More staff work more hours says job survey

By BRIAN FALLOW

A tight labour market is continuing to underpin robust growth in incomes.

Statistics New Zealand's quarterly employment survey (QES) recorded a 7.6 per cent increase in total gross earnings for the year to November.

That reflected more employees (up 3.6 per cent) working more hours (up 3.9 per cent) for higher average hourly earnings (up 3.6 per cent).

One measure of wage inflation, the QES figure for average private sector ordinary time earnings, rose 0.9 per cent in the quarter, for an annual increase of 3.3 per cent.

That is the fastest rate of wage growth for a year.

But the QES does not necessarily compare like with like from one period to another.

It calculates average hourly earnings by dividing total wage earnings by hours worked. However, the composition of the labour force varies from quarter to quarter. Pay increases also reflect improvements in employees' productivity (sometimes).

So Statistics New Zealand also publishes a much less volatile series, the Labour Cost Index, a quality-adjusted measure of wage rates, that records changes in what employers pay for the same quality and quantity of work.

It recorded a 2.1 per cent increase in wage rates over 2002.

Of those wage rates which rose last year, the median increase was 3 per cent. But 43 per cent did not rise at all, keeping the average rise to 2.1 per cent, which is below inflation (2.7 per cent).

Teachers and health professionals had the highest increases, 2.9 and 3.5 per cent respectively.

Bank of New Zealand economist Craig Ebert said wages data were notoriously slow to reflect labour market conditions, partly because of the time it took for wages and salaries to be renegotiated.

So with firms reporting severe difficulty in finding staff, and with more citing labour as the biggest constraint to growth than at any time since the 1970s, the potential for accelerating wage inflation would need to be watched for some time yet, Ebert said.

"We know for sure that there are bottlenecks in the labour market. What we don't know is whether these will be resolved as growth slows or will instead generate increased wage inflation."

Over the past year the historically high net inflow of migrants has acted as a safety valve, moderating labour market pressures.

But net immigration in December, seasonally adjusted, was the lowest monthly tally in 2002 and 13 per cent below the average for the year.

Westpac economist Donna Purdue said that although yesterday's numbers still painted a picture of reasonably contained wage inflation, she still expected wage pressures would continue to build over the next 12 months in light of the extent of skill shortages and the low unemployment rate.

"Thus we continue to believe that any official cash rate cuts will come later rather than sooner, in contrast to current market pricing."

ANZ said the wages results reinforced its view that the Reserve Bank would leave rates on hold. But Deutsche Bank chief economist Ulf Schoefisch said there was nothing in yesterday's numbers to suggest the Reserve Bank's foreshadowed easing later this year might not occur.

"Wage inflation is subdued, the economy appears to be slowing and renewed strength in the New Zealand dollar will lead to a fall in CPI inflation," he said.

Mr Schoefisch expects two quarter-point interest rate cuts in June and July.