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Key Takeaways
- Salaries for private-sector workers rose 0.7% in the fourth quarter, the slowest increase since 2021.
- The job market has turned against workers, with unemployed workers now outnumbering open positions, so employers are less motivated to give large raises.
- Despite the downturn, average pay raises outpaced inflation in 2025.
If you weren’t happy with the raise you got this year, you were hardly alone.
Wages and salaries for private industry workers rose 0.7% in the fourth quarter, the slowest pace since the second quarter of 2021, the Bureau of Labor Statistics said Tuesday. Year-over-year, wages were up 3.4%, the same as in the first quarter but a decline from the third quarter.
The slowdown in salary growth was the latest in a series of indications that the job market is getting tougher for workers as employers cut back on hiring. Job openings have also fallen to a post-pandemic low, with unemployed workers now outnumbering open jobs, and the unemployment rate has edged up since the beginning of 2025.
“The weak fourth-quarter growth in the [Employment Cost Index] aligns with the balance of labor market data, which was increasingly soft in the second half of 2025,” Dante DeAntonio, an economist at Moody’s Analytics, wrote in a commentary. “Employers are facing much less pressure to increase wages than in previous years.”
What This Means For The Economy
This is the latest indication of the weak labor market, which could add pressure for officials at the Federal Reserve to cut interest rates to boost hiring and prevent a serious jump in unemployment.
On the positive side for workers, wages on average are still growing significantly faster than inflation. The Consumer Price Index rose 2.7% over the course of 2025, well below wage growth.
However, that wage growth hasn’t been shared equally: statistics show the trajectory of household finances has been “K-shaped,” with higher-income earners gaining while those with lower incomes are falling farther behind. In January, after-tax wages rose 0.9% over the year for lower-income households, 1.6% for middle-income households and 3.7% for higher-income households, economists at Bank of America said Tuesday based on deposit data.
The data on the wage growth slowdown sets the stage for a highly anticipated report on the job market coming Wednesday from the Bureau of Labor Statistics, which will show how well job creation and the unemployment rate held up in January 2026.
The job market has been dragged down recently by tariffs, as businesses, uncertain about trade policy, curtail hiring and expansion plans.
