KEY POINTS:
If you were hoping for a pay rise this year, you'd better not hold your breath.
As the Prime Minister announces a move to freeze wages in the state sector, several companies in the private sector have already started freezing pay, cutting back hours and putting bans on overtime as the economic downturn bites.
Economists say that in order to reduce job losses, it is vital the private sector follow the Government's lead and "cool down" on the strong wage increases.
John Key this week wrote to the independent pay authority that sets MPs' salaries urging restraint. He said National would file a submission for a zero increase in parliamentary salaries.
The Employers and Manufacturers Association, which represents about 7500 businesses and has 300,000 members, said a number of employers were suffering.
"We are hearing of some businesses where the wages have come up for review and the review has been that there is no increase," said spokesman David Lowe.
"Then there are some businesses that are having to look at the overall cost and, when talking to their staff about the choices of 'Do we reduce the number of people who work for us or do we reduce the hours that people work', the staff and the company are coming to agreement to perhaps working fewer hours and taking leave."
Some firms had asked employees to take extra leave over Christmas.
Mr Lowe said pay increases that were being handed out were getting smaller. The rate in July for members of the organisation was a 4.5 per cent rise but just four months later it had fallen to 4 per cent. The group would be "firmly watching" what the public sector was doing with wages as it competed with the private sector for staff.
The Engineering, Printing and Manufacturing Union yesterday warned it would further weaken the economy if the private sector followed Mr Key's plan.
It would, in effect, cut wages and the union would continue to seek above-inflation pay increases to ensure its members didn't bear the brunt of the recession.
National secretary Andrew Little said higher wages were a key element in avoiding a "vicious economic cycle".
"New Zealand's low wages are a legacy of the last recession and they helped create a climate in which Kiwis supplemented their income with debt."
But UBS senior economist Robin Clements said freezing wages throughout the sectors would help build the economy.
"Because we have had pretty strong wage inflation (a 3.6 per cent increase for the year to September 2008), and that has put pressure on firms - they've been hit with all sorts of increasing costs: petrol and wages - anything to cool that down is going to be of assistance. It's probably not the answer but in an environment where the economy is slowing down anyway then that would help.
"The other side of the equation is that less wage increases mean there will be less spending in the economy but I think in tough times it comes down to whether some get increased wages and some lose their jobs or people just tighten their belt a bit."
National Bank senior economist Khoon Goh said Mr Key was setting an example for the private sector.
"Workers normally don't like the idea of wage freezes, but the reality is that we are facing a very tough economic climate and the unemployment rate is set to rise. It's a case of showing wage restraint in the hope that we can keep more jobs through this tough economic climate because the alternative is, quite frankly, not very nice to contemplate."
