Around 66% of small business leaders worldwide have given pay raises in the past year that have exceeded their usual standards. Approximately 21% of the small businesses in the United States have characterized these pay increases as notably substantial. From a payroll and benefits platform ADP analysis, the median annual pay of any person who stayed in a similar job over the past year increased by 7.6%. 2023 is shaping up to be a year where pay fluctuations are still occurring in the US job market. In this blog, we’ll discuss the diverse factors contributing to this phenomenon and why it’s likely to persist.
Competitive Labor Market
One of the primary drivers of the continued rise in pay raises in the competitive labor market. Companies have had to increase pay by 4.3% of the total payroll in 2023 to retain their best talent. The global workforce has become mobile, with workers having more choices and opportunities than ever, especially post-pandemic. Now, businesses are competing for top talent and to retain present employees with an increased labor market due to a more geographically dispersed workforce. Leading companies are attracting most workers or employees because they have started offering competitive compensation packages.
One of the crucial motivations for employees is a pay raise to counter the 6+ percent of inflation on household goods. There is also a stronger desire for a more balanced well-being and career development.
Inflation and Cost of Living
The global economy is experiencing higher inflation rates, leading to higher living costs. Prices for everyday products and services have risen at an unprecedented rate of between 7-15% year over year and employees want higher wages to maintain their standard of living. This pressure is driving companies to consider pay improvements to assist their personnel in keeping pace with inflation and increased expenses. Recent signs of easing in inflation rates have been reported from June’s data, but it is still on track to be more than 1% to 2% higher than pay increases.
Inflation is still trending higher than traditional pay increases, so such steps related to pay raises are important for the employees. Recent trends state that employers often give high packages to mission-critical employees who are flight risks to their companies. Companies offer higher pay to mitigate the high expenses of training and replacement costs, considering it a proactive strategy to retain and motivate their workforce.
Remote Work and Flexible Arrangements
During the COVID-19 Pandemic, there was a tremendous increase in remote work and flexibility at workplaces. Most companies had to work from home or make alternative work arrangements to accommodate flexibility in their workforce to maintain business operations. This happened so quickly that employers were not able to develop new compensation strategies. The traditional pay increases, work stipends, and other extra incentives have not evolved to attract and retain remote talent. All such adjustments in compensation reflect that companies have to provide higher pay raises to retain their best employees.
It’s time to Rethink the Minimum Wage
Texas maintains the federal minimum wage of $7.25/hour; the average production worker gets approximately $16.54. Additionally, manufacturers and others who hire blue-collar workers are struggling to attract new employees at even $20 an hour. The employers have set this as the new minimum wage for the employees.
There continues to be a lot of economic pressure on wages due to multiple reasons. Firstly, inflation is a significant factor affecting the purchasing power of employees. Additionally, the demand for flexible and accommodating work hours has grown substantially. Furthermore, remote work trends across the workforce have also contributed to this ongoing challenge.
Providence Partners, a IT recruitment agency in Austin, TX, helps you navigate these challenges, provide fast compensation, and align your hiring practices.
Providence Partners can assist you in building a pay strategy that will help you retain your top talent and not blow up your budget. We help companies build and negotiate win-win compensation strategies to attract new job seekers and retain their current workforce.
Contact us as a recruitment agency and partner for assistance in gauging pay raises and starting offers that will keep workers happier for longer.