Low unemployment, falling immigration and Government policy may finally start to boost wages

Monday, 30 July 2018

The pace of pay increases may finally be picking up, with April's minimum wage hike expected to have helped push a key measure of wage inflation to a six-year high.

On Wednesday Statistics New Zealand will release the household labour force survey, revealing estimates of how many jobs were created in recent months and the speed at which public and private sector pay rates are climbing.

As well as showing that the New Zealand economy is still creating thousands of new jobs every month, the release is expected to reveal that the labour cost index for private sector wages climbed at more than 2 per cent in the year to June 30, the strongest annual gain since 2012.

Part of the boost was driven directly by Government policy. On April 1 the minimum wage was increased by 75 cents to $16.50 an hour, first of a series of hikes aiming to have the minimum wage raised to $20 an hour by 2021.

**READ MORE:

* Booming employment market gives Crown accounts another boost

* New Zealand unemployment rate falls to the lowest level in nearly a decade

* Unemployment drops to 4.5 per cent as NZ adds thousands of jobs

* Top of the south has lowest unemployment in more than a decade

* [Regional unemployment scheme probably won't have sanctions

​](https://www.stuff.co.nz/national/politics/100073212/regional-unemployment-scheme-probably-wont-have-sanctions?rm=m)* NZ 'well positioned', says Finance Minister**

Economists are expecting the minimum wage increases and other policies to continue to boost wage inflation in the coming years, with ASB predicting earlier this month that Government measures could add between 0.5 per cent and 1 per cent to annual wage inflation each year until 2021.

But Kiwibank chief economist Jarrod Kerr said an increase in wage inflation 'is not simply a minimum wage story' with unemployment - at 4.4 per cent at the end of March - already dropping to a level where economists would expected it to start adding to pressures for pay increases.

'The labour market is expected to tighten further over this period and add to underlying wage growth,' Kerr said.

'Firms finding it tough to find suitable staff will be forced to pay up to secure them.'

Unemployment is currently at a nine-year low, although the drop may have paused in the three months to June 30, with most economists expecting it to remain unchanged at 4.4 per cent in the three months to June.

The economy is expected to have added around 90,000 in 12 months, roughly the speed at which the working age population is increasing.

The Labour-led Government has targeted unemployment below 4 per cent, and BNZ economists said it was possible that unemployment could dip below 4 per cent 'before too much longer in this cycle'.

However a plunge in business confidence has raised fears that in the face of rising labour costs and other uncertainties, businesses may cut back on hiring and other investment.

Westpac senior economist Michael Gordon said the labour market was at an 'uncertain' juncture, with low unemployment and businesses reporting difficulty finding staff.

'But at the same time, there's growing evidence that the economy has lost some momentum over the last year, in part due to uncertainty around the impact of the new Government's policies.'

Westpac predicted that over the remainder of 2018, unemployment may climb slightly, reflecting the slowdown in economic growth, before increased fiscal spending drives a further drop in unemployment over 2019 'reflecting the slowdown in economic growth, before increased fiscal spending drives a further drop in unemployment over 2019'.  

Wage inflation has been unusually low in recent years despite strong economic growth, with record levels of migration keeping pay levels muted. But the annual net gains from migration have been easing for almost a year, dropping to 65,000 in the year to June 30, from just over 72,000 a year ago.