US salaries are falling. Employers say compensation is just 'resetting'

Salaries for new roles are stagnating – and in some cases, falling. Some employers may be looking to cut costs, but the lack of wage growth may be a matter of post-pandemic correction.

The mass US layoffs of the past few years are continuing. In 2024 alone, thousands of workers across many sectors, including media and technology, have lost their jobs and are on the hunt for new ones. But some are finding an unwelcome surprise as they scan listings for open roles. A salary bump is all but impossible; in many cases, wages seem lower than their previous pay – even for the same jobs.

They aren't imagining things. A 2023 report on pay trends from ZipRecruiter showed 48% of 2,000 US companies surveyed lowered pay for certain roles.

But, say experts, companies aren't necessarily just seizing a moment in a tight job market to reduce costs. In some cases, stagnant and even lowered salaries are the result of an overdue reset for a pandemic era surge in compensation when companies were scrambling to fill roles during the Great Resignation.

The tightening labour market has left US workers with fewer options than just years earlier. Beginning 2020, employers boosted salaries to new heights to attract talent to a deluge of open roles. But amid an uncertain economy, employers have pulled back from new hires and cut jobs. 

"There is now less competition to hire workers – and therefore less need to boost wages," says Nick Bunker, US-based director of North American Economic Research at Indeed. "Job postings have dropped quite a bit, while the supply of workers has grown."

At its peak in early 2022, US wage growth for advertised roles climbed to 9.3% year-over-year, according to Indeed data. It has fallen precipitously ever since, as demand for workers has slumped. By January 2024, it had plummeted to 3.6%. The downward trend continues, and it's unclear when it will reach the bottom.

Now, with a decline in open roles, workers have fewer opportunities to get new jobs and secure better compensation. Simply, employees have less leverage to negotiate pay or secure a better starting salary – especially if they're clawing for any type of employment they can get. 

In some cases, says Bunker, a company may not outright drop their compensation for new roles, but in the current environment of inflation, money simply won't go as far – the same wage as before may feel like a pay cut to workers. But in other cases, a greater supply of workers against weakened demand may mean a similar position from 2022 is now advertised with a lower salary.

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This is most likely to happen in industries that had the greatest competition for workers during the hiring crisis. For example, Indeed data shows US hospitality and retail jobs experienced 11.8% wage growth year-over-year in February 2022 – falling nearly four-fold 3.4% by January 2024. Companies in other sectors, such as tech, which once experienced a high demand for workers, are now also resetting expectations.

"We saw a massive bull run in the market during the pandemic, where there was a big increase in baseline compensation for workers because of talent shortages," says Boston-based Chris Rice, of US executive tech recruiting firm Riviera Partners. "We're still seeing a market reset that's ongoing. An oversupply means compensation has dropped because the demand is no longer there."

Ultimately, employers who are filling roles after layoffs or hiring freezes are likely to use the newfound leverage they have, says Till von Wachter, professor of economics at University of California, Los Angeles. "They'll tend to orient their new salaries at the going rate, so starting wages may fall in order to equilibrate the market," he says.

The current phenomenon may be felt most acutely in the US because of how its economy rebounded from the first Covid-19 lockdown in 2020. Indeed data shows its peak wage growth dwarfed that of the UK and Europe. "The US economy jumped out the gates in the wake of stimulus packages and mass vaccinations," says Bunker. "So, wage growth has faded rapidly amid less job market churn and switching."

In many ways, what we're seeing is a correction. Wage growth is reverting to pre-pandemic levels of below 3%, says Bunker. "A 9.3% spike in year-over-year wage growth is anomalous in many ways. It came from the initial shock of Covid-19, and an economy heading towards recession suddenly rapidly expanding, then having to suddenly hit the brakes again. It's a whiplash effect."

At current rates, wage growth may return to pre-Covid levels by May 2024, says Bunker. Whether it rises, plateaus or shrinks from there depends on whether hiring picks up. And if inflation continues to rise, workers will increasingly feel the pinch of these new lower or stagnant salaries, he adds. 

While inflation has begun to drop in the US and UK, the cost of living has outstripped salary increases for nearly three years, says Bunker. "Real wages today are still below where they would have been presumed to be, pre-pandemic. So, it's a race between inflation and wages."