Only two sectors have not experienced a reduction in their wages in real terms over the past year, data shows.
While inflation was running at a 3 percent annual rate in the year to September, wage inflation increased at a rate of 2.1 percent – or 2.4 percent for those in the public sector.
Using labour cost index data, only local government administration roles had an increase in pay once inflation adjusted, in the year, up 0.3 percent, and health care and social services were just above zero.
Everyone else ended the year worse off on average.
Simplicity chief economist Shamubeel Eaqub said there had been a long period where wages had not increase as much in the local government sector, so there was an element of catch-up happening.
“They are trying to do more with everything going on with the infrastructure, water and everything. And they’ve had to hire people from the private sector, essentially.”
Wages in healthcare had been boosted through collective agreements taking effect but that was another sector that had gone through periods of convergence, where wages caught up, and then fell behind again, he said.
There had not been as much of a need for businesses to pay higher wages in the past couple of years, and many had not been able to, he said.
“Their profits are under pressure and they don’t need to because we’re desperate for any vacancies that are available and you’re grateful to have a job. This is the classic of a weak economy. Part of the adjustment happens to the labour force, either through a combination of reduced hours, job losses and changes in wage structures. And this recession we’ve seen mainly reduced hours and wage inflation being very contained.”
Wage rises were likely to be modest next year, too, because of the competition for vacancies, Eaqub said.
“The early part of the recovery will come from increases in hours worked rather than increases in hiring, because compared to previous economic cycles, we haven’t shared as many workers as we normally would. The unemployment rate hasn’t peaked as high as in previous cycles.
“The early part of the recovery will not require new recruitment, rather just winding up the hours. And so until we get into that highly competitive labour market, wage inflation won’t accelerate sharply, but it will happen. And my expectation is towards the second half of next year, we’re going to stop complaining about not having enough sales and start complaining about not having enough workers.”
He said that was because the working age population was not likely to grow quickly because there was little immigration happening.
“That tap is going to take a while to wind up because that always lags the cycles.”
BNZ chief economist Mike Jones said businesses had been saying they intended to hire more staff over the coming year.
“We’re now seeing job ads start to lift in tandem. What we haven’t seen yet is evidence of that coming through in actual employment growth. Prospects for next year look more encouraging though as confidence in a broadening economic recovery grows. The labour market does tend to lag other economic indicators.
“We’re forecasting solid levels of employment growth from the first quarter of 2026. But I think key will be how this matches off against growth in labour supply. It may not be until the second half of the year that pace of hiring is sufficient to soak up the labour market capacity that currently exists. That’s when the unemployment rate will start to come down and for many it will feel like an economic recovery. We’re forecasting the unemployment rate to remain above 5 percent until the second half of 2026.”
