Shaky job markets, growth concerns stall 2026 salary rise projections at 3.4%

U.S. workers hoping for a bigger raise in 2026 might be disappointed. New numbers from The Conference Board show that most employers are planning an average salary increase of just 3.4%, matching this year’s bump.

That’s despite rising prices, a shaky job market, and growing anxiety about job security in Trump’s second term in office.

Mitchell Barnes, economist at The Conference Board, explained that what’s happening isn’t a pullback but a reshuffling. “Today’s labor market is one of reorientation, not retreat,” Barnes said in an interview with Yahoo Finance.

He added that companies are still giving out raises, but some are cutting back on signing and retention bonuses, choosing instead to spend smarter. About 60% of businesses surveyed blamed economic uncertainty for the cautious salary moves and slower hiring.

Employers hold off on new hires, focus on existing staff

Across the board, employers say they’re taking longer to fill jobs that became vacant in the last six months. Many of those who quit haven’t been replaced. Some companies that issued temporary layoffs are now making those cuts permanent. Instead of chasing new hires, some employers are choosing to build from within. Barnes said that 16% of companies surveyed plan to spend more on skill-building programs for their current staff in 2026.

Meanwhile, data from Payscale supports a similar forecast. Their survey found that U.S. employers expect a 3.5% average raise in 2026, slightly below the 3.6% increase in 2025. But the bigger story is in the breakdown: Only 16% of employers said they’re increasing their salary budgets. Most, around 70%, will keep budgets flat, and a small number are actually cutting back.

Ruth Thomas, Payscale’s chief compensation officer, says the reasoning has changed. “It’s not surprising that pay budgets are trending lower this year, based on a cooling labor market,” Ruth said. “What is maybe more surprising is just how much economic concerns have now overtaken labor competition as the primary driver of compensation decisions – 66% of employers cite this as the reason for pulling back, up 17 percentage points from last year.”

Compare this to 2023, when employers were scrambling for talent. According to Payscale, base salary increases hit 4.8% that year — the highest jump in two decades. But the mood is different now. Ruth said organizations are under pressure from inflation, interest rates, and fears of another recession, and they’re focusing more on cost control than growth.

Wages stall while prices rise and workers grow anxious

Even though salary gains are slowing down, the cost of living isn’t. Inflation is still climbing. The Consumer Price Index rose 2.9% year-over-year in August, the fastest pace since January. The biggest pain points are food and electricity, which have both gotten more expensive. And tariffs under Trump’s trade policies have pushed up prices on clothes, furniture, and other household goods.

The job market is also showing signs of weakness. In August, the U.S. economy added just 22,000 jobs, far below the 75,000 expected by analysts. The unemployment rate went up to 4.3%, a small rise from 4.2%, but still enough to cause concern. Initial jobless claims hit 263,000, the highest since 2021 — a clear signal that layoffs are starting to tick up.

That fear is showing up in worker sentiment. A new survey from the New York Federal Reserve found that more people now expect to lose their jobs or see unemployment rise in the next 12 months. Anxiety is rising just as wage growth stalls.

Some sectors are still seeing better outcomes. Science, engineering, and government jobs are expected to see raises above 4%, according to Payscale’s projections. But that’s the exception, not the rule. For most workers, that 3.4% raise won’t keep up with rising costs.

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