Rise in pay rates kept in check

Pay rates for wage and salary earners continued their gradual recovery in the last three months of 2010, though wage growth remains subdued by historical standards.

Statistics New Zealand's labour cost index rose 0.6 per cent for the private sector in the December quarter, pushing the annual rate to 1.9 per cent.

It has risen steadily from a low of 1.3 per cent in the March quarter last year, but had averaged around 3 per cent in the 2006 to 2009 period.

In a reversal of the pre-crisis pattern, wage inflation in the public sector is weaker than the private sector, 0.4 per cent in the latest quarter and 1.4 per cent for the year.

The index is intended to reflect changes in the rate for the job and is adjusted to exclude increases for merit, increased responsibilities or years of service.

The unadjusted increase, which leaves them in, was 1 per cent in the quarter and 4 per cent for the year, the highest annual increase since June 2009.

Only 53 per cent of wage and salary rates surveyed increased in the past year. For those which did rise, the average increase was 4 per cent in the private sector and 3.6 per cent overall.

Meanwhile, the quarterly employment survey, also released yesterday, recorded an increase of 4 per cent last year in the combined gross earnings of wage and salary earners.

But it was driven more by an increase in paid hours, which rose 2.1 per cent over the year, than by average hourly wages, which rose 1.9 per cent.

In the December quarter, however, hours fell 0.2 per cent. And the number of filled jobs fell 0.1 per cent - a very weak result, economists said, as it is not seasonally adjusted and there is normally a seasonal increase in employment in the December quarter.

ASB economist Jane Turner said the weakness in demand for labour was a result of the patchy nature of the economic recovery so far and highlighted the need for interest rates to remain low over much of this year.

"Nonetheless, many firms remain relatively upbeat on their plans to increase employment, adding to our confidence in a recovery in the labour market over 2011," she said.

Goldman Sachs economist Philip Borkin said that while wage growth was modest it was clear that it had troughed.