A recent survey of 1,266 organizations by Payscale found that U.S. employers gave a median base-pay increase of 3.4% in 2026. Raises in 2027 are expected to stay roughly the same, rising slightly to 3.5%.
“We’ve seen pay increases hovering around that 3.5% mark now for at least the last two years,” said Ruth Thomas, chief compensation strategist at Payscale.
Coming on the heels of the Bureau of Labor Statistics’ nonfarm payroll employment numbers that showed the United States lost 23,000 jobs in July and the downward 103,000 revision to the May and June figures, this is yet another sign that the U.S. labor market is stuck in what Thomas calls a “period of economic and pay paralysis.”
Those raises are doing little for workers’ buying power. Inflation ran as high as 4.2% this spring before easing back down in June, meaning that the median pay raise was actually a pay cut in purchasing power for much of the year. “The reality is that most employees do not feel things have got any cheaper, and affordability continues to be a real issue,” Thomas said. “This restrained pay growth continues to impact employees.”
This paralysis is causing a retention problem. One in four organizations surveyed say they are losing talent in 2026 because their pay increases are not big enough, and another 22% are unsure whether they are. Together, nearly half of employers either know or suspect that their raises are costing them people.
The survey offers a glimmer of hope for next year. Nearly a third of respondents expect their budget for pay increases to grow in 2027, while only 8% expect that it will go down. Last year the responses were evenly split.
Most of these raises are performance-driven, with merit increases responsible for more of the budget than all other categories combined, including promotions and cost-of-living adjustments. “We’re focusing on business-critical roles, and we’re allocating that pay to employees with in-demand and emerging skills,” said Thomas.
Employees are not working out of the goodness of their hearts, no matter how important the mission, and understanding pay trends is an important tool for talent acquisition. “Recruiters are increasingly becoming strategic advisers on critical talent to drive business transformation,” Thomas said. “Having an understanding of what pay is trending at, and particularly things like skills premiums, that’s critical for them in their role today.”
