Interest rate rise tipped despite earnings slump

By BRIAN FALLOW

WELLINGTON - Average hourly earnings fell in the last quarter of 1999, but economists say that reflected a statistical quirk rather than a lessening of wage inflation.

The Reserve Bank is still likely to raise interest rates half a per cent on March 15, they say.

The quarterly employment survey found a 0.8 per cent drop in average ordinary-time hourly earnings in the private sector, dragging the annual increase down to 1.4 per cent from 3 per cent three months earlier.

But Statistics New Zealand said the decrease was driven by a surge of employment in low-paid industries, rather than decreases in wage rates.

The latest result was skewed by a more-than-seasonal 13.6 per cent rise in hours worked in the accommodation and restaurant sector, where wages are particularly low - $11.87 an hour on average, compared with $17.50 for all industries.

Average hourly earnings in manufacturing and construction were up 0.6 per cent for the quarter to $16.69 and $15.92 respectively.

ANZ Bank chief economist Bernard Hodgetts said: "This development, whereby the proportion of lower-paid workers and/or the hours they work pick up faster than for higher-paid occupations is fairly typical during periods of strong economic growth and was evident during the recovery of the early 1990s."

It did not imply a drop in wage rates, he said, or anything like the "new paradigm" in the United States where rapidly improving labour productivity is said to be limiting wage inflation despite a very tight labour market.

Whereas labour productivity is growing at an annualised 5 per cent in the US, the figure for hours worked in the latest household labour force survey (HLFS) implies that in New Zealand productivity has been going backwards.

But HSBC economist Stefan Dunatov said that yesterday's data should ease fears of a collapse in productivity growth over 1999 and into 2000.

Compared with a year earlier, the number of employees (taking two part-timers as equivalent to one full-timer) was up 0.6 per cent and they were working on average 0.1 per cent more hours.

That implies a much more modest annual increase in the labour input than the 5.8 per cent increase in hours worked recorded in the latest HLFS, and a correspondingly better productivity performance.

Mr Hodgetts said the main lesson from the HLFS was that the labour market was tightening quite rapidly, with employment rising and unemployment falling steeply.