What Is The Average Annual Raise In The US?

Everyone loves a raise – seeing that number on your paycheck get bigger now and then gives us a sense of tangible career progression. But employees also like to know if they’re being compensated fairly, and part of that is knowing what a typical pay increase is in your region, industry, position, and company.

Key Takeaways:

• The typical pay raise in the United States is between 3%-5%.

• Several factors determine a pay including the economy, the industry, your position, and the region of your work.

• The four main types of pay raises are cost of living adjustments (COLA), performance-based pay raise, promotions, and equity raises.

• In some cases, especially based on region or industry, you can get a better raise by switching to a new job.

• To increase the likelihood of raise, consistently demonstrate your value, build up your value with new skills, and be sociable with management.

What Is the Average Annual Raise?

In years past, the typical pay raise, across industries, regions, and positions, has been between 3-5%. That doesn’t mean you should necessarily be feeling glum if your raise is below that or jumping for joy if your raise is above that.

This is a tricky time to offer predictions for pay raises, but looking at the data can help a bit. While employment levels are still way down, wages are coming up at a rate faster than at any point in the past few years.

In Q1 of 2021, wages were up by 5.9% since 2019. In comparison, at the same time last year, wages had only increased by 2.5% since the previous year.

It’s important to consider several other factors when determining how your raise measures up. Consider the following when figuring out whether your pay raise is fair:

• The economy.

  “If all economists were laid end to end, they would still not reach a conclusion” – George Bernard Shaw.

  Nobody really knows what sort of voodoo witchcraft economists get up to, but macro-level events, like a recession or a global pandemic, obviously harm the economy writ large.

  How much money employers have in the piggy bank and what level of growth they anticipate are factors employers consider when budgeting for pay raises. In other words, if you know that your company is struggling, you can damp down your pay raise expectations accordingly.

• The industry. If the industry you work in is up-and-coming with loads of growth potential, you can generally expect bigger pay raises. These new industries need to attract and retain talented employees quickly to fuel their growth. So if you’re working in IT for a company that provides solar energy, that’s a winning combo for a larger-than-average pay raise.

  On the flip-side, if you’re hoping for a 10% raise while working at a video rental store, you can wake up from that dream you were having.

• The position. Certain occupations have a shortage of qualified workers. By itself, that doesn’t necessarily mean those jobs are best positioned for pay raises. Jobs that are in high demand and have a low supply of qualified/willing workers are the real beneficiaries.

• The region. Just as some industries are experiencing growth while some are stagnating or shrinking, geographical regions (states, metro areas, etc.) go through the same thing. It’s not just about population growth/decline. Just like you’d expect a bigger raise from a growing company with ever-increasing resources, if you’re living in a city that has a budget surplus and allocates public funds appropriately, you can expect local firms to perform better.

  When local firms are doing better, it’s easier for them to spend more on their talented employees (i.e., you!)

The Data on Pay Raises

With that big grain of salt out of the way, let’s take a look at the available data on pay raises. We’ll be using data from the WorldatWork 2020-21 Salary Budget Survey, reported by the Society for Human Resource Management (SHRM).

Some interesting facts come up:

• In 2019, the budgeted mean pay raise across all employee types was 3.2%, and the median was 3%.

• Pay equity, or making sure that women and minority employees are compensated as much as their white male counterparts, was something that 65% of surveyed organizations expected to make in 2020.

• Merit-based pay raises dropped between 2019 and 2020, from a 4% raise in 2019, to 3.6% in 2020.

• Across employee categories (executives, management, exempt, nonexempt salaried, nonexempt hourly), the budgeted 2020 salary increases were between 0.4-0.5% lower than the salary increases granted in 2019. But that’s only when you include companies that have indicated they would raise salaries at all. When you exclude such companies, the drop was only between 0.1-0.2% from 2019.

As previously discussed, what industry you work in has a big impact on wage growth. The following are from PayScale.com:

• Those in the arts, entertainment, and recreation industry saw the biggest raises in 2020, at 3.3%, while those working in energy and utilities experienced the smallest raises in 2020, at 1.9%.

• Similarly, different job categories experienced different rates of wage growth. Jobs in transportation saw the biggest spike by a huge margin, at 4.5%, while jobs in HR and art/design saw the smallest increase at 2%.

• What metro area you live in can have a big impact on your wage growth. For instance, the Seattle Metro Area saw a year-over-year wage growth of 3.6%, while the Houston Metro Area only increased by 1.1%.

Additionally, you can take a look at more focused regional employer surveys or find out if your employer publishes pay ranges for company jobs. The more specific information you can get, the better position you’ll be in when determining the value of a pay raise.

Types of Pay Raises

When we think of pay raises, we usually think of it as a reward for superior work or lasting loyalty. But there are a few different types of pay raises.

1. Cost of Living Adjustments (COLA). Every year, things cost a bit more. This is known as inflation. We’ve all heard grandparents blather on about how much they could afford with a nickel back in their day, and that’s what we’re talking about here. Two terms are important to understand here: real wages and nominal wages.

   • Nominal wage increase. The amount your pay has increased, using a dollar amount. If you got paid $50,000 last year, and this year you’re getting paid $55,000, your nominal wage increase was $5,000.

   • Real wage increase. The amount your pay has increased, using buying power instead of dollar value. Real wage increase takes inflation into account. So in that example above, you may have gotten a 10% nominal wage increase, but if the inflation rate is 2%, your real wage increase was only 8%.

   Basically, cost of living adjustments just make sure that your buying power stays level from year to year. If the inflation rate from 2019-20 was 2%, getting a 2% raise just means that you’re essentially earning the same level of buying power this year as you were last year. It’s a nominal raise, but in real terms, it’s just about keeping your pay on par with the cost of living.

2. Performance-based pay raise. This is the raise that most people think of; you do better at work, and your employer rewards you with a bump in pay. The WorldatWork Salary Budget Survey 2019-2020 indicates that organizations have budgeted a 3.6% pay increase for high performers, 2.5% for middle performers, and 0.6% for low performers, so there’s a significant difference in merit-based pay increases depending on your performance level.

   Additionally, the report found that 76% of companies were planning to award annual performance bonuses (not salary raises) in 2020, averaging 11% of exempt employees’ total salaries and around 6% for non-exempt employees.

3. Promotions. Everyone knows that a big reason that people aim for promotions is that they usually come with more money. While a performance-based pay raise incentivizes you to and rewards you for superior work at your current position, a promotion also comes with new or extra responsibilities. 54% of organizations budget separately for promotional increases. As of 2019, the average promotional increase was 9.3%.

4. Equity raise. Used to make sure employees are paid the same for equal work. We touched on this type of raise in the context of women and minorities, but equity raises are also employed when in the following scenarios.

   • A long-term employee is receiving pay that is low relative to a new hire

   • Salaries between a supervisor and his or her employees have compressed

   • A casual employee enters into a full-time position

Switching Jobs: The Other Way to Get a Raise

Changing your job is one of the fastest ways to get a substantial increase in pay. The Workforce Vitality Report, produced by Automatic Data Processing (ADP) shows that job “switchers” earn an average raise of 4.9% year-over-year, while job “holders” see wage growth of just 4.5%. The report, last updated for the first quarter of 2021, shows that the gap between the two groups (switchers and holders) has shrunk by 1.1% since last year.

The report also makes it clear that all regions are not equal when it comes to job-switching gains. For example, workers in the Northeast saw the biggest gains for switching jobs, with an average salary increase of 6.9%, while workers in the Midwest saw only a 2.2% gain.

• West: 5.9% wage growth for switchers – 4.9% for holders

• Northeast: 6.9% wage growth for switchers – 4.4% for holders

• South: 4.8% wage growth for switchers – 4.3% for holders

• Midwest: 2.2% wage growth for switchers – 4.4% for holders

As you can see, the Midwest is the one place where keeping your current job tends to pay off with pay raises that are twice as big as switching jobs.

Of course, what industry you work in also has an impact on how much more you can hope to make by switching jobs. People who switched jobs in Information saw the biggest pay gains for switching jobs, at 9.5%, while those working in Leisure Hospitality actually saw a loss of 1.1% when switching jobs.

• Construction: 4.3% wage growth for switchers | 4.5% for holders

• Manufacturing: 5.8% wage growth for switchers | 4.2% for holders

• Resources Mining: 12.9% wage growth for switchers | 2.9% for holders

• Finance: 5.8% wage growth for switchers | 4.4% for holders

• Professional Services: 8.4% wage growth for switchers | 4% for holders

• Information: 9.4% wage growth for switchers | 4% for holders

• Education Healthcare: 3.9% wage growth for switchers | 4% for holders

• Leisure Hospitality: -1% wage growth for switchers | 5.9% for holders

• Trade Transportation: 1.1% wage growth for switchers | 4.7% for holders

As you can see, switching jobs isn’t a magic bullet for boosting your pay, but in most industries, switching jobs will increase your year-over-year salary more than waiting for a raise at your current job.

How to Help Your Chances at a Big Raise

All right, so that’s the scoop on what pay raises in America look like, by the data. But how do you actually get one? Here are a few tips to position yourself for an above-average raise.

• Determine how you can be more valuable. While you can form an educated guess on what your employer values most, the quickest way to figure this out is to just, uh, ask. Talk to a supervisor or someone in management and determine what sort of work/training/skills/etc. they value the most highly. Then, start doing whatever they said!

  Always keep the bottom line in mind – how are you going to help make the company more money? Because if you’re legitimately adding value to the company, your pay raise is essentially offset by the extra dollars that you’re bringing in.

• Don’t be a stranger. Some folks just fly under the radar, and they’re more than happy with such an arrangement. The trouble comes when you’re flying under the radar when it comes time to determine what sort of raise each employee deserves.

  The remedy? Ensure regular contact with your supervisor and make sure they know exactly what you do. With all these progress updates, you’ll be able to provide a mountain of documented evidence of all you do for the company.

• Boost your market value. Learn new skills, acquire new certifications, take courses, or attend conferences in your industry. The more stuff you can do, the more valuable you are. And when you start collecting accolades that could make switching jobs very easy, your company should compensate you accordingly.

• Be ready to say goodbye. Ultimately, a raise may just not be in the cards for you. Maybe your company (or the industry) is suffering and there’s just no room in the budget to give you the raise you deserve. Don’t take it personally.

  But consult salary calculators to see what sort of pay you should expect and keep an eye on the job market. If a raise isn’t in the offing, it may be time to be off.

When And How To Ask For A Raise

Lets be honest, we all want to get as many raises as possible, however it can be an uncomfortable subject to broach with your supervisor. This does not need to be the case!

When to ask for a raise all depends on your situation. Generally, you do not want to ask more than once a year. This is because many companies can only budget for the raises on a yearly basis.

Other times it is appropriate to ask for a raise include:

• When you have taken on a lot of new responsibilities.

• When you have been asked to move for your work.

• When there has been an announcement of a dramatic increase in company revenue and/or profits.

However, never go into asking for a raise blind. Make sure to have all your information lined up properly. You will want to know your worth within the labor market, so look up comparable salaries. Have a specific percentage in mind and make it clear you know what you’re talking about.

Be polite, but confident with your supervisor. Decide how you will ask, either in person or in writing, and practice, practice, practice. It is important that your request does not come off as some knee-jerk, childish demand, but a well though out argument for why you deserve a raise.

The key is to pick an appropriate time and be prepared. With this in mind, you should have no fear in asking, so ask away!

Author

Matthew Zane

Matthew Zane is the lead editor of Zippia's How To Get A Job Guides. He is a teacher, writer, and world-traveler that wants to help people at every stage of the career life cycle. He completed his masters in American Literature from Trinity College Dublin and BA in English from the University of Connecticut.