The Quiet Shift: How Companies Are Resetting Worker Pay in a Cooling Job Market

A continued adjustment of the workers' wages points to a changing dynamic in the job market, where one cannot afford to overpay for talent. From real estate to IT, as salaries dip across various sectors, the reverberations could be strong for both job seekers and companies in the years to come, especially when the competition for talent starts heating up.

With the labour market cooling, companies quietly readjust pay scale, signaling an end to the overpayment-for-talent era. As employers regain their bargaining power, salaries for many professions are being adjusted downwards-from white-collar to blue-collar-along with a fresh look by applicants at their pay expectations.

Key Takeaways

• Shift in Power: Employers are gaining more control in the hiring market, leading to a decrease in salaries across various industries.
• Sector-Wide Impact: Both white-collar and blue-collar jobs are experiencing pay cuts, with significant drops in sectors like retail, agriculture, and manufacturing.
• Geographic Arbitrage: Companies are moving jobs to lower-cost cities and countries to reduce labor expenses.
• Long-Term Implications: The current pay reset may lead to long-term challenges for employers, particularly when the job market tightens again.

Reset Worker Pay

The era of overpaying for talent is drawing to a close. A growing number of companies are quietly trying to reset worker pay levels, capitalizing on the cooling job market. This shift is being felt across industries, from white-collar roles to sectors like construction, manufacturing, and food service, where wages for new hires appear to be ebbing, according to an analysis of millions of job postings on ZipRecruiter.com.

Job seekers who once saw roles offering between $175,000 and $200,000 annually now face significantly lower salary offers, forcing them to adjust their expectations. According to recruiters and corporate advisers, companies are also increasingly moving job openings to lower-cost cities or offering them lower-paying contractor roles.

The push to reset employee salaries reflects a power shift in the hiring market. Now, with more choices, employers are questioning whether they need top-tier talent when more affordable hires might suffice. Even hourly positions, challenging to fill until recently, are being advertised at lower pay rates than a year ago.

"A lot of companies are thinking they can get away with paying a cheaper salary because they know us job seekers are desperate," said Eric Joondeph, 31, who has been searching for a senior customer-experience role for nine months. During his search, he has lowered his pay expectations by at least $20,000 annually.

NYC Impact

This pay reset for workers is about to rock the New York City market-a place with one of the highest costs of living across the nation. With many companies increasingly relocating jobs to lower-cost cities or offering job opportunities that come with smaller salaries, most professionals who have enjoyed a certain standard of living in NYC so far may find it difficult to sustain.

More significantly, the jobs leaving town, the better-paid job opportunities in the city may be reduced and lead to increasing competition for the remaining ones. This might also have a consequence on the local economy due to reduced disposable incomes leading to a reduction of spending hooked to the well-paid labor.

Wage Declines Across Industries

Among the job listings for more than 20,000 different titles on ZipRecruiter this year, several sectors have seen significant drops in average posted pay. Retail wages for new hires have dropped by 55.9%, agriculture by 24.5%, and manufacturing by 17.3%.

Tom Locke, a McDonald's franchisee with 56 locations across Ohio, Pennsylvania, and West Virginia, noted that the pandemic-era signing bonuses and hiring incentives are gone. He's even considering reducing hourly wages from $13 to $12 as labor costs now exceed food expenses, a first in his 24 years with the company.

"I want everybody to do well in America, but there are cost pressures," Locke said. "It's just a constant battle."

White-Collar Wage Adjustments

Pay resets are also rippling through white-collar sectors. Joondeph, based in Boise, Idaho, has been struck by the number of job postings offering significantly lower salaries than they did just months ago. Roles that once advertised pay range from $80,000 to $100,000 are now being listed closer to $60,000. Corporate advisers point out that some companies hire less experienced but still trainable individuals at lower salaries than industry veterans.

For example, Brooke Weddle, a senior partner at McKinsey & Co., mentioned that one client had adopted a "no more unicorns" strategy, choosing to forego top performers with specialized skills who command high salaries.

In some cases, companies are moving jobs overseas to cut costs. Data analyst roles that might have been filled in the U.S. are now being outsourced to India, Mexico, or parts of Europe, where labor is cheaper.

Geographic Arbitrage and Salary Compression

Geographic arbitrage is becoming increasingly common as Fortune 1000 companies relocate jobs from expensive cities like Chicago and San Francisco to lower-cost locations such as Cincinnati and St. Louis. Keith Sims, president of Integrity Resource Management, notes that he has not seen such a determined effort to rein in pay since the 2009 recession.

Tech jobs also see salary reductions, particularly those involving back-office and core operations software. Positions that paid between $110,000 and $130,000 last year will now hire less experienced employees for $85,000 to $100,000.

Hiring Managers Gain Leverage

Julia Pollak, ZipRecruiter's chief economist, noted that while overall pay for new hires in white-collar sectors increased this year, this was buoyed by gains in specific areas like law, engineering, and healthcare. However, many tech roles, especially those unrelated to AI, have lower salaries than two years ago.

The power shift in the hiring market is giving managers more control. Jill Hernstat, CEO of Hernstat & Co., a tech recruiting firm, mentioned that hiring managers know their leverage. Salaries in finance and professional services are declining, easing tensions among existing employees who may have resented the high pay given to recent hires.

Tom McMullen, a senior client partner at Korn Ferry, observed that many leaders are relieved by the market's cooldown, which allows them to address internal pay equity issues.

Closing Statement

The backlash on white- and blue-collar sectors will be felt long into the future as corporate America recalibrates its pay scales in a cooler job market. In the short term, this might give businesses some respite from spiraling labor costs, but the long-term scenarios could be devastating. Talented professionals, disgusted to see their paychecks getting sliced further and with fewer overall prospects, might take relocation or an entirely new career direction.

Thus, Employers will be less likely to tap the best talent once the job market improves, particularly if the moves to cut costs have built up worker animosity. How businesses handle that delicate balance now between keeping costs in line while ensuring they have the competitive workforce needed will shape the future of employment.

This transition decides whether companies will triumphantly rise above it or struggle to keep their head above the water when the pendulum of power presumably swings back toward job seekers.