Bernard Hickey: It could be your year

This could be the year you get the pay rise you've been waiting for. The past six years have been a long, painful grind of job losses and small pay rises for many workers, but this year should be the year when the economic rebound's "rubber" hits the road of higher household income.

Employees looking for ammunition to take to their bosses before pay negotiations, or their next employer, need look no further than this week's quarterly survey of business opinion from the Institute of Economic Research.

It found a net 30 per cent of employers said skilled labour was hard to find, up from a net 20 per cent a year ago and nearly double the long-run average. Most encouragingly for those on lower wages, the survey found a net 10 per cent said unskilled labour was also hard to find. Just a year ago a net 8 per cent of employers were still saying unskilled labour was easy to find and the long-run average is that 15 per cent say it's easy to find unskilled labour.

The institute's Shamubeel Eaqub expects average ordinary time hourly earnings growth to rise to 3.6 per cent next year from 2.6 per cent last year. Treasury is forecasting 3.1 per cent.

Economists and policymakers overseas are worried about how wages for many on lower to middle incomes have stagnated since the early 1990s, while the share of national income going to the owners of businesses in the form of profits has increased.

New Zealand has not seen the same sharp drop in the share going to wages. After a slump in the 1990s as the Employment Contracts Act came into force and union power waned, the wage share has stabilised over the past decade, and household incomes have been bolstered by Working For Families. The next couple of years will test that. Will the fruits of economic recovery and what appears to have been an increase in productivity be passed on in higher wages?

Or will it be captured by an increase in profits, as in America?

The institute's survey showed a sharp increase in employers' expectations for profitability. A net 16 per cent expected higher profits next quarter, sharply up on the 2 per cent who expected higher profits a year ago.

But this upward pressure on wages won't be spread evenly. Areas such as construction, real estate, IT and dairy farming may see a burst of poaching and bonuses that beef up pay packets. Others, particularly in retailing, media and government, are likely to see only modest increases because their sectors have weak demand and plenty of supply.

Some of the unluckiest will receive no increase at all. In the past year, 46 per cent of salary and wage rates did not rise at all, up from less than 40 per cent before 2008. These types of jobs in fast-food, healthcare and cleaning are the ones where pressure is building for "living wages" and a big jump in the minimum wage.

The irony is that for those receiving Working For Families, higher wages may not flow through to their household incomes as the high marginal tax rates kick in on such wage increases. Those with special skills on the highest incomes who aren't on the Working For Families teat look set to receive the biggest bump as the economy's "rubber" hits the road into their bank accounts.