Pay packets feel the squeeze of recession

Wages growth remained feeble in the September quarter as the recession took its toll on pay packets.

Key measures in Statistics New Zealand's labour cost index survey (LCI) hit multi-year lows.

Salary and ordinary time wage rates in the private sector rose 1.9 per cent in the year to September, the weakest increase since June 2001.

When overtime is included (the Reserve Bank's preferred measure) the increase was 2 per cent, down from 2.7 per cent in the year to June and the lowest since December 2002.

The bank has forecast a rate of 1.6 per cent by March next year. "The current run rate suggests wage growth could undershoot that forecast," said ASB chief economist Nick Tuffley.

Such modest wage inflation was likely to reinforce the Reserve Bank's view that there is no hurry to lift the official cash rate until the second half of 2010, he said, although ASB thinks the tightening will start in April.

When public sector pay rates are included the annual wage inflation rate economy-wide was 2.1 per cent, the weakest since December 2002.

The proportion of salaries and wage rates which did not go up at all over the past year was 53 per cent, the highest since December 2000.

Of those which rose, the proportion which went up by 3 per cent or more (36 per cent) was the smallest since June 2005 and the average rise (3.8 per cent) was the lowest for six years.

All those measures are adjusted to exclude pay rises from promotions, automatic service increments or other remuneration reflecting the performance of individual employees.

The unadjusted index, which leaves those things in, recorded an annual increase of 3.7 per cent for the private sector, the weakest in the five years for which comparable data exist. A year ago it was 5.4 per cent.

Meanwhile the quarterly employment survey (QES), also released yesterday, recorded growth of just 1.6 per cent in total gross earnings - a proxy for the household sector's aggregate labour market income. A year ago it was up 6.2 per cent on the year before.

That reflects fewer employees (down 3.5 per cent over the year) working shorter hours (down 3 per cent on a year ago), but for a higher average hourly rate.

The QES measure of private sector average hourly earnings rose 1.5 per cent in the quarter, compared with 0.4 per cent in the LCI.

One reason for the difference is that the QES includes the self-employed and those paid on commission.

"Their earnings are inherently cyclical but are not covered by the LCI," Westpac economist Dominick Stephens said. "The QES is better at registering the early stages of recovery."

While the QES recorded a 3.5 per cent drop in employment over the year, he pointed to the fact that in the September quarter the decline was just 0.2 per cent, and while paid hours were down on 3 per cent for the year, in the latest quarter they rose 0.2 per cent.

The overall picture that emerged from yesterday's data was of a labour market that had reached the bottom of the cycle, Stephens said.

Official employment data from the household labour force survey are due tomorrow. Economists are expecting the unemployment rate to climb from 6 per cent in June to 6.4 per cent.

PAY PAUSE
* Pay in the private sector rose 1.9 per cent in the past year.
* 53 per cent did not get a pay rise at all.