US companies plan to pay workers a 3.4% raise in 2022

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US employers expect to pay an average 3.4% raise to their workers in 2022, according to a survey by Willis Towers Watson.

This projected wage growth is faster than actual increases paid in the previous two years, amid competition for workers and high inflation, according to the survey of 1,004 businesses between October and November.

“Inflation is one element of that, but it’s not the only factor,” said Lesli Jennings, senior director of labor and rewards at Willis Towers Watson. “I think the biggest piece is about this talent race.”

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Companies expect to pay similar average increases for all positions, from entry-level to more experienced workers, Jennings said.

The big resignation

US job openings near record high; a record 4.5 million workers left their jobs in November, a phenomenon that has been dubbed the Great Resignation.

Ongoing health fears around Covid, along with other factors such as childcare duties, burnout and higher relative levels of savings accumulated during the pandemic, have reduced the number of workers in the labor force, according to economists.

Labor shortages have been most acute for low-paying, in-person jobs, such as bar, restaurant and hotel jobs in the leisure and hospitality industry, economists say.

Employers raised wages to attract and retain employees amid labor demand. According to the Willis Towers Watson survey, about 74% of companies cited the tight job market as a reason to increase their budget for raises.

Fewer companies (31%) cited inflation as the highest estimated compensation factor. The cost of living is rising at its fastest annual rate in about four decades as the pandemic has tightened supply lines and led consumers to shift their consumption toward more physical goods.

Corporate profits have also jumped significantly in 2021, giving companies more bandwidth to boost employee compensation. Just over a third of companies cited stronger anticipated financial results as a reason for raising wages.

In total, 32% of companies increased their salary forecasts in just a few months. In June 2021, for example, respondents had budgeted for an average 3% increase in workers’ compensation this year (lower than the current forecast of 3.4%), according to Willis Towers Watson.

Respondents paid employees a 2.8% raise in 2021, on average.

Higher wages aren’t the only way companies compete for workers; some also focus on career advancement, mental wellness programs and other workplace elements to keep employees happy and engaged, according to Jennings.

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