Economic Uncertainty Pushing Employers to Keep Pay Increases Flat

As employers weigh pay decisions for 2026, another survey finds that organizations are planning to pull back on salary increases for employees as they grapple with economic concerns.

U.S. employers are planning, on average, a 3.5% salary budget increase for 2026, down 0.1% from 2025, according to a new survey of 1,551 employers from Seattle-based compensation firm Payscale. That’s the same prediction for next year’s average pay increase percentage given by consulting firm WTW last month. 

Although it’s not a big decrease, those figures still indicate that the shifting economic landscape is affecting employers and making them cautious about spending. That’s a change from the past few years, when a tight labor market, inflation, and effects from the pandemic caused organizations to rely on competitive pay bumps to keep workers happy and engaged.

Indeed, the majority of employers (66%) told Payscale that growing concerns about economic conditions are the reason for the slight decline in planned pay increases — a 17% jump from last year’s report.  

“Pay increases have been tapering year over year as the surge in wage growth and inflation begins to level off,” said Ruth Thomas, chief compensation strategist at Payscale. 

Salary increase budgets also vary by industry. For instance, the technology industry is seeing a 0.5% decrease in planned pay increases for 2026 compared to 2025, Payscale noted.

“Uncertainty surrounding future economic conditions and whether broad changes to immigration and trade policies will be implemented have employers feeling anxious regarding the direction of compensation costs this year and beyond,” said Sydney Ross, economic researcher at SHRM. “In such an uncertain environment, it is likely that many employers are in wait-and-see mode and will take a more cautious approach as they devise their pay and compensation strategies going forward.” 

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Cooling Labor Market 

Another factor causing employers to decrease salary increase budgets is a cooling labor market, with employers saying they are less concerned with retaining and attracting employees. Only 34% of employers offering higher raises point to labor shortages as a driving factor — a 19% year-over-year decrease, according to Payscale. That also tracks with WTW analysis, which found that just 30% reported difficulty attracting or retaining employees, a decrease of 11 percentage points since 2023, according to WTW.  

Workers are largely staying put with their employers as they contend with fears over job security and economic impacts. Employee optimism is near a record low, driven by economic and political concerns, according to an April SHRM pulse survey of 1,067 U.S.-based workers and 2,060 HR professionals. 

Employers Should Remain Flexible 

Although recent estimates regarding 2026 salary increase budgets indicate that employers are pulling back on pay increases, experts caution that employers should remain flexible, as so many things are in flux.

For instance, inflation is starting to creep back up — the consumer price index for July increased 0.2% on a monthly basis and rose 2.7% for the 12 months ending in July — and the majority of workers (88%) believe that salary should reflect the cost of living, according to previous Payscale data. 

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Flexibility is also needed as financial anxiety among employees increases. A  survey from CNBC found that 73% of U.S. residents said they are financially stressed.  

All this “may mean that pay increase plans will need to be revisited,” Thomas said. “HR leaders should be prepared for heightened scrutiny around compensation, particularly as 1 in 3 employees feel their pay does not reflect their performance.”

Andrea Medici, labor economist at SHRM, recommended employers closely monitor trends in wage growth and health care costs “to balance competitive compensation packages with long-term cost sustainability.”