Published: 2 February 2011

This note examines the wage growth measures for the December 2010 quarter from the Quarterly Employment Survey (QES) and the Labour Cost Index (LCI), which were released by Statistics New Zealand on 1 February, 2011. 

Wage growth picks up from low levels

The adjusted LCI (which measures changes in pay rates for a fixed set of jobs and excludes performance-related pay increases) rose by 0.5% over the December 2010 quarter lifting annual wage growth to 1.7%.  This is up from 1.6% in the September 2010 quarter and a nine-year low of 1.5% recorded in the year to March 2010. 

Wage growth appeared to reach its lowest point in the middle of 2010, around 6 months after the trough in other labour market indicators, reflecting the infrequent nature of wage negotiations.  The December 2010 quarter data confirms that wage growth is gradually recovering, albeit from very low levels.  Figure 1 shows all of the three main wage growth measures have turned.  Annual growth in the unadjusted LCI (which includes performance-related pay) increased to 3.6% in the December 2010 quarter, the third consecutive rise since it reached a low point of 2.5% in the March 2010 quarter.  Annual wage growth in the QES^[1] was 1.9% for the year to December 2010, up from a 16-year low of 1.1% in the year to June 2010. 

Figure 1: Wage Growth Measures

Data Table for Figure 1

The adjusted LCI showed annual wage growth in the public sector was 1.4% in the year to December 2010, up slightly from an 11-year low of 1.3% in September 2010. Private sector wages continued to rise, increasing by 1.9% in the year to December 2010. This is up from 1.6% growth in the year to September 2010 and above that recorded in the public sector. By industry, annual wage growth was strongest in professional, scientific, & technical services (up 2.8%) and metal product manufacturing (up 2.6%).

Source: LCI, QES, Statistics New Zealand.

Filled jobs fall slightly

Filled jobs in the QES (seasonally adjusted by the Department of Labour) fell by 0.9% in the December 2010 quarter, while seasonally adjusted paid hours fell by 0.2%. While the QES and the Household Labour Force Survey (HLFS) do not always match closely from quarter to quarter, the decrease in filled jobs suggests that employment in the HLFS will be flat in the December 2010 quarter (results will be released on Thursday 3 February).

The Department of Labour’s current expectations are that the HLFS will show no change in employment over the December 2010 quarter, with the unemployment rate rising slightly. However, given the recent volatility in the HLFS and based on today’s QES results, there is a risk that the HLFS results may come in worse than our expectations.

On an annual basis, filled jobs fell by 0.4% - the first annual fall since the year to March 2010. Compared to the December 2009 quarter, 9 out of the 16 industries surveyed recorded a rise in filled jobs. Growth in forestry & mining (up 6%), transport, postal & warehousing (up 4%) and health care & social assistance (also up 4%) were offset by continued weakness in construction (down 6%), accommodation & food services (down 5%), wholesale trade (down 3%), and manufacturing (down 2%).

Wage growth to gradually recover over 2011

The December 2010 quarter results confirm that wage growth reached its trough in the middle of the year and is slowly beginning to recover. While wage growth will continue to remain subdued in the short-term, as unemployment remains elevated and economic growth remains weak, we expect wage pressures to increase later in 2011. This is in line with an expected pick up in GDP growth in the second half of the year and further declines in the unemployment rate. In addition, the December 2010 Quarterly Survey of Business Opinion reported that skilled labour is becoming harder to find which points to rising wage growth.

Author or contact details

For further information please contact the Labour Market Analysis team