Three-quarters of workers get pay rises that don't keep up with inflation

Wednesday, 4 August 2021

New Zealand’s labour market is running hot – but workers aren’t yet seeing the benefit, the Council of Trade Unions says.

Stats NZ revealed on Friday that the unemployment rate had plummeted in the year to June, to 4 per cent.

CTU economist and director of policy Craig Renney said the labour market looked to have largely recovered from the shock of the global pandemic.

Average wage inflation was at 2.1 per cent, Stats NZ said, which was up from 1.6 per cent the quarter earlier but still less than the 3.3 rate of inflation.

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That meant that people were being paid less, in real terms.

“We now need to see pay for working people match the good news on employment,” Renney said.

“Seventy-three per cent of Kiwis received a pay increase of less than inflation last year according to the Labour Cost Index. Annual hourly earnings growth is the same as it was in 2019 pre-Covid and is less than it was in December 2021 according to the Quarterly Economic Survey.

“Increases in wages seems to be coming from New Zealanders working longer hours, with overtime hours up 22.8 per cent.

“We are seeing more activity but we are not yet seeing that translate into what you might expect right now in terms of wage inflation.”

It had been suggested that employment was dropping to the maximum sustainable level beyond which inflation would start to be a major concern for the Reserve Bank. But Renney said that was not the case yet.

Infometrics economist Brad Olsen said it was likely that inflation would “eat away” any gains to wages over the rest of 2021.

Infometrics Senior Economist Brad Olsen said it was likely that inflation would “eat away” any gains to wages over the rest of the year.

Inflation pressure was likely to be more broad-based than wage pressure, he said, and could be more concentrated for some groups.

“It’s giving with one hand and taking with the other. You are getting an increase but you need to adjust your household budget to meet the cost pressures you’ll be seeing.”

Increases to costs of housing and transport would be hard for some households to adjust their spending to accommodate, he said. But he said these were good problems to have, compared to where some had predicted the economy could be at this point.

Renney said there were also still concerns in the labour market.

Female underemployment was running at twice the rate of male, and the Māori and Pacific Island unemployment rate was 7.8 per cent.

Young people were unemployed at twice the rate of anyone over 30, he said,

“We have some distance to go before we have truly delivered maximum sustainable employment.

“Overall Aotearoa is doing well with unemployment falling to rates that place us eighth overall in the OECD – below rates found in the US, UK, Australia, and Canada.

“The challenge ahead of us is to make sure that we are really embedding the success story of our Covid response so that it is delivering for working New Zealanders.

“The data today suggests that we are on the right path, and Fair Pay Agreements will help in this regard in the future. But there is much to go before we can fully claim success,” Renney said.