Key insights
- Slowing wage growth for job switchers signals a cooling labor market. Bank of America research indicates a significant drop in pay increases for those switching jobs compared to 2022 peaks and pre-pandemic averages. This trend, coupled with a declining quit rate, suggests weaker consumer spending and potential impacts on corporate profits and inflation, potentially influencing future Fed interest rate decisions.
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Not too long ago, workers had a clear path to earn more pay: find a better job.
But with the job market now showing signs of slowing, there are now fewer opportunities for workers to improve their pay by switching jobs, new research shows.
In January, people who switched jobs received a 4% pay increase, well below the recent peak of around 14% in 2022 and less than half the pre-pandemic 2019 average, according to Bank of America research. And a separate National Bureau of Economic Research (NBER) report found that workers today were half as likely to receive a better-paying outside job offer as they were in the 1980s.
When workers can no longer rely on switching jobs to boost their pay, overall wage growth tends to slow, which can limit consumer spending and affect broader economic growth. For investors and policymakers, weaker wage gains may signal a cooling labor market, influencing interest rate decisions, corporate profits, and the outlook for inflation.
“With fewer open roles, the job‑change premium – the extra pay boost workers typically receive when they switch jobs – has started to compress across the board,” wrote Bank of America economist Taylor Bowley. “This softening matters because job changing remains one of the most effective ways workers secure higher pay.”
With labor scarce after the pandemic, employers raised wages to attract workers, which helped pay increases surge.
After surging to around 3% during the 2022 “Great Resignation” wage-growth boom that followed the Covid-19 pandemic, the quit rate for workers dropped to around 2% in January, according to Bureau of Labor Statistics data. Now, the U.S. labor market has shown signs of slowing, including employers cutting 92,000 jobs in February.
The declining pay gains for job switchers were part of a longer-term trend that has slowed real wage growth to nearly zero since the 1980s, the NBER report found.
A decline in the number of employers as industries consolidate and the growing use of noncompete agreements have curtailed opportunities for job shopping. The result has been a decline in annual wage growth of 0.68 percentage points over that period.
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