Workers put in the hours to stay ahead

Wage and salary earners' incomes only outstripped inflation in the past year because they worked longer hours, figures released yesterday show.

Statistics New Zealand's quarterly employment survey recorded an increase of 4.7 per cent in total gross earnings in the year ended June - the foundation of the household sector's aggregate income.

It is up from a cyclical low of 2.9 per cent in the year to June 2010.

One-third of it was an increase in paid hours worked, the rest an increase of 3.1 per cent in average hourly earnings.

Inflation over the same period was 5.3 per cent. Excluding the increase in GST, on the grounds that it was compensated for by income tax cuts, the cost of living still rose 3.3 per cent.

So in real or inflation-adjusted terms average hourly earnings fell 0.2 per cent and households' labour income only rose because of a 1.6 per cent increase in paid hours.

However, of the 3.1 per cent annual increase in average hourly earnings 1.2 percentage points occurred in the June quarter.

"The Reserve Bank will not be able to ignore the increasing threat of wage inflation," Infometrics economist Matt Nolan said.

Inflation expectations were elevated and the bank would want to prevent them feeding into wage growth, he said.

Last week's official cash rate review included a plea from Governor Alan Bollard for wage and price-setters to focus on underlying inflation, which the Reserve Bank estimates is running at less than 2.5 per cent, rather than the "headline" rate of 5.3 per cent. It also foreshadowed a hike in the OCR as early as next month.

According to the quarterly survey of employers, the number of people employed was just 0.3 per cent higher than in June last year on a full-time equivalent basis, where two part-timers are counted as one full-time employee. That national figure includes a 4.5 per cent drop in Canterbury. Employment by this measure was flat in Auckland and Wellington but rose 2 per cent in the rest of the country.

The preferred measure of employment and unemployment, the household labour force survey, is due to be released tomorrow.

Statistics NZ also released its labour cost index yesterday.

Private sector ordinary time wage rates and salaries increased 0.5 per cent in the June quarter, in line with its average over the previous four quarters.

A broader measure which includes the public sector and overtime rose 0.4 per cent, down from 0.5 per cent in the previous three quarters.

The labour costs index is intended to reflect rates of pay for the same quantity and quality of work; rises reflecting individual merit or years of service are filtered out.

The unadjusted index, which leaves them in, rose 3.4 per cent in the year ended June, or 3.7 per cent for the private sector alone.

That is down from the most recent peak of 4 per cent in year to December 2010.

For the 58 per cent of wage and salary earners who received any pay rise at all in the year ended June, the average increase was 3.5 per cent, unchanged from the year ended March which was the smallest increase for 10 years.