Wage Growth - March 2010 Quarter
Published: 4 May 2010
This note examines the wage growth measures for the March 2010 quarter from the Quarterly Employment Survey (QES) and the Labour Cost Index (LCI), which were released by Statistics New Zealand on 4 May 2010.
Wage growth eases further
Annual wage growth in the adjusted LCI (which measures changes in pay rates for a fixed set of jobs and excludes performance-related pay increases) eased to 1.5% in the March 2010 quarter, the smallest annual growth rate since 2000. Wage growth in the LCI has fallen steadily from a peak of 4.0% in the year to September 2008.
Due to the infrequent nature of wage negotiations, it can take around 1-2 years before labour market conditions are reflected in wage growth figures. The continued easing in wages therefore reflects the weakening labour market over 2008 and 2009, which saw unemployment rise strongly. Also contributing to weaker wage growth has been easing inflation and many firms opting to limit wage increases during the downturn in an attempt to minimise job losses.
Figure 1: Wage Growth Measures
Slowing wage growth was seen in both the public and private sectors. Private sector wages increased by 1.3% in the year to March 2010, down from 1.6% in the December 2009 year. This was the lowest annual increase since 2000. Public sector wage growth was 2.3% in March 2010, down from 2.4% in December 2009.
The adjusted LCI showed annual wage growth was the strongest in the education sector (up 3.2%), driven mainly by an increase in pay rates for teachers in the September 2009 quarter. Annual wage growth was also strong in health & community services, and rose by 2.6% over the past year.
| Wage Growth | Last year | Last quarter | This quarter |
|---|---|---|---|
| (annual % change) | Mar 2009 | Dec 2009 | Mar 2010 |
| Adjusted LCI | 3.3 | 1.8 | 1.5 |
| Unadjusted LCI | 5.2 | 2.9 | 2.5 |
| QES | 5.3 | 3.7 | 2.1 |
Source: LCI, QES, Statistics New Zealand.
Although the adjusted index is a more robust wage inflation measure, the unadjusted LCI can be useful as it includes performance-related pay increases. The unadjusted LCI shows annual wage growth of 2.5% in March 2010, the smallest annual increase since the series began in 1995, and down from 2.9% in December 2009.
Annual wage growth in the QES, which also includes performance-related pay increases, was 2.1% for the year to March 2010, down from 3.7% in the year to December 2009. Over the March 2010 quarter, average hourly wages actually fell by 0.4%, the second consecutive quarterly fall. While it is rare for wage levels to fall, it should be noted that the QES is affected by compositional changes. The Department’s analysis suggests that much of the new employment over the quarter was in low paid industries, such as hospitality, and arts, recreation & other services, which helped drag down the overall average wage. Due to the compositional effects present in the QES wage data, the LCI is generally the preferred measure of wage growth.Filled jobs increase strongly
Both filled jobs (seasonally adjusted by the Department of Labour) and seasonally adjusted paid hours rose by 1.1% in the March 2010 quarter. The increase in filled jobs was the first quarterly increase since June 2008.
The Household Labour Force Survey (HLFS) for the March 2010 quarter is released on May 6 and the QES results indicate that employment is close to its turning point. Our expectations are that the HLFS will show that employment was fairly flat over the March 2010 quarter. Nevertheless, the QES suggests that the HLFS results might be better than otherwise expected, although the two series do not always match closely from quarter to quarter.
On an annual basis, filled jobs rose by 0.1%, the first increase since the year to September 2008. Compared to the March 2009 quarter, seven out of the 16 industries surveyed recorded a fall in filled jobs. There was particular weakness in construction (down 8%), and manufacturing (down 7%). These falls were offset by growth in arts, recreation & other services and in professional, scientific, technical, administrative & support services (both up 9%).
Wage growth expected to remain subdued
Wage growth is expected to remain subdued over coming quarters as the labour market remains weak and inflation remains relatively low. The unemployment rate is at its highest level since 1999, meaning there will be increased competition for jobs which is likely to restrain wage growth over the short-term. Businesses are also continuing to look to restrict costs as profitability remains under pressure. However, we expect wage growth to begin to pick up again in late 2010/early 2011 as the recovery in the labour market strengthens and unemployment begins to fall.
Author or contact details
For further information please contact the Labour Market Analysis team