News to know: September 2026 labor market and compensation update

This is news to know for HR leaders.

The labor market picked up in August, but that didn’t make compensation planning any easier. Employers added 162,000 jobs, inflation accelerated to 3.4%, and workers’ real hourly earnings declined from a year ago. Meanwhile, 2027 salary increase budgets are settling around 3.5%, leaving compensation teams with limited dollars to address a labor market where the value of individual skills and jobs is moving in very different directions.

For HR and compensation leaders, this creates urgent questions about salary budget allocation, real wage growth, and how to price emerging skills.

AI is adding another layer. New (preview) data from Payscale’s forthcoming AI Workforce Impact Report finds that 61% of employers are rewriting job descriptions because of AI, while nearly half say their salary structures haven’t kept pace. At the same time, employers and employees don’t necessarily agree on what AI skills are worth.  

Below, we've gathered the latest labor market data, economic developments, and research insights most relevant to compensation leaders.

The U.S. economy and labor market

The August Employment Situation report, released September 4, showed 162,000 nonfarm payroll jobs added in August, while unemployment held at 4.1%. Food Services and Drinking Places and Local Government Education led gains, while the information sector lost jobs.

But other labor market measures point to a more cautious environment.

The July Job Openings and Labor Turnover Survey (JOLTS), released in September, showed 7.3 million job openings and 5.1 million hires. Quits remained relatively subdued at 3.1 million, suggesting workers still aren’t moving around the labor market with the confidence they did during the Great Resignation.

Demand varies considerably by industry, occupation, location, experience, and skill. A softer labor market doesn’t automatically make every job easier or cheaper to fill. For instance, consider AI skills, where about two in five employers in our AI Workforce Impact Report say they can’t find talent with the AI skills they need.

Inflation is complicating the salary budget math

Inflation is undoing salary budget planning. According to the Bureau of Labor Statistics (BLS), the Consumer Price Index rose 0.4% in August and 3.4% over 12 months — meaning most 2027 salary increases won't keep up with cost of living.

That matters as employers finalize 2027 compensation budgets. A 3% or 3.5% raise may look reasonable on paper. Employees experience it differently when the cost of living is rising at roughly the same rate or faster.

Compensation teams must balance what the organization can afford with whether employees feel their pay is progressing.

2027 Salary Budget Trends: Why 3.5% Raises Don't Tell the Full Story

We talked about the first 2027 salary budget projections in our July update. Two months later, the picture is getting clearer. Overall compensation budgets remain flat, but the market value of specific skills — especially AI, leadership, and data science — is skyrocketing.

The Conference Board projects a 3.5% median U.S. salary increase budget for 2027, unchanged from 2026, with a median merit budget of 3.1%. Similarly, Mercer found employers are planning average total salary increases of 3.5%.

But the headline number isn’t the most interesting part.

The Conference Board found that 37.8% of organizations are adjusting base pay for AI and machine learning skills, followed by leadership and people-management skills at 30.7% and data science and advanced analytics at 30.4%.

Salary budgets may be holding steady, but the market value of skills isn’t. When compensation dollars are limited, organizations have to be more deliberate about where those dollars go.

AI Skills & Compensation: The Growing Gap Between What Employers Pay and What Employees Expect

Early findings from Payscale’s AI Impact Report (with a full report coming in November) point to a growing disconnect between how quickly work is changing and how quickly compensation practices can respond.

Sixty-one percent of employers say they’re rewriting job descriptions because of AI, while 49% say their salary structures haven’t kept pace. Just 48% say their current market benchmarking reflects the skills those roles now require.

There’s also little consensus on what AI skills themselves is worth. Fifty-eight percent of employers currently pay, or plan to pay, a premium for AI skills. But 23% have moved to “free fluency,” treating AI skills as a baseline expectation rather than something that warrants additional pay. Employees see things differently: 56% believe they should be paid more for developing AI skills.

For compensation teams, the challenge is figuring out when an AI skill warrants a premium, when it fundamentally changes a job, and when it has simply become part of the role.  

Productivity is rising, but who gets the gains?

There’s another side to the AI productivity story.

Revised BLS productivity data shows nonfarm business productivity increased 2.2% year over year in the second quarter of 2026. Over the same period, real hourly compensation declined 0.1%. It's a gap that keeps widening.

Labor’s share of nonfarm business output also fell to 52.8%, the lowest level in the BLS series dating back to 1947. That raises a question organizations are likely to hear more often as they invest in AI: If technology makes employees more productive, how should those gains show up in pay?

There’s no single answer. Productivity gains could show up through base pay, incentives, career progression, new responsibilities, lower headcount, higher margins, or some combination of them.

But as organizations ask employees to work differently alongside AI, the relationship between productivity and rewards will become harder to ignore.

The Fed adds another complication

On September 16, the Federal Reserve raised the federal funds target range by 25 basis points to 3.75% to 4%, its first increase since 2023.

The Fed pointed to an economy still expanding at a solid pace alongside elevated inflation. For employers, higher rates add another constraint as 2027 planning gets underway.

That makes targeted compensation decisions even more important.

Pay transparency legislation  

‍United States

Pay transparency laws are forcing a reckoning. As more states mandate salary ranges in job postings, compensation leaders must align pay ranges with job architecture and market data.  

Connecticut is the next major pay transparency deadline on the calendar. Beginning October 1, 2026, the state’s expanded requirements will require employers to include a wage or wage range and a general description of benefits in public and internal job postings.

It's not just a recruiting requirement—it's an equity audit. The ranges you publish signal your compensation philosophy to candidates and employees. As more pay information becomes public, inconsistencies between your job architecture, market data, internal equity, and actual salary ranges become visible too.

For multistate employers, the growing patchwork of pay transparency laws makes maintaining accurate job levels and salary ranges across locations increasingly critical.

What employers should do

The September news creates a clear set of priorities for compensation and HR leaders:

• Don’t treat 3.5% as the answer. Salary budget benchmarks are useful, but averages hide differences in critical skills, performance, retention risk, geography, and market pressure. Decide where compensation dollars will have the greatest impact rather than distributing them uniformly.
• Watch real pay, not just nominal raises. Inflation reached 3.4% in August while real hourly earnings declined year over year. Employees experience purchasing power, not the percentage printed on a merit letter.
• Revisit jobs as AI changes the work inside them. Preview data from Payscale’s AI Impact Report shows that employers are already rewriting job descriptions because of AI, while salary structures struggle to keep pace. If the tasks, skills, judgment, or responsibility required by a role change, determine whether the job needs to be rewritten, releveled, or repriced.
• Connect AI skills to compensation deliberately. Employers and employees don’t yet agree on what those skills are worth. Establish when an AI skill warrants a premium, how that premium fits into the broader job architecture, and when AI fluency has become part of the baseline expectations for a role.
• Prepare for the next phase of pay transparency. Connecticut’s expanded requirements take effect October 1. Audit job postings, benefits language, and salary ranges now, and make sure what you publish externally matches a defensible internal compensation structure.

How Payscale can help

Salary budgets are constrained, markets are moving unevenly, AI is changing jobs and skills, and pay transparency means organizations need to explain and defend more of their pay decisions.

Payscale Intelligence Cloud brings compensation data and workflows together to help organizations respond:

Benchmarking – Price jobs against relevant market data and understand where pay pressure is actually moving instead of relying on broad labor market averages.

Job management – Keep job descriptions, levels, families, and compensation data aligned as roles and skills change.

Pay transparency – Build defensible ranges backed by market data and a compensation structure employees, candidates, and managers can understand.

Compensation planning – Put limited salary dollars where they matter most, with the data and workflows needed to support consistent pay decisions.

Ask for a demo to see how Payscale can help your organization navigate 2027 compensation planning, changing talent markets, and pay transparency.

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