WAGE GROWTH - June 2006 QUARTER

11 August 2006

Background

This report examines the wage growth measures for the March 2006 quarter from the Labour Cost Index (LCI) and Quarterly Employment Survey (QES), which were released by Statistics New Zealand on 7 August. A technical note and data tables are included in the appendices.

There are three measures of wage growth that we examine:

1. the adjusted LCI
2. the experimental unadjusted LCI
3. average hourly earnings from the QES

The QES is affected by changes in the composition of the workforce as well as changes in pay rates, while the LCI measures changes in pay rates for a fixed set of job positions. The LCI is the preferred measure of wage growth. The LCI has two measures of wage growth: changes in pay related to the performance of individual employees are excluded from the adjusted LCI but included in the unadjusted LCI.

Key points

Wage growth remains high but may have reached a peak...

Wage growth is still high, but may have reached a peak as the three key wage growth measures eased slightly in the June 2006 quarter (Figure 1):

1. Annual wage growth in the adjusted LCI (which excludes performance pay) fell slightly to 3.2% at June 2006.  This is down from 3.3% at March 2006, which was the highest since the LCI began in 1992.
2. The unadjusted LCI (which includes performance pay) shows annual wage growth of 5.5% at June 2006, down from 5.7% at March 2006.
3. Annual wage growth in the QES measure also fell, down from 5.2% at March 2006 to 4.4% at June 2006.

Fig 1: Wage Growth Measures

Source: LCI, QES, Statistics New Zealand

Fig 2: Wage Growth and Skill Shortages

Source: LCI, QES, Statistics New Zealand; QSBO, NZIER

Although the main wage growth measures have eased, the easing was small and other wage indicators stayed high.  In the year to June 2006, 46% of all salary and ordinary-time wage rates rose by more than 3% and the median (ie middle) increase of all wage rates that rose was 4.2%.  These figures are both the highest since the start of the adjusted LCI.

Wage growth dropped to 2.9% in the private sector and rose to 4.1% in the public sector in the year to June 2006.  This is the highest growth in public sector wages since the LCI began, and was driven by collective employment agreements coming into effect for teaching and health professionals.

Wage growth in real terms was moderately high at 1.4% in the year to June 2006, with 5.5% wage growth (unadjusted LCI) offset by consumer price inflation of 4.0%.  Real wage growth of about 1.5% per annum during the past five years has broadly matched growth in labour productivity.

...and could decline further in the coming year

Wage growth is likely to ease over the coming year (Figure 2).  This outlook is based on the fall in skill shortages since late-2004 and the 1 to 2 year lag between skill shortages and wage growth (wages change infrequently and take time to be negotiated).¹

Despite some expected easing, wage growth is likely to stay high in the year ahead.  Unemployment has remained very low, and workers will seek higher wages to make up for the recent rise in consumer price inflation to a 6-year high of 4.0% in the year to June 2006.

1 A net 25% of firms had more difficulty finding skilled staff at June 2006 (down from a net 61% at December 2004), according to the Quarterly Survey of Business Opinion (QSBO) from NZIER.

APPENDIX I: TERMS AND DEFINITIONS

The QES and LCI surveys both measure wage growth over time. However, the two surveys have different approaches to the measurement of wage growth, and therefore can often have different results. The LCI tends to show lower wage growth and be less volatile than the QES, but over time the two measures tend to move in the same direction.

The LCI is a quality controlled measure, and calculates the wage growth for a number of job descriptions, while the QES measures average wages. When the level or composition of employment changes, the average earnings data in the QES will be affected, while the LCI will be unaffected. For example, if employment falls and the job losses come from low paid jobs, the average earnings for those remaining in employment will rise (QES), even if individual rates of pay do not change (LCI).

Only changes in salary & wage rates for the same quality and quantity of work are reflected in the Labour Cost Index. The index excludes increases in pay due to service increments, merit promotions, or one-off payments in lieu of pay rises. Irregular bonuses and commissions are also excluded. Hence, performance or productivity-based bonuses are excluded from the index. The QES includes all shift, penal, other allowances and bonuses, paid leave, and commissions earned in the survey week. The experimental unadjusted LCI includes performance or productivity based bonuses (so does not adjust for quality changes like the adjusted LCI) but measures wage growth for a fixed quantity of work (so is not affected by compositional changes like the QES).

The LCI and QES have different sample sizes and are conducted at slightly different time points. The QES collects information relating to the pay-period ending on, or immediately before, 20 February, May, August and November, while the LCI collects information for the pay period ending on, or immediately before, the 15th of the same four months. Also, the QES excludes agriculture, hunting, and fishing, which are included in the LCI.

APPENDIX II: DATA TABLES

Quarterly Employment Survey - June 2006 quarter

Table 1a: AVERAGE HOURLY EARNINGS BY SECTOR ($)

	Number	Annual Change		Quarterly Change
		#	%	#	%
Public Sector	27.48	0.53	2.0	-0.94	-3.3
Private Sector	20.47	0.96	4.9	0.46	2.3
Total	21.90	0.92	4.4	0.27	1.2

 

Table 1b: AVERAGE HOURLY EARNINGS BY REGION ($)

	Number	Annual Change		Quarterly Change
		#	%	#	%
Auckland	22.74	0.88	4.0	0.17	0.8
Wellington	24.99	1.04	4.3	0.73	3.0
Canterbury	20.98	1.04	5.2	0.19	0.9
Rest of New Zealand	20.34	0.80	4.1	0.22	1.1
Total	21.90	0.92	4.4	0.27	1.2

Table 1c: AVERAGE HOURLY EARNINGS BY Gender ($)

	Number	Annual Change		Quarterly Change
		#	%	#	%
Males	23.35	1.04	4.7	0.39	1.7
Females	20.08	0.76	3.9	0.11	0.6
Total	21.90	0.92	4.4	0.27	1.2

 

Table 1d: AVERAGE HOURLY EARNINGS BY INDUSTRY (000s of jobs)

	Number	Annual Change		Quarterly Change
		#	%	#	%
Forestry and Mining	25.57	3.43	15.5	1.83	7.7
Manufacturing	20.81	1.01	5.1	0.29	1.4
Electricity, Gas and Water	30.83	2.50	8.8	-0.64	-2.0
Construction	19.51	1.00	5.4	0.39	2.0
Wholesale Trade	22.95	1.16	5.3	0.43	1.9
Retail Trade	15.05	0.77	5.4	0.15	1.0
Accomodation, Cafes and Retaurants	14.15	0.26	0.9	0.47	3.4
Transport, Storage and Communications	20.94	-0.12	-0.6	-0.74	-3.4
Finance and Insurance	30.03	0.98	3.4	0.65	2.2
Property and Business Services	25.57	1.46	6.1	0.42	1.7
Government Administration and Defence	27.68	1.49	5.7	0.38	1.4
Education	27.18	-0.08	-0.3	-1.72	-6.0
Health and Community Services	22.47	0.87	4.0	-0.13	-0.6
Cultural and Recreational Services	23.53	1.27	5.7	1.71	7.8
Personal and Other Services	20.70	0.94	4.8	0.27	1.3
Total	21.90	0.92	4.4	0.27	1.2

 

Table 1e: FILLED JOBS BY INDUSTRY (000s of jobs)

	Number	Annual Change		Quarterly Change
		#	%	#	%
Forestry and Mining	11.9	-0.1	-0.8	-0.1	-0.8
Manufacturing	238.8	-5.6	-2.3	-2.5	-1.0
Electricity, Gas and Water	7.1	-0.4	-5.3	-0.2	-2.7
Construction	118.1	8.5	7.8	3.2	2.8
Wholesale Trade	109.5	-7.5	-6.4	-3.3	-2.9
Retail Trade	234.8	5.6	2.4	-7.7	-3.2
Accomodation, Cafes and Retaurants	101.4	3.6	3.7	-9.9	-8.9
Transport, Storage and Communications	109.2	14.1	14.8	5.8	5.6
Finance and Insurance	54.6	5.3	10.8	0.8	1.5
Property and Business Services	212.3	1.2	0.6	4.3	2.1
Government Administration and Defence	57.7	1.1	1.9	-1.1	-1.9
Education	145.0	14.5	11.1	26.3	22.2
Health and Community Services	187.9	3.0	1.6	4.4	2.4
Cultural and Recreational Services	46.6	4.5	10.7	-1.4	-2.9
Personal and Other Services	64.1	1.0	1.6	-2.4	-3.6
Total	1699.0	48.8	3.0	16.2	1.0

 

Adjusted Labour Cost Index - June 2006 quarter

Table 2a: ALL SALARY & WAGE RATES BY SECTOR

	Annual Change	Quarterly Change
	%	%
Public Sector	4.1	1.0
Private Sector	2.9	0.6
Total	3.2	0.6

Table 2b:ALL SALARY & WAGE RATES BY OCCUPATIONAL GROUP

	Annual Change	Quarterly Change
	%	%
Legislators, Administrators & Managers	2.9	0.4
Professionals	4.1	0.9
Technicians & Associate Professionals	3.0	0.9
Managers, Professionals & Technicians	3.4	0.7
Clerks	2.8	0.5
Service & Sales Workers	3.0	0.5
Clerks, Service & Sales Workers	3.0	0.6
Agriculture & Fishery Workers	3.4	0.9
Trades Workers	3.5	0.7
Plant & Machine Operators & Assemblers	3.0	0.7
Elementary Occupations	3.1	0.7
Other Occupations	3.3	0.8
Total	3.2	0.6

Table 2c:ALL SALARY & WAGE RATES BY INDUSTRY

	Annual Change	Quarterly Change
	%	%
Agriculture	2.7	0.4
Forestry & Logging	0.7	0.4
Agriculture, Forestry & Fishing	2.4	0.5
Mining	3.6	1.0
Food, Beverage & Tobacco Manufacturing	2.2	0.3
Textile & Apparel Manufacturing	2.8	0.8
Wood & Paper Product Manufacturing	2.2	0.5
Printing, Publishing & Recorded Media	2.5	0.6
Petroleum, Coal, Chemical, Associated Product Manufacturing	3.2	0.6
Non-metallic Mineral Product Manufacturing	3.8	1.0
Metal Product Manufacturing	2.9	0.8
Machinery & Equipment Manufacturing	2.5	0.4
Furniture & Other Manufacturing	3.2	0.9
Manufacturing	2.6	0.5
Electricity, Gas & Water Supply	3.8	0.5
Construction	3.9	1.0
Wholesale Trade	2.8	1.0
Retail Trade	3.4	0.5
Accommodation, Cafes & Restaurants	1.7	0.4
Transport & Storage	2.8	0.4
Communication Services	2.3	0.3
Finance & Insurance	4.3	0.6
Property & Business Services	2.7	0.7
Central Government Administration & Defence	3.8	0.9
Local Government Administration	4.1	0.6
Government Administration & Defence	3.9	0.9
Education	5.1	1.3
Health & Community Services	3.7	0.6
Cultural & Recreational Services	3.2	0.5
Personal & Other Services	3.2	0.6
Total	3.2	0.6