By Kathryn Mayer
Employers looking to hire new talent may have to shell out more money than they have in years.
The lowest average pay that people would be willing to accept to take a new job—also known as the reservation wage—has jumped significantly over the past year, reaching $81,822 as of March. That’s a big jump from November, when, on average, people said they’d need an offer of $73,391 to accept a new job.
The numbers come from the Federal Reserve Bank of New York’s March SCE Labor Market Survey, which explores the reservation wage and other employee expectations in the labor market. The survey asks respondents—who are employed, unemployed or out of the labor force—“Suppose someone offered you a job today in a line of work that you would consider. What is the lowest wage or salary you would accept (before taxes and other deductions) for this job?” The latest results found that, on average, respondents said it would be $81,822.
It’s the highest level since the survey series began in 2014; results are published every four months. The increase in the reservation wage was driven by men, respondents over age 45 and those without a college degree, according to the Federal Reserve Bank of New York. A few factors are likely at play, according to experts. “Tightness in the labor market and inflationary pressures, particularly in prices for shelter and gas, have likely led job seekers to raise their salary expectations,” said Sydney Ross, junior economic researcher at SHRM.
Amy Stewart, associate director of content and editorial at Payscale, a Seattle-based compensation software firm, added that although inflation is down from its heights in mid-2022, the impact is “still being felt, as pay increases have not offset price increases for many.” Meanwhile, she said, high interest rates are also making big purchases more difficult for employees.
The new data is especially significant for organizations as more people are looking for jobs and as employers have more openings. Although fears of a recession have resulted in some layoffs in specific industries and have caused some employers to hold down the aggressive salary hikes they’ve handed out in recent years, the labor market remains strong. Last month, U.S. employers added a surprising 303,000 jobs—blowing past economists’ forecasts. Meanwhile, the unemployment rate dipped from 3.9 percent to 3.8 percent.
According to the New York Fed, as of March, 25 percent of people said they looked for a new job in the past four weeks, the highest in a decade. That number is also up slightly from November 2023, when 23 percent said the same.
“Labor force participation rates have not recovered to pre-pandemic levels, so the demand for workers has outpaced the supply,” Ross said. “Also, the demand for skilled workers across some industries is scarce, so workers have more bargaining power when negotiating salaries.”
Financial Stress
The jump in the reservation wage also comes as financial stress continues to be elevated for employees, with a MetLife survey recently finding that high cost of living and other financial concerns is driving up stress and other mental health issues for workers.
Meanwhile, a significant number of workers said their salary has not stayed on pace with inflation. Even though inflation has dropped over the past year, the residual effects continue, with more than half of workers (53 percent) saying their paychecks are not keeping up with inflation, according to a study from the American Staffing Association and the Harris Poll. That survey also found that nearly 4 in 10 U.S. adults said their overall financial situation is more stressful than it was 12 months ago.
Indeed, recent analysis from SmartAsset found that for U.S. residents to live comfortably—defined as covering a 50/30/20 budget, which allocates 50 percent of earnings for necessities such as housing and utility costs, 30 percent for discretionary spending and 20 percent for savings or investments—their salary needs to be, on average, $89,461.
Compensation Strategies
The jump in the reservation wage, along with the tight labor market and evidence of employees’ sky-high financial stress, is likely putting pressure on employers to keep up with healthy salaries to both attract and hold on to talent. Ross said employers are likely taking a look at their compensation strategies to ensure they’re putting their best foot forward in terms of recruiting and retention.
“Uncertain hiring conditions may lead to more organizations devising compensation strategies aimed at ways to attract qualified talent and retain employees,” she said. “These could include issuing higher pay raises, offering more innovative employee benefits and offering other incentives employees can take advantage of by remaining with the organization.”
Stewart said that although it’s easier to retain workers now than it was during the Great Resignation, “employers shouldn’t be complacent and think that means they should skimp on salary offers and pay increases to save money on payroll.” One of the worst things business leaders can do is get into a mindset that compensation strategy is a nice-to-have when market conditions are in employers’ favor.
“It is much more difficult to build, or rebuild, a solid foundation for talent strategy and compensation management in the middle of a growth cycle,” Stewart said. “Do the strategic work now, when things are calmer, so that you are ready when the labor market heats back up and positioned to reap the rewards. Make sure that you are paying people fairly, rewarding workers you want to retain with equitable pay increases, and communicating the ‘what’ and ‘why’ behind pay.”
