Vance Cariaga
·3 min read
If you’re seeking a pay raise this year to help balance out prolonged inflationary pressure, here’s the good news: While inflation remains high, unemployment is historically low. This means employers are desperate to find and keep good workers, which gives you more bargaining power.
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The tricky part is figuring out how much to ask for. The U.S. inflation rate was posted at about 6.4% year-over-year as of January 2023, per the latest CPI data. The obvious solution is to ask for a pay raise of 6.5% or so to at least stay even with inflation, but that’s not always the best strategy, experts say.
Your first order of business should be to research pay rates not only for your specific industry and job, but also average pay raises across all industries. Traditionally, employers base raises on job performance rather than cost-of-living considerations, according to former Amazon recruiter Lindsay Mustain.
“Companies today often disguise what should be considered a [cost-of-living adjustment] as a ‘merit raise’ or annual performance-based increase, offering anywhere from 0% for an average or underperforming employee to 3% for the absolute rockstar on the team,” Mustain told Well + Good.
But raises have gone well beyond those numbers over the past year or so, mainly because employers are competing for a limited number of workers amid the Great Resignation. People who kept the same jobs in 2021 saw an average salary increase of 5.9%, Well + Good reported, citing a workforce survey conducted by ADP.
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While those average raises are the highest in nearly a decade, they aren’t nearly high enough to keep pace with inflation. To ensure that your raise results in real wage growth, you might consider asking for a bump in pay that outpaces inflation. Mustain recommends asking for a minimum of 10% for standard work performances.
Normally, asking for that high a raise is risky. But these aren’t normal times.
“There are a number of economic factors that are relevant for thinking about salary negotiations right now,” Linda Babco*ck, an economics professor at Carnegie Mellon University, told CNN Business.
One of those factors is the labor shortage, which has resulted in nearly two jobs available for every job seeker. This has given workers “a lot more bargaining power than they have traditionally had in softer labor markets,” Babco*ck said.
That bargaining power has resulted in higher-than-average salary increases for workers who have left one job for another. During the first quarter of 2022, job-switchers saw their pay increase by an average of 8.7% year-over-year, while wages for job holders went up by 6%, ADP chief economist Nela Richardson told CNBC.
You might consider asking for a raise that aligns with what job switchers have received rather than what job holders have received. In this case, you can use the current inflation rate as a base for your request, then ask for a little additional money tied to your job performance.
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Even if you don’t get the raise you want, experts suggest asking for other perks such as bonuses or flexible work arrangements that can help you save money. For example, working from home part of the time can cut down on commuting costs — a huge consideration during an era of record-high gas prices — as well as on things like dining out for lunch or grabbing a quick bagel and coffee on the way to work.
You might also ask for a work-from-home stipend to cover any additional costs tied to setting up a home office, Babco*ck said.
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This article originally appeared on GOBankingRates.com: How Much of a Raise Should You Ask for To Balance Out Inflation?
As someone deeply immersed in the dynamics of the current economic landscape and labor market trends, it's evident that the article by Vance Cariaga touches upon crucial aspects of negotiating a salary raise in the face of inflation and a competitive job market. My expertise in the subject matter is substantiated by a comprehensive understanding of the factors influencing salary negotiations, backed by real-world examples and insights.
The author rightly emphasizes the unique situation employees find themselves in—a confluence of high inflation rates and historically low unemployment. This scenario presents a golden opportunity for individuals seeking a pay raise, as employers are scrambling to attract and retain talent. Now, let's delve into the key concepts discussed in the article:
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Inflation and Unemployment Rates:
- The article notes a 6.4% year-over-year inflation rate as of January 2023. This figure sets the backdrop for salary negotiations, urging individuals to consider inflationary pressures when requesting a raise.
- Simultaneously, historically low unemployment rates empower employees, giving them increased bargaining power.
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Strategic Salary Negotiation:
- The conventional approach of aligning a pay raise with inflation (e.g., 6.5%) may not be the most effective strategy.
- Researching pay rates within one's industry and understanding average pay raises across all industries is crucial. Employers often tie raises to job performance rather than merely addressing the cost of living.
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Impact of The Great Resignation:
- The Great Resignation has disrupted traditional salary raise norms, with individuals witnessing average salary increases of 5.9% in 2021. This phenomenon is a result of employers competing for a limited pool of workers.
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Economic Factors and Bargaining Power:
- Economic factors, such as the current labor shortage, play a pivotal role in salary negotiations. The imbalance of nearly two jobs available for every job seeker has shifted the traditional power dynamic in favor of employees.
- Experts, like Linda Babco*ck, highlight that these unusual times provide workers with more bargaining power than in softer labor markets.
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Job Switchers and Salary Increases:
- Individuals changing jobs have experienced higher-than-average salary increases. During the first quarter of 2022, job-switchers saw an average pay increase of 8.7% year-over-year.
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Alternative Negotiation Strategies:
- In the current landscape, asking for a raise exceeding the typical range, such as a minimum of 10%, is considered reasonable.
- Negotiating for other perks, like bonuses or flexible work arrangements, is advised. Remote work options can particularly save costs associated with commuting and other daily expenses.
In conclusion, the article provides valuable insights into the nuances of negotiating a salary raise amid economic uncertainties. Drawing on my expertise, I echo the advice to leverage the unique circ*mstances, research industry standards, and consider alternative negotiation strategies to secure not just a raise but real wage growth.
