The pay gap between job stayers and job changers narrowed in July in the latest sign that the US labor market is cooling.

New data from ADP released Wednesday showed that the median year-over-year pay increase for job switchers fell to 7.2% in July, down from the 7.7% increase seen in June. Meanwhile, pay for workers who stay in the same job rose 4.8%, its slowest rate of increase since July 2021.

The gap between the two numbers is slimming, indicating the benefits workers saw from leaving their jobs during the post-lockdown hiring boom continue to erode.

"The payoff from switching jobs has dropped tremendously," ADP chief economist Nela Richardson said on a call with reporters Wednesday morning.

Other data has also pointed to a cooling labor market this week. ADP's Employment report showed that 122,000 private payroll jobs were added in July, below economists' expectations of 150,000. Meanwhile, the latest Job Openings and Labor Turnover Survey (JOLTS) showed quits —which are seen as a sign of confidence among workers they will find a new job — fell to 3.28 million in June, the lowest level since November 2020.

Overall, the data reflects a looser labor market where workers are less itchy to switch jobs. This feeling among workers explains the recent slowdown in monthly job additions, Richardson noted.

"It's no longer replacement hiring or the revolving door of labor market," Richardson said. "It really is for companies who are hiring now in this market because they're trying to grow in a certain area, not necessarily replace workers who quit and change jobs."

While it may be a less attractive outcome for workers, Richardson added the easing in wage growth is a welcome sign for the Federal Reserve in its fight against inflation.

"Wages and pay are the bridge from the labor market to the inflation data, and we are certain, after three years of looking at these numbers, that if inflation picks up — and no one thinks that's likely right now — it won't be because of labor," Richardson said. "We're seeing continued steady declines in wage growth that fits with the overall inflation picture also cooling, along with the labor market."

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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