Slight wage rise gives hope to recovery

Wages growth remained subdued in the June quarter but economists discerned tentative signs of recovery in yesterday's data.

Statistics New Zealand's labour cost index recorded an overall rise of 0.4 per cent in wage rates in the quarter.

It reflected a quarterly increase of 0.5 per cent for the private sector (around 75 per cent of the total), making 1.5 per cent for the year.

That was offset by a 0.2 per cent increase in the public sector, the weakest since 1999, while the annual increase of 2.1 per cent was the weakest since 2001.

"Today's wage weakness is an echo of last year's recession rather than a sign of things to come, since wages tend to lag the economic cycle," Westpac economist Dominick Stephens said.

The index is designed to reflect increases in wages for the same quantity and quality of labour, so it adjusts out pay increases which recognise an employee has become more experienced, more productive, better qualified, has taken on additional responsibilities, or has been promoted.

The unadjusted index, which leaves them in, rose 1 per cent, twice as much as in each of the two preceding quarters.

Stephens said the unadjusted index was more sensitive to labour market conditions than the heavily sanitised official index and its quarterly increase was a sign higher wage inflation lay ahead, as was a 0.7 per cent rise in overtime rates.

For the fourth quarter in a row most wage rates are no higher than that were a year earlier, but the proportion which have increased, 46 per cent, is up from a low of 43 per cent in the March quarter.

Only 24 per cent of wage rates rose more than 3 per cent in the past year, whereas 45 per cent had in the year to June 2009 and 48 per cent the year before that.

Meanwhile the quarterly employment survey, also released yesterday, recorded a solid increase of 1.8 per cent for the quarter and 4.6 per cent for the year in total gross earnings - the broadest measure of labour income.

It reflected more people, working longer hours, for higher average wage rates.

The number of "full-time equivalent" employees (treating two part-timers as equivalent to one full-timer) rose 1.3 per cent and the number of paid hours rose 2.5 per cent, while average hourly earnings in the private sector rose 1.3 per cent.

Goldman Sachs JB Were economist Philip Borkin said the strong growth in gross earnings could be taken as a sign of future support for consumer spending.

But it was also telling that the household sector's debt levels were growing more slowly than its labour income, 2.5 per cent and 4.6 per cent respectively over the past year.

"Rather than spending, households are - positively, in our eyes - more interested in debt reduction," Borkin said.

PAY NUMBERS

* 0.4 per cent overall rise for June quarter

* 1.6 per cent overall rise for year to June

* 0.5 per cent rise for private sector in June quarter

* 0.2 per cent rise for public sector in June quarter