National Compensation Forecast January 2024

Each quarter, ERI examines the rates at which compensation has increased and provides guidance on expected increases for the upcoming year. These rates are calculated using ERI’s Salary Assessor and ERI’s Salary Increase Survey & Forecast. In the context of this paper, results represent actual growth reported in ERI’s Salary Assessor over periods ranging from one quarter to twenty years.

Actual compensation movement in the fourth quarter of 2023 (published January 1, 2024) saw a moderate level of growth at 1.09%, above October’s 0.94% and below July’s rate of 1.17% growth. The past 4 quarters have seen higher-than-average growth, with a 4.12% growth rate since the January 2022 data release. This rate of growth is lower than the year-over-year (YOY) rate of growth reported last quarter at 4.46%. It may be surprising that the YOY growth rate continues to remain high after the recent decline, but the first half of 2023 remains in the calculation, with rates of 0.94% (October), 1.17% (July), and 1.1% (April).

Current labor market data indicate a softer market than the first half of 2023, but one that remains competitive. An examination of the current number of job openings reveals a high number of open jobs in the United States, with an open job rate of 5.3%, which is higher than the 10-year average open job rate of 4.7%. However, it is down from last quarter’s rate of 5.6% and the high of7.3% in March 2022. The hires rate is currently 3.7%,which has been relatively consistent since July 2023.
This gives us a current gap between open jobs and hires of 1.6%. This gap hit its highest point in March of 2022 at 2.9%, and the 15-year average gap has been 0.27%. So, the gap between hires and open jobs remains high, but it is narrowing. The chart below shows the historical difference between the rate of open jobs in the economy versus the rate at which employees are hired. A gap between the number of open jobs and the number of employees who are hired indicates that organizations are not able to hire all the employees that they would like. This can lead to organizations needing to raise compensation rates to hire the employees that they need.

Considering the quits rate, employees are currently quitting at a rate of 2.3%, which is down from its high of 2.9% in April and getting close to the 10-year average of 2.25%. It should be noted, the quits rate of 2.3% has been consistent since July 2023. These trends point to a softening labor market, which will reduce upward pressure on compensation. However, the gap between the hires and open jobs rate, along with fewer people quitting, still asserts an upward pressure on compensation, though it is not as strong as in previous quarters. These trends are supported by overall labor market demographics. Specifically, the unemployment rate was 3.7%, which is up from the low of 3.5% in July 2022, but still generally considered full employment. The prime-age population ratio (EPOP) decreased slightly to 80.7%, which is 0.2% below last quarter’s rate. Additionally, the 30-year average EPOP is 78.6%, which is below the current participation rate and above the rate immediately prior to the start of the recent pandemic (80.5%). The current EPOP is below the all-time high, which was 81.9% in April 2000.

Of course, the labor market is not the full story. At the time of writing, the inflation rate stands at 3.1%, which is down 6% from the high in June of 2022. These rates continue the trend of moderating inflation and may have a tempering effect on compensation increases. Inflation can influence the growth of compensation, and the extent of that influence also varies depending on the level of inflation, with high inflation related to higher levels of compensation growth. Inflation is above
the target rate of 2%, so we may continue to see higher levels of compensation growth; but, further reductions in inflation may reduce some of the upward pressure on compensation as we move through 2024.

Other economic indicators can point towards the health of the economy and may serve as leading indicators for compensation growth, which tends to lag economic changes. Overall, these indicators paint different pictures of the economy, with some increasing and others decreasing. Specifically, gross domestic product (GDP) increased at a rate of 5.2% in the 3rd quarter of 2023, which is up from 2.1% in the 2nd quarter of 2023, 1.7% in the 1st quarter of 2023, and 1.2% in the 4th quarter of 2022. The Bureau of Labor Statistics (BLS) reports that real hourly wages, which account for inflation, have increased by 0.18% from November to December and increased by 0.82% over the past year. Industrial production increased by 0.2% in November 2023 and decreased by 0.4% over the past year, while wholesale sales increased by 4.98% YOY as of October 2023.

In summary, the labor market is softening (but still strong), inflation is decreasing, and economic indicators are pointing towards growth. The labor market and inflation both point toward higher compensation growth, but the narrowing gap in open jobs and hires indicates that the time of high compensation growth may be cooling. ERI expects higher-than-average compensation growth continuing through 2024, with the absolute rate of growth continuing to slow throughout the year. ERI will continue monitoring and reporting on these trends as they unfold over the next several quarters.

Overall Compensation Trends

January salaries have increased by 1.09% over the October 1 data release (see Table 1). This rate of growth is higher than the predicted quarterly rate of 0.73%. Growth over the past year has been 4.12%, with an average quarterly growth of 1.03%. To put this into context, the average quarterly growth over the past 20 years has been 0.67% (see Table 2). Over the same 20-year period, the average January increase has been 0.68%. Over the past 20 years, January increases (4th quarter) have been consistent with increases throughout the rest of the year, but the current quarter is different from that trend. The annual growth rate appears to have decreased from 4.46% to 4.12%, which is due to the January 2023 rate of 1.39% dropping off the average. Previous quarters’ growth rates were 0.94% (October 2023), 1.17% (July 2023), and 1.10% (April 2023).

Overall Trends by Year

Please refer to Figure 2 below, which has three lines. Two lines (dark green and light green) represent projected salary increases from ERI’s Salary Increase Survey & Forecast, and the black line represents actual changes in salary reported in ERI’s Salary Assessor. The dark green and light green lines represent what survey respondents expected to happen each year (collected in the previous year), and the black line represents what actually happened in a given year. By comparing these three lines, we can see the extent to which expectations met up with reality. As noted earlier, the actual movement (black line) is expected to follow the structure increase (dark green line). This is because salary surveys generally capture the movement of salary structures within organizations instead of measuring the salary increase of individual employees. An examination of where the reality of salary movement
(black line) has departed from the expected trend line (dark green line) gives us information regarding how salaries might move in the future. Specifically, the past 2013 and 2014 saw actual salaries grow at a rate that is higher than expectations from the previous year. The years 2015 through 2020 were more in line with expected growth (dark green), and growth since 2020 has been higher than predicted.

10-Year Trend by Category

While it is valuable to know how all occupations are moving in this economy, it is also useful to know how different types of occupations move relative to each other and across time. Not all occupations grow at the same rate, and not all occupations grow at the same rate across time. Figure 3 reveals the total growth experienced across a 10-year period. If we break all occupations down into ten categories, then it becomes clear that some occupations are growing at a faster rate than others. Specifically, Sales employees appear to have seen the highest level of growth, whereas Top Management occupations have seen the slowest growth.

Mean Salary By Category

Table 3 reveals the actual growth rates for different occupational categories in the past three years and provides information on whether the occupational category is seeing increased or decreased growth. It is important to note that, just because an occupational category has decelerating growth, it does not mean that the trend will continue. All occupations may be expected to see salary growth over time, so an occupational category that has been showing slow growth may be more likely to see higher growth in the future.

Occupational Categories

In the process of examining the growth of compensation data on a national basis, the data were broken into ten specific occupational categories to study changes in compensation at a more granular level. The populations of these categories are illustrated in Figure 4 below.