New Zealand's wage growth has been a cause for concern, with recent data highlighting a worrying trend. The OECD's employment outlook report paints a stark picture, showing that Kiwis have experienced some of the slowest wage growth globally when adjusted for inflation. This issue is not isolated to New Zealand, as Australia also faces similar challenges, but the situation across the Tasman is particularly dire.
Wage Growth Woes
The report reveals that New Zealand's real wages have fallen by 6.4% since 2021, and this decline is not unique to a specific quarter. In fact, real wages have been consistently below their 2021 levels for the past five years. This means that despite annual growth, the purchasing power of wages has not kept up with the rising cost of living.
Interpreting the Data
Economists offer an interesting perspective, suggesting that the data used in the report may present a somewhat exaggerated view of the situation. The Labour Cost Index (LCI), which measures what employers pay for specific roles, is not without its flaws. Gareth Kiernan, chief forecaster at Infometrics, points out that the LCI adjusts for changes in the workforce composition and skill levels, which could potentially overcorrect and distort the wage growth picture. He suggests that the unadjusted LCI data might provide a more accurate reflection, showing a 0.1% fall in wages since 2021.
A Broader Perspective
While the data is concerning, it's essential to consider the broader context. New Zealand's productivity issues are well-documented, and these directly impact real incomes. The country's reliance on increased migration to boost economic growth in the past has masked underlying structural problems, particularly the lack of productivity growth. This is a complex issue that requires a nuanced understanding.
A Glimmer of Hope
Despite the grim picture, there are some signs of improvement. Michael Gordon, a senior economist at Westpac, highlights that while New Zealand's wage growth is dismal, it is not much worse than the OECD average. Additionally, the OECD data on annual wages shows a 2.6% increase over the last five years, which, while not ideal, is a step in the right direction. Australia, on the other hand, continues to struggle, with a 1.4% decline over the same period.
Final Thoughts
New Zealand's wage growth challenges are a complex issue, influenced by various economic factors. While the data presents a concerning picture, it's important to consider alternative interpretations and the broader context. The country's productivity issues and reliance on migration in the past have contributed to the current situation. However, there are signs of improvement, and with the right policies and strategies, New Zealand can work towards a more positive wage growth outlook.
