Image: Tina Tiller

Wages are set to rise – but don’t get too excited

The number on your pay cheque might be heading upwards, but will you actually end up better off at the end of the week? George Driver investigates.

If you’ve been wanting to tell your boss to stick his lame-arse job, now might be the time. The number of job vacancies is at a record high, while the number of applicants is falling. It means employers are having to pay more to attract and retain staff, while employees are now in a position to ask for better pay and conditions, or look for a better gig down the road.

Trade Me Jobs has reported a record number of job listings with over 80,000 vacancies on the site, up 25% in the three months to June and 43% higher than the same period last year. At the same time, the number of people looking for jobs appears to be drying up, with a 29% drop in applications compared with June last year. It’s led to the largest pay increase in listed jobs in more than a decade, with the average pay up 3% year-on-year to $64,939, as employers offer cash to entice employees.

The biggest increases are where demand for workers is strongest. The average wages offered in hospitality and tourism increased 12% to $52,960, with job listings up 56% compared to pre-pandemic levels. Other sectors also had a record rise in listings, including manufacturing and operations (up 52%), construction and roading (up 46%) and transport and logistics (up 40%). 

The situation is mirrored at Seek.co.nz, which has had a record number of job listings for four consecutive quarters. Listings there have increased 24% compared with June 2019, while the number of job candidates has fallen 15% to near-record lows.

NZIER’s Quarterly Survey of Business Opinion (QSBO) has also found the growth in jobs may accelerate – 15% of firms surveyed had hired staff in the June quarter, but 22% planned to hire staff in the next three months.

staff wanted sign on restaurant door

Photo: Getty Images

ANZ chief economist Sharon Zollner says the labour market is the tightest it has seen since the late 1980s. “We’re heading into uncharted territory here,” Zollner says.

It’s all given workers far more bargaining power – arguably at the highest level since union membership plummeted in the 1990s – and has put pressure on employers to pay more.

In May, the Reserve Bank predicted wages would rise 2.4% by the end of the year due to the tight labour market. But the economy has proved even more buoyant since then and some economists expect wage growth will be even stronger. ANZ expects wage inflation to be just under 3% by the end of the year, while Infometrics expects it to reach 3.5%.

So what’s the cause of this wage growth?

Firstly, the economy is ploughing ahead like it’s 2019. New Zealand’s GDP growth has been world leading, exceeding all expectations, and people are spending up – partly buoyed by cheap debt and rising house prices. Kiwibank reports credit and debit card spending rose 7.2% in the June quarter alone and the construction sector has been buoyed by large government infrastructure projects and a record level of house building. It means many businesses are booming and are scrambling to get enough staff to meet the unexpected demand. It also means businesses feel they are able to pay higher wages and are confident they can put up prices to recoup the costs. The QSBO survey found 52% of firms planned to increase prices over the next quarter.

Secondly, unemployment is low, with some economists claiming we are near, or at, “maximum sustainable employment”. Coming out of lockdown last year, Treasury expected unemployment to peak at 9.8% and take two years to reach 6%, but it actually peaked at just 5.3% in September. The unemployment rate is still above pre-Covid levels – it was 4.7% in March, up from 4% in December 2019 – but economists claim there is a mismatch between job seekers and the jobs available. 

The Reserve Bank says people who lost jobs in the tourism industry don’t necessarily have the skills to fill the jobs created in industries like construction and it will take time for people to retrain, and move, to meet demand. Others have a different theory. Craig Renney from the Council of Trade Unions says the jobs on offer aren’t attractive to the unemployed due to low pay, poor job security or the location – the workers are ready, employers just need to make a better offer.

And, of course, the border closure has prevented workers coming in to fill the vacant positions. So employees are able to negotiate knowing there isn’t a steady stream of people entering the country looking for work, and employers know they don’t have much choice.

Image: The Spinoff/Getty Images

So how will these pay increases and the tight labour market affect people’s back pocket?

Well, it doesn’t appear that pay has increased much yet. The latest figures show wages were up 1.6% in the year to March, just keeping ahead of the 1.5% inflation rate. But almost everyone – the Reserve Bank, the “big four” banks and Treasury – predict significant wage increases in the next few years. In May, the Reserve Bank expected wages to rise 2.4% this year, peaking at 2.6% next year.

Infometrics senior economist Brad Olsen says wage rises will probably only just keep ahead of inflation, which is expected to pick up as businesses pass on rising costs to consumers. Infometrics predicts wages could increase more than 3.5% this year, while inflation is expected to increase 3%. That means many who get a pay rise will just be treading water and others will be left behind, getting paid less in real terms.

“Prices are going to increase across the board and although wages are likely to increase, not everyone across the country is going to be assured a pay rise, so you are going to see a divide emerging between those who are getting a raise and those who aren’t,” Olsen says.

Interest rates are also expected to rise from November this year, so those with a mortgage will have to fork out more each week, and rent rises could be on the cards as landlords pass on the cost.

ANZ senior economist Miles Workman also says inflation tends to hit those on lower incomes the hardest, so some might find themselves worse off, even after a significant pay rise. Essential items and services – things like rent, fuel and food – have tended to rise more than luxury goods and electronics. People on lower incomes also don’t tend to own property, so miss out on the benefits of asset price inflation.

“That’s been the nature of this crisis,” Workman says. “It’s been separating the haves from the have-nots.”

Olsen also says the expected wage increases are not particularly large based on recent history.

“It’s not stunning or something we’ve never seen before,” he says. “That partly reflects the fact that businesses have high cost pressures at the moment, so there’s only so far they will be willing to go on wages. And there’s still a bit of nervousness about what the economy might look like in the future, so that’s why I don’t think you’ll see wage inflation rise too much.”

While pay increases may prove to be moderate, employers are lobbying the government to take action to shift the balance of power back in their favour.

Employers and Manufacturers Union head of advocacy and strategy Alan McDonald has said he would like to see unemployment rise slightly to keep wage inflation in check and to make it easier for employers to find workers. 

He says businesses are facing rising costs, including shipping, electricity and increases to paid parental leave, sick leave and the minimum wage, and businesses are limited in how much of those costs they can pass onto consumers.

“Nobody is arguing against higher wages, but we need higher productivity to offset it,” McDonald says. “Right now the main problem is there just aren’t enough people in the system to employ.”

He wants to see the government offering incentives to encourage businesses to train employees to increase productivity. 

But economic inequality researcher Max Rashbrooke argues that productivity gains have outstripped wage increases for decades. He says workers need a significant pay rise just to make up the lost ground.

“Wages have fallen massively behind productivity gains ever since the Employment Contract Act significantly damaged workers’ bargaining power,” Rashbrooke says. 

“Workers are owed an extra $5 an hour to catch up.”

He says, without a union representing them, many employees also won’t have the confidence to ask for more pay.

“I don’t think it’s true that it’s the best time to be a worker compared with periods when 70% of the workforce was covered by a trade union agreement. It [low unemployment] has certainly improved the power balance recently, but only after 30 years of decline.”

So will you be better off at the end of the year? I wouldn’t bank on it.


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