OECD stuff-up: NZ’s real wages have not dropped 6%

Saturday, 18 July 2026

Michael Reddell is an economic commentator and former Reserve Bank and Treasury official.

OPINION: Last week the Paris-based OECD released its annual Employment Outlook report. It is a long and often rather dry report, 400 pages long and 130 charts. But just the thing for labour market nerds to pore over on a wet Saturday afternoon.

One chart in that report caught the eye of New Zealand journalists, leading to a succession of stories and columns claiming - with the authority of the OECD - that New Zealand real wages (i.e. after adjusting for CPI inflation) had fallen by 6.4% in the last five years, more than in any other OECD country.

Within hours of the first story appearing various economists pointed out that the OECD appeared to have used the wrong data for New Zealand. If more appropriate data series had been used, the New Zealand experience would have looked much more middle-of-the-pack. But that hasn’t stopped the story running this week. Real wages in New Zealand, we have been told again and again, have plummeted, and we have done particularly poorly. That simply isn’t so.

So what went wrong? In their chart, the OECD used data from the Labour Cost Index (LCI). That might sound like a measure of wage rates but (and by design) it isn’t. Instead, the LCI tries to measure wage costs after adjusting for various things, but particularly for any improvement in the performance of employees. Over time, if labour productivity improves, actual wage rates will tend to increase - but the Labour Cost Index won’t. For some purposes it can be a useful index (e.g. for analysts looking at whether higher wage increases might put pressure on inflation, which they shouldn’t if productivity is rising too). But it simply isn’t useful as a measure of what is happening to the purchasing power of workers’ wages.

For that purpose, there are two other series. The first, less well known, is the Labour Cost Index - Analytical Unadjusted. That is an ungainly mouthful of a label, but Statistics New Zealand itself describes this series as providing “a more comprehensive picture of wage changes”. Like the LCI it is a stratified index - one not thrown around by compositional changes – but it doesn’t seek to adjust out things like improvements in performance and productivity. It isn’t a perfect measure, but for these purposes it is a lot more relevant than the headline LCI.

And then there is the simple measure of average ordinary time hourly earnings, taken from the Quarterly Employment Survey. It isn’t really a proper index at all, and it is thrown around by compositional changes (e.g. in downturns young people and lower-skilled people are relatively more likely to be out of work). But it is a measure of what was paid to people who were in work, and so has a certain appeal of simplicity.

To get at real wages we have to adjust for inflation. Once we do so, both these measures have increased substantially over the decades. In the chart, I’ve just shown them starting from just prior to Covid. As it happens, whether one looks just at the five years since March 2021 (as the OECD chart did) or at the entire period since 2019, the picture is much the same. Real wages dipped when the surprisingly severe outbreak of inflation hit later in 2021 and 2022, but they recovered and over the full period real wages have either been flat or have increased a bit. That isn’t a great performance at all – few economies have done particularly well in recent years - but it would have put us more in the middle of the pack in that OECD chart.

Quite why the OECD appears to have stuffed up on this occasion isn’t clear. It probably doesn’t help that Statistics New Zealand typically gives high profile coverage in their releases to the LCI, and buries the Analytical Unadjusted series well down the page. As for why the misleading comparisons have continued to be reported, that is probably down to some mix of, on the one hand, the OECD usually being a good source for cross-country data, and on the other, the “biggest fall in real wages in the OECD” sounds like a good headline (perhaps especially in election year).

There is an old cautionary adage that if a number appears particularly interesting it is probably wrong. In this case, the LCI was simply the wrong measure for the purposes of what the OECD was trying to illustrate. It is easy to be gloomy about New Zealand’s long-term economic performance, but not all statistics that look tantalizingly bad will be capturing quite what users think they might be. Always ask questions. Always cross-check.