A ‘Stubborn Plateau’: Why More Employees Aren’t Getting Raises

The traditional annual raise is becoming harder to come by, according to recent research that reflects the dynamics of a cooling labor market.

Nearly 70% of workers (spanning seven markets in North America, Europe and Asia-Pacific) say they have not received a salary increase in the last six months, according to a recent report from global recruitment company Morgan McKinley. That figure is up 5% from the previous year, and is in line with other recent research. According to employment website Monster, just 7% of U.S. workers received an inflation-related pay increase this year, as companies become more strategic in allocating compensation dollars.

“We’re seeing organizations moderate salary increase budgets compared to the post-pandemic period, while still investing in talent where it matters most,” said Sue Holloway, a content director at WorldatWork. “In today’s environment, the key question isn’t, ‘How much can we afford to spend?’ Instead, it’s, ‘Where will our pay investments make the biggest difference?’”

Access bonus Workspan Daily Plus+ articles on this subject:

• Six Ways You Can Add Some Depth to Your Rewards Strategy
• Decoding the Language of Disconnect: What Are Employees Really Saying?

The Plateau and the Power

Base salary budgets for merit increases are averaging around 3.5%, down from post-pandemic peaks and projected to remain level into 2027, according to salary budget surveys from WorldatWork and other market researchers.

“It’s a stubborn plateau,” said Monster career expert Vicki Salemi, a former corporate recruiter.

Employees are feeling the impact. According to Monster’s 2026 Cost of Living Report, 93% of U.S. workers said their pay isn’t keeping up with rising costs. The impact is widespread but especially notable for those in their early career, as inflation pushed real earnings back below 2020 levels this year, according to workplace review website Glassdoor.

In tandem with inflation’s ongoing bite, the outsized raises and bonuses following the pandemic mostly have faded away.

“The power is shifting back to the employer,” said Sal DiFonzo, the managing director of total compensation and rewards consulting at risk management and advisory firm Gallagher and a WorldatWork Compensation Advisory Council member. As the labor market returns to a pre-COVID-19 equilibrium, “it takes the pressure off organizations to deliver merit increases as frequently and as much as in the past,” he added.

Strategic Approaches

According to the Morgan McKinley report, all but 2% of surveyed employers maintained or increased pay in the last six months. But only half (48%) raised pay across their organizations, suggesting most organizations are veering away from “peanut butter” payouts and becoming more thoughtful about where finite compensation dollars go.

“Competition remains strong for critical skills, top performers and hard-to-fill roles,” Holloway said. “As a result, organizations are moving away from broad-based increases and toward more targeted investments that address specific talent and business needs.”

The softening labor market also is impacting employees’ career planning. According to Monster’s 2026 WorkWatch Report, American workers are prioritizing stability even as inflation erodes their purchasing power. While more than half of surveyed workers (58%) are concerned their salary isn’t keeping up with inflation, fewer than half (43%) reported plans to search for a new job, down dramatically from 93% the previous year. Concerns about the economy worsening and the impact of artificial intelligence (AI) on their jobs are driving these fears. Employers, though, shouldn’t overlook the long-term impact of stagnant salaries, Salemi cautioned.

“Morale is contagious,” she said. “If employees are upset and they leave, and then the spots aren’t being backfilled, it impacts [the remaining] workers who are already feeling underpaid and unappreciated. Productivity is lower, and in turn, the company’s revenues could be lower. It creates a snowball effect that hurts everyone.”

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Compensation
• Finance and Budgeting
• Total Rewards