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Tightening labour market fails to spur higher wages

Wednesday 2nd November 2016

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A tighter New Zealand labour market hasn't managed to spur higher wages, even as jobs growth outstrips an expanding population and as firms find it increasingly difficult to find new staff. 

The private sector component of the labour cost index, which measures wage inflation, rose 0.4 percent in the three months ended Sept. 30, and was up 1.6 percent from a year earlier, Statistics New Zealand said. That was in line with expectations and unchanged from the previous period, even though the unemployment rate fell to 4.9 percent and quarterly jobs growth of 1.4 percent outpaced both expectations and a 0.7 percent increase in the size of the working-age population. 

"The New Zealand labour market is tight, and tightening, and with hiring intentions still so high we wonder where the labour is going to come from to meet New Zealand business needs," Bank of New Zealand head of research Stephen Toplis said in a note. "Be that as it may, and whatever the tightness in the labour market might be, it is simply not creating nominal wage pressure."

The quarterly employment survey, also released today, showed private sector ordinary time weekly earnings rose 0.3 percent in the quarter to $1,051.03, for a 2.1 percent annual gain, while their public servant counterparts posted a 0.7 percent quarterly gain to $1,400.64, for a 2 percent annual increase. 

The drop in the unemployment rate was the first time it's been below 5 percent since December 2008, the first quarter of the current National-led administration and the during the last recession. At the time, the labour cost index wage inflation series was tracking at a 3.3 percent annual pace, while annual weekly earnings were up 5.5 percent at $774.50, though consumer prices were rising at 3.4 percent pace compared to the 0.2 percent they're tracking at currently. 

Earlier this week, an ANZ Business Outlook survey showed firms were still expecting to take on more staff, while the September NZIER quarterly business survey of business opinion showed companies were struggling to find both skilled and unskilled workers. 

Westpac Banking Corp senior economist Anne Boniface said that difficulty in finding workers was likely to put pressure on wages next year, which in turn would lead to higher inflation. 

Today's employment figures show 16 percent of private sector workers got a pay rise in the September quarter, while 53 percent were earning more than a year earlier, while 17 percent of public sector staff got an increase in the quarter, with 55 percent up from a year earlier.

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