels:
- Full-time: 6.3% wage growth
- Part-time: 5.7% wage growth
- Job-switcher: 7.7% wage growth
- Job-stayer: 5.5% wage growth
- 16 to 24 years old: 12.7% wage growth
- 25 to 54 years old: 6.5% wage growth
- 55-plus years old: 4.3% wage growth
- Female: 6.1% wage growth
- Male: 6.4% wage growth
- High school: 6.6% wage growth
- Associate's degree: 6.3% wage growth
- Bachelor's degree: 5.8% wage growth
Generally, lower-wage young workers with a high school degree who change jobs tend to see the biggest pay jumps. By industry, those in leisure and hospitality, as well as trade and transportation, pulled in the highest raises this year.
Still, outsized raises aren't keeping up with inflation. Everyday prices are 7.1% higher in November compared to a year ago, according to the consumer price index, a broad-based measure of goods and services costs.
Meanwhile, in an effort to get inflation closer to a preferred rate of 2%, the Federal Reserve has been on an aggressive interest rate hike campaign. Rising interest rates make it more expensive to borrow and can cool down inflation. The Fed recently voted to boost the borrowing rate to a targeted range between 4.25% and 4.5%, and rates are expected to peak at 4.5% to 4.75% in 2023.
Companies say they're budgeting 4.3% of their total payroll to spend on raises in 2023, the highest share since 2001, according to data from The Conference Board. A salary increase budget refers to the pool of money an organization dedicates to base pay increases, not the size of raises they expect to give out.
Wage growth in 2023 will still be higher than pre-pandemic norms of around 3%, says Nela Richardson, chief economist at the payroll processor ADP. She says recent signs of easing are "modest at best," but that inflation could stay 1% to 2% higher than pay increases.
Throughout the year, though, wages may stabilize as more workers, spooked about a potential recession, stay put in their current jobs, which means employers don't have to hire so aggressively.
However, she expects demand for talent will still give workers the upper hand in the next year. Adjusted for population growth, the workforce is smaller now than it was two years ago, driven primarily by people who retired during the pandemic.
But, she points out, worker productivity is falling, and raising wages in order to compete for scarce talent even as output decreases can create a hollowing effect, she writes in her column with ADP Research Institute: "Wage growth tied to increased productivity enables companies to produce more for less, a dynamic that ultimately cools inflation. Wage growth resulting from shortages and competition does the opposite."
"Productivity is the missing element to a healthy job market that benefits both Main Street workers and employers," she adds.
Looking even further ahead, workers could see dwindling raises by the end of 2023, with the overall measures of wage growth leveling out to pre-Covid norms (3% to 4%) by 2024, according to a new wage growth tracker from the jobs site Indeed.
"Wages and salaries advertised in job postings on Indeed are a potential canary in the labor market coal mine," writes Nick Bunker, head of economic research at Indeed Hiring Lab.
Some 82% of job sectors posted lower wage growth in November compared with six months earlier, according to Indeed data. Plus, while wages have generally been rising fastest in lower-wage jobs, those sectors are now seeing the biggest declines in growth.
"The slowing pay gains in job postings may be a harbinger of what broader measures of compensation will show in the months ahead," Bunker adds.