A surge in the number of job seekers has outpaced employment growth and is keeping a lid on pay rises.
Employment grew a strong 1.2 per cent in the last three months of 2014 but the 28,000 jobs added were outstripped by a record 36,000 rise in the size of the labour force, which pushed the unemployment rate up to 5.7 per cent from 5.4 per cent previously.
The number of people unemployed rose 8000 to 143,000, the highest level since March last year.
Over the whole of 2014 the labour force grew by 76,000, boosted by record net immigration and a by a rise in the participation rate, which is the proportion of the working age population either employed or actively seeking work. It has reached a record 69.7 per cent, up from 69 per cent in September.
The labour force growth almost matched last year's 80,000 increase in the number people employed.
With the supply and demand sides of the labour market growing by almost the same amount, wage inflation remained subdued.
The labour cost index recorded a rise of 0.5 per cent in the private sector salary and ordinary time wage rates in the December quarter, making 1.8 per cent for the year.
Among the 59 per cent of wage rates which increased, the average rise was 3.2 per cent, down slightly from 3.3 per cent in the September quarter.
Employment growth was strongest in the primary sector and manufacturing.
The New Zealand dollar dropped to 73.59 US cents from 73.67 cents immediately before the 10:45am release, on expectations the jobs figures don't point to accelerating inflation that would derail the Reserve Bank's shift to neutral in monetary policy last week. The trade-weighted index fell to 76.19 from 76.29.
"So for the Reserve Bank it's good news - economic growth is stronger and at the moment there doesn't seem to be much inflation surge coming through with it," said Darren Gibbs, chief economist at Deutsche Bank. From Reserve Bank governor Graeme Wheeler's viewpoint, "it's another reason you don't need to tighten."
Gibbs said, though, that the quarterly employment data tended to be volatile and he is cautious jumping to conclusions . There was every chance the record participation rate could evaporate while unemployment could fall "quite sharply." Wages growth "does tend to lag behind the performance of the labour market," he said.
The government statistician combined its three employment measures - the household labour force survey, quarterly employment survey and labour cost index into a single release for the first time today. The QES showed full-time employment rose 0.6 percent in the fourth quarter, seasonally adjusted, from 0.5 percent three months earlier.
Private average ordinary time hourly wages rose 0.5 percent, slowing from a 1.5 percent pace in the third quarter.
-with BusinessDesk