With net immigration falling and the economy humming, economists expect tomorrow's jobs figures will continue to show unemployment lower than at any time since the 1980s.
The consensus of market economists is that the economy created almost 10,000 more jobs in the June quarter, enough to absorb the increasein the labour force and keep unemployment at 4.3 per cent.
All indicators point to a tight labour market.
Wage inflation is on the rise.
Statistics New Zealand reported on Friday that average ordinary time hourly earnings in the private sector rose 2 per cent in the June quarter, giving a rise of 4.3 per cent for the year, up from 3.4 per cent three months ago.
The labour cost index is at a cyclical high.
Forty-two per cent of wage rates did not increase over the past year, but that is the smallest percentage for at least nine years.
In the Institute of Economic Research's latest quarterly business opinion survey, 20 per cent of firms said labour was the factor most limiting production increases.
Businesses continued to report difficulty in finding skilled and unskilled workers.
A net 14 per cent of firms said labour turnover had increased, the highest level since 1995.
Bank of New Zealand economist Craig Ebert said there was a "good chance" the net inflow of migrants could become a net outflow next year.
That would happen if departures of New Zealanders kept increasing at the recent tempo and migrant arrivals kept falling, in line with dwindling applications for residency.
If growth in the labour supply dried up, the unemployment rate could go even lower, possibly to closer to 3 per cent than 4 per cent, he said.
"That would scare the Reserve Bank witless."
Westpac chief economist Brendan O'Donovan said wages had not been a huge concern to the inflation outlook, as productivity growth had kept real unit labour costs in check.
But Friday's figures suggested unit labour costs were on the rise.
"The Reserve Bank would be keeping a close watch on wages over the next year in case they respond to heightened inflation expectations.
"That is entirely appropriate. But this is a case of look before you leap, with no need to respond just yet."
