Annual wage cost inflation remains at 4.3 percent

Wage cost inflation, as measured by the labour cost index (LCI), remained at 4.3 percent in the year to the June 2023 quarter, according to figures released by Stats NZ today.

"Annual wage costs continued to increase at historically high rates this quarter, equal to the 4.3 percent annual increase last quarter," business prices delivery manager Bryan Downes said.

The graph above shows how wage cost inflation for businesses (as measured by LCI) compares with consumer inflation (the change in prices of goods and services bought by households, as measured by the consumers price index (CPI)). Note, these indexes do not compare directly with household income and cost of living, respectively.

The unadjusted LCI increased 5.9 percent in the year to the June 2023 quarter. The unadjusted LCI tends to increase at a higher rate than wage cost inflation, since it includes market costs as well as factors like employees' individual performance or years of service. For example, if an employee received a pay rate increase due to a rise in the cost of living, this would be reflected in both the LCI's primary measure of wage cost inflation (adjusted LCI) and the unadjusted LCI. However, if an employee gets a pay rate increase for quality reasons, such as acknowledging good performance, this would only be reflected in the unadjusted LCI.

Average ordinary time hourly earnings, as measured by the Quarterly Employment Survey (QES) in the year to the June 2023 quarter, increased 6.9 percent to reach $39.53. This figure is the mean value of wages and salaries paid per hour excluding overtime in jobs measured by the QES, so it can rise or fall as the type of work being done changes.

Wage cost inflation by sector

The LCI rose 1.1 percent in the June 2023 quarter, up from 1.0 percent last quarter. Private sector wage rates rose 1.1 percent, while public sector wage rates rose 0.6 percent.

"Public sector wage inflation tends to be driven by collective agreements across broad industry and occupation groups and can therefore be subdued in quarters when no major pay settlements occur," Downes said.

"However, in the year to June 2023 quarter, both public and private sector wage cost inflation were closer to each other, up 4.2 percent and 4.3 percent, respectively."

Average ordinary time hourly earnings in the QES rose 1.9 percent in the private sector and 0.7 percent in the public sector in the June 2023 quarter.

Minimum wage increase

On 1 April 2023, the Government raised the minimum wage from $21.20 per hour to $22.70 per hour.

"The largest contribution to the LCI in the June 2023 quarter came from the retail trade and accommodation industry, up 1.5 percent on a quarterly basis, following a rise of 0.7 percent last quarter. The rise in minimum wage was a core driver for the increase in wage growth in this industry over the quarter," Downes said.

However, the minimum wage increase accounted for a relatively small proportion of pay increases overall across all industries, as more respondents cited factors such as cost of living, matching market rates, and/or retaining or attracting staff.