Growing wages wiped out by fast-rising inflation

Talk of wages rising in wake of a tight labour market is premature, unions say, with growing pay packets falling behind rises in inflation and the cost of living. 

Unemployment fell to 4 percent in the June quarter, back to where it was before the COVID-19 lockdown in March last year. Data since then appears to show it's improving further, forcing employers to offer higher pay to attract and keep workers. 

The figures also showed the average hourly wage going up 4 percent to $34.76 an hour, Finance Minister Grant Robertson said - above the inflation rate of 3.3 percent

But the Council of Trade Unions (CTU), which represents more than 320,000 people in 27 affiliated unions, says that's only because Kiwis appear to be working longer hours - overtime rates pushing up the average hourly wage. 

The labour cost index - Statistics NZ's formal measure of wage inflation - only went up 2.1 percent, well below inflation. 

"We're not seeing wage increases delivering," Craig Renney, CTU economist and director of policy, told Newshub.  

"What we're also not seeing is increases in base wages. If we look at increases in wages across the economy, we can see that 73 percent of Kiwis got a pay rise lower than inflation. 

"We just need to be a little bit careful - while there have been a lot of calls to celebrate, and we should, we shouldn't overlook the fact Kiwis don't seem to be getting that love also in their pay packets, which is where I think they'd want to see it." 

The cost of living historically tends to rise faster for those at the bottom of the pay scale. Renney said the falling unemployment rate - particularly for youth - showed there was no truth to claims raising the minimum wage would result in fewer jobs.

The data showed the NEET rate for people aged 15 to 24 - not in employment, education, or training - fell from 11.8 to 10.8 percent in the last year. 

"For those on the very lowest incomes, we know their cost of living is rising faster than for the general population because they have to pay more of their wages in rent, housing, rates or energy costs - they're rising more quickly than general inflation." 

There are other problems too, if you "pop the bonnet", Renney says.

"Maori and Pasifika unemployment is 7.8 percent, against 4 percent generally. Women and underemployed twice as often as men - those are people who are in part-time work and want full-time work, and can't get it. That suggests there are still lots of groups and lots of people for whom there's still some slack in the labour market. 

"We should really be making sure... we're helping to make sure all the talents of all Kiwis are being able to be utilised in the economy right now." 

Overall though, he says we're doing much better than most other countries - particularly on unemployment.

"The Government's got a lot to be proud of in that particular sense. We are eighth overall in the OECD and we are well ahead of countries that we often compare ourselves to - the US, UK, Canada and Australia. The key is now, how do we really embed that success story of COVID into delivering for all working New Zealanders? The data suggests we're on the right path, but there's a lot more we can do."

The Reserve Bank's goal is to keep inflation below 3 percent, and there are predictions it will rapidly bump up the official cash rate over the next few months.