Tracking the Trends

Friday 16th February 2001

TRACKING the ECONOMY

Labour market still tight

	Employment growth
	Source: Quarterly Survey of Business Opinion, Statistics New Zealand

The latest employment statistics show the labour market remains tight, with unemployment low. Will employment conditions remain robust and when will wage pressures kick in?

The December 2000 Household Labour Force Survey (HLFS), released by Statistics New Zealand last week, reported the seasonally adjusted unemployment rate as 5.6%, the lowest since June 1988 when it was 5.2%. The number of people employed grew 20,000 in the December 2000 quarter, taking annual employment growth to 2%.

Most of this employment growth came in the form of full-time jobs, which increased 2.7% in the year to December 2000. The rise in full-time employment is consistent with the robust economic growth experienced over the past six months.

The overall employment growth also aligns with the results of the January 2001 Quarterly Survey of Business Opinion (QSBO). The chart below shows the QSBO series for employment over the last three months tracks the official series well. And because the QSBO is released two to three weeks earlier, it provides a good leading indicator of employment. The survey had already indicated employment rose in the December quarter.

Furthermore, employment intentions turned positive in the latest QSBO, with a net 5.5% of firms now expecting to increase employment over the coming three months. This suggests job growth will continue in the short term.

But the pressure's on wages

	Wage growth
	Annual per cent change Source: Statistics New Zealand

	Firms' difficulty finding labour
	Net per cent Source: Quarterly Survey of Business Opinion

Wage pressures remain a cloud on the horizon. The November 2000 Quarterly Employment Survey (QES), released this week, found quarterly growth in private sector ordinary hourly earnings to be 0.4%. This means annual wage growth was just 2.6%, compared with the 4% annual rise in consumer prices.

As shown in the chart below, annual growth in real wages was negative for the last three quarters of 2000. (Real wages are wages after adjustment for inflation, and they reflect real spending power.) With consumer price rises eroding the purchasing power of incomes, it is likely that workers will try to bid up wages.

In addition, firms surveyed in the QSBO reported increased difficulty finding skilled labour (see chart below). Skill shortages are another factor likely to increase upward pressure on wages, as firms have to pay more to attract the labour they require.

Employment growth will ease

Wage increases will take some of the steam out of employment growth. As the cost of employing people rises, firms will be more reluctant to take on additional staff. In addition, an easing in economic growth, as the effects of slower growth in our trading partners become apparent, will dampen the demand for labour.

- Compiled by Joanna Smith

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