If you’re seeking a pay raise this year to help balance out the highest inflation rate in more than four decades, here’s the good news: While inflation is historically high, unemployment is historically low. This means employers are desperate to find and keep good workers, which gives you more bargaining power.
The tricky part is figuring out how much to ask for. The U.S. inflation rate has been in the neighborhood of 8.3% to 8.5% over the past few months, with some economists forecasting that it could push as high as 9% before the end of the year. The obvious solution is to ask for a pay raise of 8.5% 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. Over the last year, average hourly earnings have risen 5.5%, according to CNBC.
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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 Babcock, 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,” Babcock 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.
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.
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