Canadian workers should expect more modest pay raises in 2026, as businesses tighten compensation budgets in response to easing inflation and reduced competition for talent.
New data from consulting firms Gallagher and Normandin Beaudry indicates that average salary increases are projected to reach 3.1% in 2026. This marks a continued downward trend from 3.5% in 2025 and 3.8% in 2024. Normandin Beaudry notes that the 2026 forecast is just 0.1 percentage points lower than 2025, reflecting a gradual slowdown in wage growth.
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This shift signals a return to more traditional, pre-pandemic compensation practices, as employers feel less pressure to offer large raises amid a cooling labour market. Although wages will continue to rise, the pace of increases is slowing, with fewer companies prioritizing aggressive salary hikes to attract or retain talent.
Caroline Long, Vice-President of Compensation at Gallagher, explains that during the pandemic, salary increases often matched or exceeded inflation. But with inflation declining, that urgency has faded.
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“We’re seeing a return to pre-COVID, pre-pandemic type increases,” Long said.
The number of Canadian employers identifying talent attraction and retention as a top concern is also declining — from 62% in 2024 to 54% in 2025, and further down to 50% in 2026, according to Gallagher. Only 32% of organizations have set aside extra budgets for pay increases aimed at high-potential, at-risk, or fast-tracked employees.
Long adds that the job vacancy rate has dropped significantly, reaching 2.7% in May 2025 — the lowest since October 2017, according to Statistics Canada. With fewer job openings and a less competitive labour market, employers are feeling less pressure to offer higher wages.
Canada’s unemployment rate currently sits at 6.9%, with 40,800 jobs lost in July, further indicating a softening employment landscape.
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