Key Takeaways:
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- Many workers who secured significant raises during the pandemic-era talent war now find their salaries out of sync with today’s cooler job market.
- Two-thirds of U.S. workers believe they are compensated at or above the current value of their skills, according to Korn Ferry, but fear of pay cuts is growing.
- Job switchers are increasingly settling for lateral moves or pay cuts, with only 60% of recent job changers receiving raises, down from 73% in late 2024.
- Workers who built lifestyles around inflated salaries are padding emergency funds and bracing for potential layoffs or reduced compensation.
What Happened?
During the pandemic-era hiring frenzy, many workers job-hopped to secure significant pay increases, with some seeing raises of 50% or more. However, as the labor market cools, these inflated salaries are becoming harder to justify. Industries like tech, accounting, and private equity, which saw surges in demand, are now experiencing slower growth, reduced transaction volumes, and declining wages.
For example, software engineers who once received daily recruiter inquiries now report far fewer opportunities, and accountants who benefited from booming corporate dealmaking are seeing stagnant pay. Many workers fear they wouldn’t be able to match their current salaries if they were laid off, especially as companies scrutinize compensation more closely.
Why It Matters?
The shift in the labor market highlights the risks of building financial commitments around inflated salaries. Workers who bought homes or adjusted their lifestyles to match pandemic-era paychecks may face challenges if forced to take pay cuts or endure longer job searches.
Employers are also factoring high salaries into layoff decisions, as inflated compensation packages can make employees more vulnerable during cost-cutting measures. Meanwhile, the broader trend of declining raises for job switchers signals a return to more conservative hiring practices, with fewer opportunities for rapid salary growth.
What’s Next?
Workers should prepare for potential market corrections by building larger emergency funds and managing expenses conservatively. Those in high-paying roles may need to adjust expectations if they re-enter the job market, as pay cuts or longer job searches could become the norm.
For employers, the focus will likely shift to retaining talent at sustainable compensation levels while balancing cost pressures. The broader labor market will continue to evolve, with pay transparency laws and economic uncertainty shaping hiring trends in the coming months.
