Economist Brad Olsen expects unemployment rate to drop as businesses struggle to attract new employees

A leading economist is predicting the unemployment rate will drop to a new record-low as competition within the workforce is only set to get worse. 

The latest labour market figures will be released on Wednesday morning, with the unemployment rate expected to drop to three percent. 

The current unemployment rate - announced in February - is 3.2 percent, the lowest its been since 1986, when the series began.

Infometrics principal economist Brad Olsen told AM Early on Wednesday there are pros and cons with falling unemployment.

"At these sort of levels, you really do start to see the economy at a real pressure point, and we're seeing it across the country at the moment," Olsen told AM Early host Bernadine Oliver-Kerby.

"The number of people getting into work is still going up, so that's encouraging, but it is a real challenge at the moment and at a time when we know that there are huge pressures on other parts of the economy. 

"If we're struggling to find workers with an unemployment rate that low, it means that we are really starting to increase the competition amongst workers at a time when we're still trying to do quite a lot of work, but we just don't have all the people we want to do it each and every day."

Olsen said even with a high number of people employed, businesses are struggling to cope with demand and grow. 

"What sort of shocked me is going across the country talking to businesses, they're not only saying they're struggling to grow at the moment, which has been a common conversation, but actually they're just struggling to do their current workloads," he said. 

"So they're not even trying to expand. They can't even do business as usual and keep the lights on.  

"We know from talking to people across the sector it's difficult to find workers and as we start to get that momentum going, as you see foreign travellers come into the country, it is a challenge for a number to businesses to again try and sustain those high levels of activity."

Olsen said it's not all bad with businesses responding by increasing pay rates for employees. 

"The pressure very much is on, but businesses are responding to those pressures by increasing pay rates, so again, an encouraging sign that people are getting paid more," he told AM Early. 

"Expectations are that average hourly earnings might well go to 5.7-5.8 percent per annum growth. 

"Remembering though, that it's still below the 7.3 percent inflation rate that we're currently seeing. So although people are earning more, those pay increases aren’t making it through to everyone and they're still not making up for the cost pressures that average Kiwi households are under."

Watch the full interview with Brad Olsen above.