August 12, 2019
Nick Robertson

Unemployment falls while wages increase

New Zealand’s seasonally adjusted unemployment rate fell to 3.9 percent in the June 2019 quarter, down from 4.2 percent last quarter. This is the lowest unemployment rate since the June 2008 quarter, when it was 3.8 percent. This falling unemployment rate was in contrast to widespread expectations for an increase in unemployment on the back of escalating global risks affecting the New Zealand economy.

The fall in the unemployment rate was the result of the number of unemployed people decreasing by 7000. This brings the total number of unemployed to 109,000. This fall was driven by 4000 fewer unemployed men. Additionally there were, 2000 fewer unemployed women.

The seasonally adjusted unemployment rate has largely been tracking down since late 2012. The trend of falling employment tracks towards levels last seen before the global financial crisis in 2008.

Annually, there were 13,400 fewer people unemployed which was down 11.1 percent on the June 2018 quarter.  The number of unemployed people aged 25–29 years led the decrease falling by 4,800 since the same time last year. This was driven entirely by a reduction in the number of unemployed women in this age group which were down 5,000.

The Māori unemployment rate was 7.7 percent in the June 2019 quarter, down from 9.4 percent at the same time last year. This is the lowest Māori unemployment rate since the June 2008 quarter, at 7.2 percent.

This decrease in the Māori unemployment rate has been due to two factors. The number of unemployed Māori has fallen by 6,400 people in the past 12 months while at the same time, the number of Māori who were not in the labour force increased by 14,600.

This reflects 21,000 fewer unemployed Māori compared to the same period last year. However, 70 percent of this decrease is as the result of the reduction in the number of Māori not in the labour force. Of the 14,600 Māori not in the labour force 9,100 were men. Over two thirds of the increase in Māori who were not in the labour force came from those aged 55 and over.

As well as unemployment falling, wages have also increased in the July 2019 quarter. Driven by an increase in the minimum wage the labour cost index (LCI) salary and wage rates (including overtime) increased by 0.7 percent.

If wages affected by the minimum wage had remained constant, the LCI would have only increased by 0.5 percent this quarter.

The LCI measures movements in the labour cost and measures the changes in labour cost wages for a fixed quantity and quality of labour. These costs consist of base salary and ordinary-time wage rates, overtime wage rates, and non-wage labour-related costs.

On 1 April 2019, the Government raised the minimum wage from $16.50 per hour to $17.70 per hour. The minimum wage will continue to rise in annual increments, reaching $20.00 per hour by 2021.

The impact of the minimum wage change on industry groups was most significant in retail trade which saw wages increase 1.4 percent, with accommodation and food services increase 2.3 percent for the June 2019 quarter.

Minimum wage increases have a larger impact on private sector industries. Private sector salary and wage rates rose 0.8 percent for the June 2019 quarter, following a rise of 0.3 percent in the March 2019 quarter.

The LCI is often compared with the consumer price index (CPI) to see how wage inflation compares with consumer inflation (which is the change in prices of goods and services bought by households). Quarterly CPI inflation increased 0.6 percent in the June 2019 quarter. With wage inflation of 0.7 percent this was the third consecutive quarter where wage inflation has outpaced consumer inflation.

Collective agreements in healthcare occupations, including nurses came into force during the quarter and contributed to higher annual wage rates. Collective pay agreements for primary and secondary teachers were also finalised in late June 2019.

Looking forward the effects of the teacher pay settlement should be seen in the in the September quarter LCI. Teachers are the largest occupation group in the LCI public sector, meaning it will have a positive impact on overall wages.